National Seminar on

Launching a National Initiative

for Financial Inclusion

18 September 2009

U C Sarangi
Chairman
National Bank for Agriculture
And Rural Development
11th Plan emphasizes on

Inclusive growth

Growth to which the poor contribute

Growth from which the poor benefit

Financial inclusion is defined as
 “ The process of ensuring access to financial
services and timely and adequate credit
where needed by vulnerable groups such as
weaker sections and low income groups at an
affordable cost”
---- The committee on financial
inclusion under Chairmanship of Dr C.
Rangarajan
 Govt. policy initiatives for inclusive
finance
 1904 – Cooperative Society Act net work of
primary credit delivery institutions
 1954 – Rural Credit Survey Committee,
“Cooperation has failed but cooperation must
succeed”
 1969 - Nationalisation of 14 major commercial
banks followed by 6 more in 1980
 Expansion of the rural banking infrastructure
 Institutional rural credit provision
 Lead Bank Scheme
 Emphasis on priority sector lending
Ongoing policy imperatives for extending financial services in the remote areas
Financial Inclusion efforts in the past
 1975 - RRBs as low cost lending
institutions
 to Reach the poorest in credit-deficient areas
 1980 - Poverty Alleviation Programes
 IRDP
 1990’s – Microfinance
 SHG movement
 KCC
India – The Banking System - 1969

Commercial Banks Public Private Total

No. of Banks 8 81 89
Total Branches 6596 1666 8262

Rural Branches 1504 329 1833

(%Total Branches) (23) (20) (22)
% share of agriculture 2.2 negligible 2.2
in total credit

+ a large number of small sized cooperative bank

 Banking Network In India
June 2008

Reserve Bank of India Government of India

NABARD

Public Sector RRBs (88) Private Foreign

Banks (28) LABs (4) Banks (22) Banks (30)

TOTAL
Rural 18,557 11,498 1,052 0 31,127
Semi-urban 12,776 2,612 2,468 2 17,858
Urban 11,336 607 2,504 50 14,497
Metro 10,501 63 2,245 227 13,306
Total 53,190 14,780 8,269 279 76,518

+ the cooperative banks with more than 12000 branches and almost 100,000 primary
credit cooperatives linked to cooperative banks and now even commercial banks
 And still the level of exclusion is nearly 60
percent with marked regional variation
Social Group wise
Region wise
S. Social Households % Excluded
No Group (000)
1 SC 15592.6 49.77

2 ST 11924.1 63.68
3 OBC 37043.0 48.58
4 Others 24688.4 50.58

5 Total 89248.1 51.36

Occupation wise
Category - % Exclusion
 Marginal farmers - 55.00%
 Small Farmers - 49.00%
 Medium Farmers - 39.64%
Large Farmers - 33.00%
Gap Analysis in Financial Services

the POOR requires…. Have access to

•Mechanism to keep their limited Hassle-free
resources safely financial
• Credit to meet emergencies services
• Credit for micro Enterprise So we were
•Facility to receive remittances looking for…
Sustainable approaches
Products that match
Needs & capacities and
Reduces transaction
costs and time
 Steps taken to move in that direction……

Simplifications of
KYC norms

GCC introduced

SLBC identify
Dist. for 100% FI

BC/ BF model

Priority sector
redefined
RBI took the initiative with its circular in 2005

RBI Annual Policy Statement for 2005-06.

 The term‘Financial Inclusion’ was explicitly used

for the first time

 Concerns in regard to the banking practices that tended

to exclude rather than attract vast sections of

population
 Implement policies to encourage banks to provide

extensive services
 Banks urged to review their existing practices to align

them with the objective of financial inclusion.

November 2005
 Banks were advised to open ‘no frills’ account
Progress of 'No frills' Accounts in
the Banking Sector in India

Category March 31, March 31, March 31, March 31,

2006 2007 2008* 2009*

Public Sector 3,32,878 58,65,419 1,39,09,935 2,98,59,178

Banks
Private Sector 1,56,388 8,60,997 18,45,869 31,24,101
Banks
Foreign Banks 231 5,919 33,115 41,482

Total 4,89,497 67,32,335 1,57,88,919 3,30,24,761

* Provisional
 Committee on financial Inclusion appointed

 Interim report suggests to
establish FIF and FITF
 Union Budget for 2007-08
 Financial Inclusion Fund (FIF)
 Financial Inclusion Tech.Fund
FIF
To support developmental
and promotional activities
to secure greater financial
inclusion.

