SIVA SIVANI INSTITUTE OF

MANAGEMENT

KOMPALLY, SECUNDERABAD

SUMMER INTERNSHIP PROJECT REPORT

“A STUDY ON FINANCIAL INCLUSION”

REPORT SUBMITTED TO

Mr. V K Mahipal(Lecturer)

Finance Department

Siva Sivani Institute Of Management

REPORT SUBMITTED BY

Shaiki Agarwal, PGDM,

Siva Sivani Institute Of Management

1
 PREFACE

Research work in management is extremely important for it gives a closer view of the real
business world and bridges the gap between theory and practical. For any PGDM student who
is striving to perform outstanding, it is of paramount importance that apart from theoretical
knowledge one must also gain practical knowledge which in turn widely influences their
conceptions and perceptions.

This project was undertaken towards the partial fulfillment of the requirements SIVA
SIVANI INSTITUTE OF MANAGEMENT, SECUNDERABAD. This really provided
me an opportunity to demonstrate my ability in applying theory to practical business
situations.

The study undertaken by me is "FINANCIAL INCLUSION-AN INDIAN

EXPERIENCE”,I have tried to perform my best. In the forthcoming pages an attempt has
been made to present comprehensive report.

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 ACKNOWLEDGEMENT

This report is the effort of eight weeks of summer internship with Shreyas Gramin Bank
during which I got a chance to interact with customers where I learned a lot about financial
inclusion.

I will always be thankful to Mr.V.K.Mahipal for his advice, counseling, and suggestions
throughout my project, without whom it would have been impossible to complete the SIP
report.

I sincerely thanks my bank guide Mr. Anil Sriwastv for the consistent support and guidance
that he provided throughout my internship..

Lastly, I would like to thank all staff members of Shreyas Gramin Bank for their support
without which this project would not have been completed

Shaiki Agarwal

3
 DECLARATION

I hereby declare that the project entitled as “FINANCIAL INCLUSION” is the result of
original work done by me at carried out under the guidance of my faculty guide Mr.V.K.
MAHIPAL .The report submitted is not published or printed elsewhere.

Shaiki Agarwal

Place: Secunderabad

Dated: ……………

TABLE OF CONTENT

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Chapter – 1 6
Introduction
Scope of the study
Significance of the Study
Objectives of the study
Literature Review

Chapter – 2 15
Industry Profile

Chapter-3 24
Research Methodology
Introduction
Research Design
Tools and Methods Data Collection
Limitations

Chapter 4 32
Data Analysis
Chapter-5
Interpretation and Findings
Bibliography

Chapter-6 49
About Shreyas Gramin Bank

CONCLUSION 56

5
 CHAPTER 1

INTRODUCTION

6
A bank is an institution that provides financial services. The word bank derived from the
Italian word “BANCA” which derived from the German language and means bench.

Currently the term banking is generally understood as an institute that hold banking license.
Banking license is granted by bank regulatory authorities and provide right to conduct the
most fundamental banking services such as accepting deposits and lending money.

Banking activities also transcended their traditional scope and new concepts like personal
banking, retailing and banc assurance were introduced In the 1990s, the banking sector in
India saw greater emphasis being placed on technology and innovation. Banks began to use
technology to provide better quality of services at greater speed.Internet banking and mobile
banking made it convenient for customers to do their banking from geographically diverse
places.

Issues:

 Examine the development of the banking system in India and understand the changes
occurring in it.
 Understand the need for financial inclusions in banking to create greater value for
customers and enhanced efficiency for the banks.
 Appreciate the role of technology in increasing the convenience of customers and
improving banking operations.
 Study the banking needs of rural India and the initiatives taken up by banks to cater to
these needs.
 Analyze the changes occurring in the Indian banking sector and how these changes are
likely to influence the way banking will be done in the future.

What is Financial Inclusion?

7
Financial inclusion means extending the banking habit among the less privileged in urban and
rural India. But the path of financial inclusion is daunting. A group of people should take part
in growth activities and help to increase economic growth of the country.

We cannot say that financial growth has been achieved by opening a bank account, granting
huge loan to a single person and closing the account. First, many people have to open an
account in a bank, save money regularly so that loans to needy people may be granted on
regular basis. It is a process ensuring easy access and usage of financial system for the rich
and poor in the country.

