IndianBank - KC Chakravathy

8/8/2019 IndianBank - KC Chakravathy

http://slidepdf.com/reader/full/indianbank-kc-chakravathy 1/22

Financial InclusionFinancial InclusionConcept,Issues and RoadmapConcept,Issues and Roadmap

Presentation byPresentation by

Dr. K CDr. K C ChakrabartyChakrabartyChairman and Managing Director Chairman and Managing Director

Indian Bank,Indian Bank,ChennaiChennai

AtAt

Institute for Development and Research in Banking TechnologyInstitute for Development and Research in Banking Technology

HyderabadHyderabad02.09.200602.09.2006



Financial ExclusionFinancial Exclusion

What is Financial Exclusion ? What is Financial Exclusion ?

•• Financial exclusion is the lack of Financial exclusion is the lack of access by certain consumers toaccess by certain consumers to

appropriate, low cost,fair andappropriate, low cost,fair andsafe financial products andsafe financial products and

services from mainstreamservices from mainstream

providers.providers.•• Financial exclusion becomes of more concern inFinancial exclusion becomes of more concern in

the community when it applies to lower incomethe community when it applies to lower income

consumers and/or those in financial hardship.consumers and/or those in financial hardship.



Poverty and FinancialPoverty and Financial

ExclusionExclusion

•• There is a large overlapThere is a large overlapbetween poverty and permanentbetween poverty and permanent

financial exclusion. Both povertyfinancial exclusion. Both poverty

and financial exclusion result inand financial exclusion result ina reduction of choices whicha reduction of choices which

affects social interaction andaffects social interaction andleads to reduced participation inleads to reduced participation in

societysociety



Financial Exclusion andFinancial Exclusion and

Allied PhenomenaAllied Phenomena

FinancialExclusion

Financial

Discrimination

Financial

Illiteracy

Financial

Exploitation



Gradations of FinancialGradations of Financial

ExclusionExclusion

•• Core Exclusion:Core Exclusion: Who operate their financial Who operate their financialaffairs completely outside the regulatedaffairs completely outside the regulatedfinancial systemfinancial system

•• Limited Access:Limited Access: May have a basic bankMay have a basic bankaccount but poor financial habits and littleaccount but poor financial habits and little

adviceadvice

•• Included but using inappropriate products:Included but using inappropriate products:Victims of inappropriate products.Victims of inappropriate products.



Main types of FinancialMain types of Financial

ExclusionExclusion

1.1. Transaction accountsTransaction accounts2.2. Time DepositsTime Deposits

3.3. Financial AdviceFinancial Advice

4.4. Appropriate small creditAppropriate small credit

5.5. InsuranceInsurance

6.6. Mortgage LoansMortgage Loans7.7. SuperannuationSuperannuation

8.8.

Enterprise based loanEnterprise based loan



Who are Financially Who are Financially

ExcludedExcluded

1.1. Poor Poor 2.2. Socially under Socially under --privilegedprivileged

3.3. DisabledDisabled

4.4. Old as well as childrenOld as well as children

5.5. Women Women

6.6. UneducatedUneducated7.7. Ethnic MinoritiesEthnic Minorities

8.8.

UnUn

--employedemployed



Extent of FinancialExtent of Financial

ExclusionExclusion1.1. Coverage of Coverage of

•• Check in accountsCheck in accounts --70%70%•• InsuranceInsurance --10%10%•• Financial AssetsFinancial Assets --2%2%•• Assets InsuranceAssets Insurance --2.53%2.53%•• Health InsuranceHealth Insurance --0.20%0.20%•• Credit CardCredit Card --3%3%•• Debit CardDebit Card --5.66%5.66%•• Small OverdraftsSmall Overdrafts --3.65%3.65%•• Entrepreneurial creditEntrepreneurial credit --2.06%2.06%

2.2. Geographical coverageGeographical coverage•• 5% villages are having a bank branch5% villages are having a bank branch

3.3. SHG coverageSHG coverage

•• Out of around 400 million poor, 125 million poor areOut of around 400 million poor, 125 million poor arecovered of which 113 million are womencovered of which 113 million are women

4.4. Farmers coverageFarmers coverage--•• Tenant farmers/share croppers/oral lesseesTenant farmers/share croppers/oral lessees

•• Small and marginal farmersSmall and marginal farmers

•• Out of 89.35 mill. SF/MF, 34.70 mill. (46.30%) areOut of 89.35 mill. SF/MF, 34.70 mill. (46.30%) arecovered.(House holds)covered.(House holds)