(FITF) FITF
Corpus of 500 crores each at TO support promotional
the level of NABARD and technological
interventions for facilitating
 Report of the Committee financial inclusion of the
on Financial Inclusion (Jan. 2008) excluded.
 FIF and FITF
- Funding Status
Particulars Contribution Initial Corpus
(%) Received ( Rs crore)
FIF FITF FIF FITF

GoI 40 40 10 10
RBI 40 40 * *
NABARD 20 20 5 5
Total 100 100 15 15
*Matching contribution of 40% to be received after disbursements.
 Financial Services
- A holistic approach

 Micro Savings
 Affordable Credit
 Remittance/ funds
transfer
 Micro Insurance/
Micro Pension
 Financial Literacy
Credit Counselling
 Major initiatives

 Advisory committee on financial inclusion constituted

 Guidelines for support from the fund finalised
 Initiatives of several institutions already supported
 250 rural household accounts by Commercial Banks and
RRBs every year; targets achieved for 2008-09
 Focus on MFIs/ NGOs/ CSOs
 Special attention to 268 critically excluded and disturbed
districts
 Dovetailing with other schemes initiated and implemented
by NABARD
 Major initiatives
 Banks to formulate suitable schemes for
extending financial support for Common
Service Centres
 Financial Literacy and Counseling Centres
 Financial Literacy related projects
 Capacity Building of BC/ BF
 Pilots undertaken from FIF and FITF
support
 FI - Road map for Institutions
MFIs/ NGOs Banks/ Co-ops/ RRBs
BC/
Financial BF
Micro Credit/ Counselling/ Loan/ Credit A/c
Saving Literacy
BC/ Saving A/c
BF
Financial Payment &
Inclusion Remittances

Stand Alone
Remittances Postal Savings
Insurance

Insurance Cos Post Offices

 Challenges/ Issues in Smart Card Model

 Enrolling the large excluded number

 Over wide geographic spread
 High Maintenance cost
 Less number of transactions to start with
 Illiteracy and use of vernacular
 Product and Service Pricing -
affordability and viability
 Trust and Acceptance
 Lack of electricity
 Poor telecommunications
Major Issues

 Open standard for card and

cost thereof
 Smart card v/s plastic card
 IBRDT initiative
 Revenue generation/
Sustainability of BC
 Technology Obsolescence
 capacity building of BC
 Regulatory direction
 Reducing risk perception
 Other Major Issues

 Sec 25 Co. as BC vs. Individual BC

 Security/ Confidentiality issues
 Common Tender Process for all district level Banks
 Reduction in cost of components
 Financial viability for RRBs and Cooperatives
 Integration with existing systems of Banks
 Interoperability/ Open Standard
Implementation of BC / BF Model

Govt. Support Banks’ Initiative

One Bank One District Service Area of Bank

Smart Card/
Normal Card/
Supported by Govt. for Bank's own initiative for
POS
NREGS, Pension, etc. Financial Services

Incentive by State Govt Possible support from FITF

FI
 Future Strategies

 Focus on Demand Side as well through

 Financial Literacy drive
 Certification Program for BC/ BF
 On the Spot loan appraisal/ sanction/ rating
evaluation through Mobile van system
 Audio/ Visual display
 Partnership with reputed and experienced NGOs
 Sensitization programe through training
establishment
 Inclusion of Financial Literacy in school
curriculum
 Future Strategies

 Integrated approach of Financial

Inclusion One
 Projects involving micro insurance schemes
– life, asset, accident, health etc
 Product for part saving of Govt. payments-
Citizen
NREGP/ Social Security/ Pension
 Involvement of MFI sector for FI (Micro
One
finance Bill needs to be prioritised) Card.
 Last but not the least
 Integrate with proposed Unique
Identification Card of GoI.
 Vision - 2012
 Financial Inclusion of all Rural House holds (11.15 cr).
 Last mile client should be able to use POS/ Smart Card/
Mobile
 Financial Services at doorstep of Rural Households.
 KCC/ GCC/ SCC to all farmers/ artisans/ landless
labourers
 Cash less transaction through cards for all Banking/
Payment transactions
 Vision - 2012
 Every person wishing to open a savings account with
the banking system will have an option to do so in his
or her own neighborhood
 Every no-frills account will have an overdraft facility
thru a General Credit Card
 Business Correspondents will support all transactions
for deposits and withdrawals, loan disbursements and
repayments and money transfers, micro- insurance
 Strategy
 Constitute an authority for National
Mission on Financial inclusion
 Draw a road map for replicating the
successful pilots
 Establish open standards for technology
to be used
 Source BC from diverse streams to get
at the required number
 Strategy
 Undertake a massive program for financial
literacy and credit counselling
 Dovetail Govt. payments under various
programs through bank accounts
 Strategic action plan for remittance facility
both inter bank/intra bank and post office
 Implement a time bound plan for training of
BC
 Include PACS and SHGs as BC