Who can take part in financial inclusion?

The Indian Government wishes that the poor people should be benefited by financial
inclusion. They have to be given loans for trading activities or paying back the loan from
money lenders. The Reserve Bank of India permits for financial inclusion by allowing banks
to grant loan to non-registered bodies, subject to certain norms. By watching the functioning
of group activities, the loan may be sanctioned to individuals or groups. The savings, repaying
capacity and cash flow are the main criteria.

The weaker section of India, still hesitate to take part in financial inclusion. The low income
people should be approached by banks personally. They should be asked to open bank account
for saving purpose. Small loans may be granted for them to encourage cash flow. At an
affordable cost, the low income group should be allowed credit facility. The financial facilities
should be arranged for poor people living in rural and semi urban areas. The poor people in
urban area should not be left out. By opening microfinance branches in urban areas, the needs
of poor people there may be considered favorably.

Growth due to financial inclusion:

The world is watching eagerly the growth in Indian economy. The growth rate is increasing
year after year. The Government of India is very keen on financial deepening. There is a slight
decrease in population growth in India. The common people in India enter share market and
start investing money. The economic grow is healthy in India now. Due to globalization,
many people involve in trading activities. A rapid growth is noticed in corporate sector. The
rich people in India have become more rich. The medium range people are striving hard to
find place in the list of rich people. Most of the common people in India have got some
arrangement for livelihood and due to grant of housing loan, many people in India are living
in own house. We have to see whether there is growth of small and medium enterprises and
8
whether they are able to withstand in tough situations. The financial deepening bothers about
these issues. The needs of every citizen should be considered and fulfilled by the Government.
That is the main aim of financial inclusion.

Still banks are trying to accelerate the rate of deposit mobilization. The momentum in
financial inclusion activities will increase only when there is a steady growth of deposit
mobilization. The Government of India is concerned about triggering financial inclusion in
rural areas, in particular. The development activities should be spread evenly throughout the
country. The encouragement of banking habit among less privileged people should be given
top priority.Financial inclusion plays a major role in driving away poverty from the country.
In India, a day will come when all the Indians will have bank account and everybody will take
part in financial inclusion.

No-frills bank accounts: Financial inclusion is good economics

The no-frills savings bank account introduced by several commercial banks a few months ago
had all the potential to revolutionise India's rural agricultural economy, as well as usher in the
banking habit amongst a large number of the less privileged population. However, the product
was lost among a myriad of financial offerings and most banks have shown little verve and
vitality in marketing it.

Thus, the trigger for greater financial inclusion is likely to remain the the country's aspiration
at greater social and economic equity, rather than as a sign of things to come. There seems to
be neither an inherent demand among the socially and economically deprived classes, nor a
profit-driving urge amongst banks to market the new product.

Though the Reserve Bank of India promoted the no-frills savings bank account with the
express intention of bringing greater financial inclusion among the people, banking continues
to remain an elitist to lower middle-class pursuit, restricted mainly to urban India.

Favours Urbanites :

As financial inclusion continues to evade a large segment of rural and urban poor, the
country's financial assets remain heavily skewed in favour of urban India. Recent figures from
the centralbank reveal that the 85 commercial banks with their pre-dominant presence in
urban India account for 78 per cent of the country's financial assets. The 3,000 cooperative
banks account for just nine per cent and the Regional Rural Banks contribute a mere three per
cent.

9
Compounding the problem, several cooperative and RRBs have been trying to gain a foothold
in semi-urban and urban pockets, even as the commercial banks continue to shy away from
rural India. But for the strict RBI guidelines and vigilant enforcement, rural banking would
have remained a mere tokenism.

Does this mean that financial inclusion will continue to remain an enigma to the rural and
under-privileged in India? Financial inclusion is an essential pre-condition to building uniform
economic development, both spatially and temporally, and ushering in greater economic and
social equity.

Financial inclusion also means extending the banking habit among the less privileged in urban
and rural India and weaning them away from unorganised money markets and moneylenders.
But the path of financial inclusion continues to be daunting, not just for India, but to the
developed world as well.