Most needed ServicesMost needed Services

for Financially Excludedfor Financially Excluded

1.1. Access to Small loans or overdraftsAccess to Small loans or overdrafts

2.2. Check in AccountsCheck in Accounts

3.3. Small Savings ProductsSmall Savings Products

4.4. Health InsuranceHealth Insurance5.5. Life InsuranceLife Insurance

6.6. Insurance against the failure of activityInsurance against the failure of activity

7.7. Financial AssetFinancial Asset

8.8. Credit CardCredit Card

9.9. Entrepreneurship creditEntrepreneurship credit



Model for Financial ExclusionModel for Financial Exclusion

Do without

High Cost alternatives

Delayed pathway out of povertyLow standard of living and poverty

Commercial & regulatory environmen

Debt(often informal)Low/No assets

Unemployment

Low Income

Mainstream product

Attributes: fees;

Penalties,bundling,marketing

Which do not address needs

Social/wider exclusion

Poor Social,economic & Health outcomes Inefficient Use of MoneyFinancial

exclusion

Financial illiteracy Poor financial habits

Poor education

Macro -environment Personal characteristics



Main Drivers of FinancialMain Drivers of Financial

ExclusionExclusionLess frequentLess frequent

•• Psychological/disabilityPsychological/disabilityissuesissues

•• Feeling of being excludedFeeling of being excluded

•• Indigenous/ethnic issuesIndigenous/ethnic issues

•• Geographical remotenessGeographical remoteness

•• Lack of timeLack of time

•• Lack of PC/InternetLack of PC/Internet

AccessAccess•• Availability of alternativeAvailability of alternative

products and suppliersproducts and suppliers

•• Youth

Most frequentMost frequent

•• Low incomeLow income

•• Nil or low savingsNil or low savings

•• Lack of assetsLack of assets

•• UnemploymentUnemployment•• Under employmentUnder employment

•• Use of inappropriateUse of inappropriate

productsproducts•• Financial illiteracyFinancial illiteracy

•• Poor financial habitsPoor financial habitsYouth



Problems of FinancialProblems of Financial

Exclusion in IndiaExclusion in India

••

CoverageCoverage

•• Cost of Small Value transactionCost of Small Value transaction

•• InfrastructureInfrastructure

•• Suitable productsSuitable products

•• FlexibilityFlexibility

•• Weak Delivery model Weak Delivery model•• Community Enterprise and FinancialCommunity Enterprise and Financial

Management supportManagement support



Model for Financial InclusionModel for Financial Inclusion

Easy pathway out of poverty

Good Social,economic & Health outcomes

High standard of living

Commercial & regulatory environmen

Low or controlled debtAsset ownership

Employment

High Income

Mainstream product

Attributes: fees;

Penalties,bundling,marketing

Which suit those with higher

income/assets

Less constrained spending

Low cost services Social/wider inclusion

Free Use of MoneyFinancial

inclusion

Financial lliteracy Good financial habits

Good education

Macro -environment Personal characteristics



Pre conditions for thePre conditions for the

SuccessSuccess

I.I. Attitude and Will power Attitude and Will power

II.II. TechnologyTechnology

III.III. Delivery MechanismDelivery Mechanism

IV.IV. Support ServicesSupport Services•• InfrastructureInfrastructure

•• Community Development SupportCommunity Development Support

•• Product InnovationProduct Innovation

V.V. Regulatory and Policy InterventionsRegulatory and Policy Interventions

VI.VI. Involvement of allInvolvement of all

•• especially Development/Administration atespecially Development/Administration atDistrict/Block/Village levelDistrict/Block/Village level

B i Ch ll fB i Ch ll f



Basic Challenges of Basic Challenges of

Financial InclusionFinancial Inclusion

I.I. CoverageCoverage

II.II. Access to Diversified FinancialAccess to Diversified FinancialProducts and ServicesProducts and Services

III.III. Delivery ModelDelivery Model-- Day to dayDay to daytransactionstransactions

Fi i l I l iFi i l I l i I diI di



Financial InclusionFinancial Inclusion-- IndianIndian

ExperimentExperimentInitiative by Indian Bank Initiative by Indian Bank I.I. Indian Bank was the first Bank to implement theIndian Bank was the first Bank to implement the

Financial Inclusion Project on a pilot basis in UT of Financial Inclusion Project on a pilot basis in UT of Pondicherry where the Bank has lead responsibilitPondicherry where the Bank has lead responsibility

II.II. IB implemented the concept first inIB implemented the concept first in MangalamMangalam

Village of Pondicherry on 30.12.05 which becameVillage of Pondicherry on 30.12.05 which becamethe first village in India, where all the households ithe first village in India, where all the households i

the village were provided Banking facilities.the village were provided Banking facilities.

III.III. Indian Bank spearheaded the project and involvedIndian Bank spearheaded the project and involvedall the 144 bank branches of 37 Banks operating inall the 144 bank branches of 37 Banks operating in

UT of Pondicherry.UT of Pondicherry.