What economic development paradigm has revealed is that equity is not axiomatic with
economic development. The experience of several other countries reveals that conventional
development models sometimes aggravated inequity. However, there are no shortcuts to
financial inclusion.

One advantage that the country enjoys in the endeavour towards greater financial inclusion
and equity is that as a late entrant into the realm of accelerated economic development, the
country can learn much from the mistakes of other nations.

Additionally, the Government has no qualms in pursuing accelerated economic development

even while wearing the trademark of greater equity and financial inclusion on its sleeve. This
has not only proved to be good politics, but good economics as well.

Unsustainable plans :

There are several government and non-government programmes aimed at reducing poverty
and bringing greater equity in the country. But few have proved to be inherently productive
and sustainable. Financial inclusion can transform some of them into productive and self-
sustainable projects. The micro-credit programme launched through numerous Non
Government Organisations has found fancy with the banking industry and can prove to be an
excellent tool to bring in greater equity through financial inclusion.

Several of the micro-credit schemes have been eminently successful and have brought rich
rewards to the beneficiaries. With hardly any NPAs in micro-credit disbursal, banks have
10
begun to pursue and extend micro-credit aggressively. Some banks have been able to double
micro-credit disbursal during the last one year even as some larger players are contemplating
entering the arena in a big way.

Micro-credit: Plausible solution:

Micro-credit should not only be used to redress poverty and usher in greater equity, but should
prove a tool to bring the rural and urban under-privileged into total financial inclusion as well.
Most of the beneficiaries continue to view NGOs and banks as conduits of credit.

But as a large number of the schemes are proving successful, it is time that banks started
playing a more pro-active role. No-frills account should be promoted to plough back the
returns from these projects into bank coffers, thus encouraging the savings habit and ensuring
that banks act as a repository of savings and sources of credit.

There are several rural and urban development programmes promoted by the Government to
eradicate poverty. If banks are also made an effective intermediary, greater financial inclusion
could be one of the meritorious outcome. As some of the projects become successful and self-
sustaining, greater financial inclusion would become possible. But the Government would
have to do its homework thoroughly to identify projects where intermediation by banks is
possible. The benefits will percolate not only to target population, but to banks as well. And
then, good economics will prove good politics for the country.

Financial Inclusion-The Indian Experience:

India, have been greatly impressed by the focused attention being paid by the UK Government
to the subject of FI. I had read a very detailed report by the British Banker’s Association
in 2000 dwelling upon the issues involved in providing greater access to financial services
and the concept of a basic banking account. The setting up the Financial Inclusion Task Force
and the Financial Inclusion Fund reflect the priority attached In by the Government to the
subject. DFID has been involved in a number of livelihood diversification projects in India
and other countries especially for the marginalised and DFID’s stake in the subject
obviously derives from the development aspect of FI. The interest shown by authorities in
different countries in FI clearly show that there are concerns that large segments of the
world’s population are excluded from formal payments system and financial markets
while financial markets are developing and globalising rapidly. There is an obvious market
failure and thus governments and financial sector regulators are seeking to create enabling
conditions such that markets become more open, more competitive, affordable and inclusive.
11
Focus of financial inclusion in India:

The Indian economy is growing at a steady rate of 8.5 % to 9% in the last five years or so.
Most of the growth is from industry and services sector. Agriculture is growing at a little over
2 %. The potential for growth in the primary and SME sector is enormous. Limited access to
affordable financial services such as savings, loan, remittance and insurance services by the
vast majority of the population in the rural areas and unorganised sector is believed to be
acting as a constraint to the growth impetus in these sectors. Access to affordable financial
services - especially credit and insurance - enlarges livelihood opportunities and empowers the
poor to take charge of their lives. Such empowerment aids social and political stability. Apart
from these benefits, FI imparts formal identity, provides access to the payments system and to
savings safety net like deposit insurance. Hence FI is considered to be critical for achieving
inclusive growth; which itself is required for ensuring overall sustainable overall growth in the
country.

The approach to FI in developing countries such as India is thus somewhat different from the
developed countries. In the latter, the focus is on the relatively small share of population not
having access to banks or the formal payments system whereas in India, we are looking at the
majority who are excluded.

FI can be thought of in two ways. One is exclusion from the payments system –i.e. not
having access to a bank account. The second type of exclusion is from formal credit markets,
requiring the excluded to approach informal and exploitative markets. After nationalisation of
major banks in India in 1969, there was a significant expansion of branch network to
unbanked areas and stepping up of lending to agriculture, small industry and business. More
recently, the focus is on establishing the basic right of every person to have access to
affordable basic banking services.

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SCOPE OF THE STUDY:

The Scope of the study is:

 To fulfill the course requirement.

 To know how financial inclusion was initiated in India and what is its scope in Indian
Banking Sector

 To understand and to know the mechanism of Financial Inclusion.

 The study makes a brief review of the financial inclusion in Indian banking sector

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OBJECTIVE OF THE STUDY

• To study the initiative taken by Indian Banks for Financial Inclusion.

• To study the advantages of Financial Inclusion.
• To study the relevance of Financial Inclusion.

• To study the visibility of Financial Inclusion in Indian Banking Sector.

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CHAPTER 2

15
INDUSTRY PROFILE

Indian Banking Sector

RBI, the central banking and monetary authority in India, is the central regulatory and
supervisory authority for the Indian financial system. A variety of financial intermediaries in
the public and private sectors participate in India’s financial sector, including the following:

 commercial banks;
 long-term lending institutions;
 non-banking finance companies, including housing finance companies;
 other specialised financial institutions, and state-level financial institutions;
 insurance companies; and
 mutual funds.

Until the early 1990s, the Indian financial system was strictly controlled. Interest rates were
administered,formal and informal parameters governed asset allocation, and strict controls
limited entry into and expansion within the financial sector. The Government’s economic
reform program, which began in 1991,reformed the financial sector. The first phase of the
reform process began with the implementation of the recommendations of the Committee on
the Financial System, the Narasimham Committee I. The second phase of the reform process
began in 1999. See the section titled “Banking Sector Reform-Committee on Banking Sector
Reform (Narasimham Committee II)” .

RBI

RBI is the central banking and monetary authority in India. RBI manages India’s money
supply and foreign exchange and also serves as a bank for the Government and for India’s
commercial banks. In addition to these traditional central-banking roles, RBI undertakes
certain developmental and promotional roles.RBI issues guidelines on various areas including
exposure standards, income recognition, asset classification, provisioning for non-performing
and restructured assets, investment valuation and capital adequacy standards for commercial
banks, long-term lending institutions and non-banking financial companies. RBI requires

16
these institutions to furnish information relating to their businesses to RBI on a regular basis.
For further discussion regarding RBI role as the regulatory and supervisory authority of
India’s financial system and its impact on Development Credit Bank.

Current Situation

Currently (2009), banking in India is generally fairly mature in terms of supply, product range
and reach-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian Rupee is to
manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially
in its services sector-the demand for banking services, especially retail banking, mortgages
and investment services are expected to be strong. One may also expect M&As, takeovers,
and asset sales.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is
with the Government of India holding a stake), 31 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign
banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According
to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of
total assets of the banking industry, with the private and foreign banks holding 18.2% and
6.5% respectively.

Liberalization

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization,
licensing a small number of private banks. These came to be known as New Generation tech-
savvy banks, and included Global Trust Bank, which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along
with the rapid growth in the economy of India, revitalized the banking sector in India, which
has seen rapid growth with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.
17
The next stage for the Indian banking has been setup with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with
some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were
used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new
wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks.All this led to the retail boom in India. People not just demanded more from their banks
but also received more.