IV.IV.

Participants of the project are: All Banks,Participants of the project are: All Banks,

Govt.Govt.DeptsDepts, Insurance, Insurance CosCos,NGOs,Facilitators etc.,,NGOs,Facilitators etc.,



The ObjectiveThe Objective

•• Financial Inclusion is delivering Banking facilities/Financial Inclusion is delivering Banking facilities/

financial services to all the people in a transparent andfinancial services to all the people in a transparent andequitable manner at affordable cost.equitable manner at affordable cost.

•• HonHon’’bleble Union Minister of Finance budget speech 2005Union Minister of Finance budget speech 2005--

06:06:

““The financial inclusion provides business opportunity for theThe financial inclusion provides business opportunity for the

financial institutions at the bottom of the pyramid to expandfinancial institutions at the bottom of the pyramid to expand

the volume of business. Profitability can be increased onlythe volume of business. Profitability can be increased only

by finding newer avenues for deployment of fundsby finding newer avenues for deployment of funds””

RBI Governor in Annual Policy Statement 2005RBI Governor in Annual Policy Statement 2005--06 urged the06 urged the

banks to align themselves with the objectives of Financialbanks to align themselves with the objectives of Financial

Inclusion.Inclusion.

•• Economically and socially empower poor and lowEconomically and socially empower poor and low--

income people leading to overall development of theincome people leading to overall development of theHouseholds, Villages, States and finally the Nation.Households, Villages, States and finally the Nation.



Achievements in PondicherryAchievements in Pondicherry

0

10000

20000

30000

40000

50000

60000

70000

80000

HOUSEHOLD TAR 41963 74605 31906 30603 36461

HOUSEHOLD ACH 40557 26537 8511 9531 9381

SB A/Cs OPENED 67822 23351 3064 12088 3926

INDIAN BANKOTHER

NAT.BANKSSBI GROUP

CO OP

BANKS

PRIVATE

BANKS

Replication of theReplication of the



Replication of theReplication of the

successsuccess1.1. RBI in the 2006RBI in the 2006--07 Annual Policy Statement highlighted07 Annual Policy Statement highlighted

about Financial inclusion project implemented by theabout Financial inclusion project implemented by the

bank in UT of Pondicherry, and advised SLBCbank in UT of Pondicherry, and advised SLBC convenorsconvenors

in all State /in all State / UTsUTs to identify at least one district in their to identify at least one district in their

area for achieving 100 percent financial inclusion on thearea for achieving 100 percent financial inclusion on the

lines of the initiative taken in Pondicherry.lines of the initiative taken in Pondicherry.

2.2. As a follow up, the project was launched in TN inAs a follow up, the project was launched in TN in

CuddaloreCuddalore Dist, where again IB is the Lead Bank involvingDist, where again IB is the Lead Bank involving

all the banks covering 877 villages.all the banks covering 877 villages.

•• Launched on 11.07.06 and expected to be completed byLaunched on 11.07.06 and expected to be completed by

July 2007.July 2007.

3.3. The Bank also extended the project toThe Bank also extended the project to

– – All the other 12 Lead Districts in TN,AP,All the other 12 Lead Districts in TN,AP,KeralaKerala – – Other states where each of our circle has taken upOther states where each of our circle has taken up

implementation in three villages.implementation in three villages.

O i f th hi tO i f th hi t



Overview of the achievementOverview of the achievement

of IB across the countryof IB across the country

•• Total number of villagesTotal number of villages

covered so far covered so far

•• Total number of No frills SB a/Total number of No frills SB a/cscs

openedopened

•• OD accounts openedOD accounts opened

•• GCC accounts openedGCC accounts opened

•• *In addition, 16706 women have been linked*In addition, 16706 women have been linked

throughthrough SHGsSHGs..

•• 372372

••

120198*120198*

•• 1322713227

•• 660660



The processThe process

•• Allocation of villages to the BanksAllocation of villages to the Banks

•• Village/House hold surveyVillage/House hold survey

•• Assessment of the need for Financial InclusionAssessment of the need for Financial Inclusion

ProductsProducts

•• Financial Inclusion Products OfferedFinancial Inclusion Products Offered•• No Frills SB accountNo Frills SB account

•• Small Over Draft facilitySmall Over Draft facility--for general consumptionfor general consumption

•• General Credit CardGeneral Credit Card--for income based activityfor income based activity

•• Micro InsuranceMicro Insurance-- Life and disability cover Life and disability cover

•• Health Insurance Cover Health Insurance Cover

•• Mutual Funds (proposed)Mutual Funds (proposed)



Thank YouThank YouThank You

IndianBank - KC Chakravathy

Documents