Impact of Liberalization on the Indian Financial Sector

Until 1991, the financial sector in India was heavily regulated and commercial banks and
long-term lending institutions, the two dominant financial intermediaries, had mutually
exclusive roles and objectives and operated in a largely stable environment, with little or no
competition. Long-term lending institutions were focused on the achievement of the
Government’s various socio-economic objectives, including balanced industrial growth and
employment creation, especially in areas requiring development. Long-term lending
institutions were extended access to long-term funds at subsidized rates through loans and
equity from the Government and from funds, guaranteed by the Government, originating from
commercial banks in India and foreign currency resources originating from multilateral and
bilateral agencies. On the other hand, the focus of the commercial banks was primarily to
mobilize household savings through demand and time deposits and to use these deposits to
meet the short-term financial needs of borrowers in industry, trade and agriculture. In
addition, the commercial banks provided a range of banking services to individuals and
business entities.However, since 1991, there have been comprehensive changes in the Indian
financial system. Various financial sector reforms have transformed the operating
environment of the banks and long-term lending institutions. In particular, the deregulation of
interest rates, emergence of a liberalized domestic capital market, and entry of new private
sector banks, along with the broadening of long-term lending institutions’product
portfolios,have progressively intensified the competition between banks and long-term
lending institutions. RBI has permitted the transformation of long-term lending institutions
into banks subject to compliance with the prudential norms applicable to banks.

18
Banking Sector Reforms

Most large banks in India were nationalized in 1969 and thereafter were subject to a high
degree of control until reform began in 1991. In addition to controlling interest rates and entry
into the banking sector, these regulations also channelled lending into priority sectors.Banks
were required to fund the public sector through the mandatory acquisition of low interest-
bearing Government securities or statutory liquidity ratio bonds to fulfill statutory liquidity
requirements. As a result, bank profitability was low, non-performing assets were
comparatively high, capital adequacy was diminished, and operational flexibility was
hindered.

Committee on the Financial System (Narasimham Committee I)

The Committee on the Financial System (The Narasimham Committee I) was set up in August
1991 to recommend measures for reforming the financial sector. Many of the
recommendations made by the committee, which addressed organisational issues, accounting
practices and operating procedures, were implemented by the Government. The major
recommendations that were implemented included the following:

With FY stabilization and the Government increasingly resorting to market borrowing to raise
resources, the statutory liquidity ratio or the proportion of a bank’s net demand and time
liabilities that was required to be invested in Government securities was reduced from 38.5%
reform period to 25.0% in October 1997. This meant that the significance of the statutory
liquidity ratio shifted from being a major instrument for financing the public sector in the pre-
reform era to becoming a prudential requirement.

Similarly, the cash reserve ratio or the proportion of a bank’s net demand and time liabilities
that was required to be deposited with RBI was reduced from 15.0% in the pre-reform period
to 4.5%.In a circular dated September 11, 2004, the Reserve Bank of India has raised the cash
reserve ratio to 4.75% with effect from September 18, 2004 and 5.0% with effect from
October 2, 2004; special tribunals were created to resolve bad debt problems;most of the
restrictions on interest rates for deposits were removed. Commercial banks were allowed to
set their own level of interest rates for all deposits except savings bank deposits; and
substantial capital infusion to several state-owned banks was approved in order to bring their

19
capital adequacy closer to internationally accepted standards. The stronger public sector banks
were given permission to issue equity to further increase capital.

Committee on Banking Sector Reform (Narasimham Committee II)

The second Committee on Banking Sector Reform (Narasimham Committee II) submitted its
report in April 1998. The major recommendations of the committee were in respect of capital
adequacy requirements, asset classification and provisioning, risk management and merger
policies. RBI accepted and began implementing many of these recommendations in October
1998.

Recent Structural Reforms

Proposed Amendments to the Banking Regulation Act

Legislation seeking to amend the Banking Regulation Act was recently introduced in the
Indian Parliament.

As presently drafted, the main amendments propose to:

Permit banking companies to issue non-redeemable and redeemable preference shares; make
prior approval of RBI mandatory for the acquisition of more than 5.0% of a banking
company’s paid up capital by any individual or firm or group; prohibit lending to relatives of
directors and to non-subsidiary companies that are under the same management as the banking
company, joint ventures, associates or the holding company of the banking company;remove
the minimum statutory liquidity ratio requirement of 25.0%, giving RBI discretion to reduce
the statutory liquidity ratio to less than 25.0%. See the section titled “Regulations and
Policies”;bring mergers of non-banking finance companies with banking companies into the
governance of the Banking Regulation Act. Mergers of non-banking finance companies with
banking companies are currently governed by the Companies Act. The Banking Regulations
(Amendment) and Miscellaneous Provisions Bill, 2003 will, if passed, require mergers of non-
banking finance companies with banking companies to be approved by the majority of the
shareholders of both companies and by RBI. It also provides, if the merger is approved, for
dissenting shareholders at their option to be paid in exchange for their shares the value of their
shares as determined by RBI;bring all co-operative banks under the supervision of RBI.

20
CHAPTER 3

21
RESEARCH METHODOLOGY
INTRODUCTION

The methodology adopted is qualitative research method. The purpose of the project is to
study the Financial Inclusion – The Indian Experience. The purpose is to study the
awareness level of the business products, their feedback on the service performance and
eligibility criteria to get a small business loan in DCB.

RESEARCH DESIGN

The study is completely based on the secondary data which is collected through various
books, websites and banks’s website.

After the objective of the study has been clearly stated, the next step in formal research project
is to determine the sources from which the data is required to be collected. The data collection
is an interesting aspect of the study. For the purpose of achieving data effectively the
information consists of two kinds of data.

1)Primary data

2) Secondary data

The primary data are those, which are collected freshly and for the first time, from the existing
customers and prospective customers directly.

The secondary data are those which have already been collected by someone or else which
have been passed through statistical process.

TOOLS AND METHODS OF DATA COLLECTION

The tool for the collection of secondary data is books, internet, journals etc.

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Collection of Secondary data:

These are collected from the journals, manuals, organization chart, materials from net and the
theoretical concept compiled from various books has been properly verified for the relevance
of the study.

 Journals
 Websites
 Books

LIMITATIONS

In spite of honest and sincere efforts there are several limitations both statistical &
non-statistical, which are stated below.

 Recommendations are given based on the analysis of present data.

 The period of study was very less.

 The study was confined to the secondary data.
 Our all conclusions can not be drawn immediately by the data available.
 Some facts and figures may not be adequate.
 The data presented is current data.

23
CHAPTER 4

24
About Financial Inclusion:

Financial inclusion means extending the banking habit among the less privileged in urban and
rural India. But the path of financial inclusion is daunting. A group of people should take part
in growth activities and help to increase economic growth of the country.

We cannot say that financial growth has been achieved by opening a bank account, granting
huge loan to a single person and closing the account. First, many people have to open an
account in a bank, save money regularly so that loans to needy people may be granted on
regular basis. It is a process ensuring easy access and usage of financial system for the rich
and poor in the country.

Financial Inclusion in India:

The setup a commission (Khan Commission) in 2004 to look into Financial Inclusion and the
recommendations of the commission were incorporated into the Mid-term review of the policy
(2005-06). In the report RBI exhorted the banks with a view of achieving greater Financial
Inclusion to make available a basic "no-frills" banking account. In addition to this KYC
(Know your Customer) norms were relaxed for people intending to open accounts with annual
deposits of less than Rs. 50, 000. General Credit Cards (GCC) were issued to the poor and the
disadvantaged with a view to help them access easy credit. In January 2006, the Reserve Bank
permitted commercial banks to make use of the services of non-governmental organizations
(NGOs/SHGs), micro-finance institutions and other civil society organizations as
intermediaries for providing financial and banking services. These intermediaries could be
used as business facilitators (BF) or business correspondents (BC) by commercial banks. The
bank asked the commercial banks in different regions to start a 100% Financial Inclusion
campaign on a pilot basis. As a result of the campaign states or U.T.s like have announced
100% financial inclusion in all their districts. Reserve Bank of India’s vision for 2020 is to
open nearly 600 million new customers' accounts and service them through a variety of
channels by leveraging on IT. However, illiteracy and the low income savings and lack of
bank branches in rural areas continue to be a road block to financial inclusion in many states.

The main reason for financial exclusion is the lack of a regular or substantial income. In most
of the cases people with low income do not qualify for a loan. The proximity of the financial
25
service is another fact. The loss is not only the transportation cost but also the loss of daily
wages for a low income individual. Most of the excluded consumers are not aware of the
bank’s products, which are beneficial for them. Getting money for their financial requirements
from a local money lender is easier than getting a loan from the bank. Most of the banks need
collateral for their loans. It is very difficult for a low income individual to find collateral for a
bank loan. Moreover, banks give more importance to meeting their financial targets. So they
focus on larger accounts. It is not profitable for banks to provide small loans and make a
profit.

Financial inclusion mainly focuses on the poor who do not have formal financial institutional
support and getting them out of the clutches of local money lenders. As a first step towards
this, some of our banks have now come forward with general purpose credit cards and artisan
credit cards which offer collateral-free small loans. The RBI has simplified the KYC (Know
your customer) norms for opening a ‘No frill’ account. This will help the low income
individual to open a ‘No Frill’ account without identity proof and address proof.

Self Help Groups are playing a very important role in the process of financial inclusion. SHGs
are usually groups of women who get together and pool money from their savings and lend
money among them. Usually they are working with the support of an NGO. The SHG is given
loans against the group members’ guarantee. Peer pressure within the group helps in
improving recoveries. Through SHGs nearly 40 million households are linking with the banks.
Micro finance is another tool which links low income groups to the banks.

Yet, banks are fighting to fulfill the Financial Inclusion dream. The main reason is that the
products designed by the banks are not satisfying the low income families. The provision of
uncomplicated, small, affordable products will help to bring the low income families into the
formal financial sector. Banks have limitations to reach directly to the low income consumers.
Correspondents can be considered to be an excellent channel which banks can use to distribute
their product information. Educating the consumers about the financial benefits and products
of banks which are beneficial to low income groups will be a great step to tap their potential.

Banks are now using new technologies like mobile phones to reach low income consumers. It
is possible that the telephone providers themselves will start basic banking services like
savings and payments. Indian telecom consumers have few links to financial institutions. So
without much difficulty telecom providers can win the battle with banks. Banks should
therefore be proactive about transferring this technology into an opportunity.

26
The Indian Government has a long history of working to expand financial inclusion.
Nationalization of the major private sector banks in 1969 was a big step. In 1975 GOI
established RRBs with the same aim. It encouraged branch expansion of bank branches
especially in rural areas. The RBI guidelines to banks shows that 40% of their net bank credit
should be lent to the priority sector. This mainly consists of agriculture, small scale industries,
retail trade etc. More than 80% of our population depends directly or indirectly on agriculture.
So 18% of net bank credit should go to agriculture lending. Recent simplification of KYC
norms are another milestone.

Financial Inclusion, UN:

On 29 December 2003,Former UN Secretary-General said: ”The stark reality is that most poor
people in the world still lack access to sustainable financial services, whether it is savings,
credit or insurance. The great challenge before us is to address the constraints that exclude
people from full participation in the financial sector. Together, we can and must build
inclusive financial sectors that help people improve their lives.”

According to the United Nations the main goals of Inclusive Finance are as follows:

1. Access at a reasonable cost of all households and enterprises to the range of financial
services for which they are “bankable,” including savings, short and long-term credit,
leasing and factoring, mortgages, insurance, pensions, payments, local money transfers
and international remittances
2. Sound institutions, guided by appropriate internal management systems, industry
performance standards, and performance monitoring by the market, as well as by
sound prudential regulation where required
3. Financial and institutional sustainability as a means of providing access to financial
services over time
4. Multiple providers of financial services, wherever feasible, so as to bring cost-
effective and a wide variety of alternatives to customers (which could include any
number of combinations of sound private, non-profit and public providers).

27
Financial Inclusion Taskforce, UK:

The United Kingdom was one of the first countries to realize the importance of Financial
Inclusion. It published its strategy of financial inclusion in its report Promoting Financial
Inclusion which was published alongside the Pre-Budget Report of 2004. The UK government
also setup the Financial Inclusion Fund of £120m to help bring about Financial Inclusion.
The Financial Inclusion Taskforce was formally launched on 21 February 2005 to monitor
progress on Financial Inclusion and to make suitable recommendations.

Enabling Financial Inclusion:

Financial Inclusion is the delivery of banking services at affordable cost to the vast section of
disadvantaged and low-income groups. Access to financial services such as loans, savings,
deposits, health insurance etc. by the population living in the rural and deep-rural segments
has been limited and been the major deterrent of growth in these segments. Access to such
services will help in improving the standard of living, health and hygiene through empowering
the under privileged, thereby helping in social, political and economic stability. Delivering
banking services in an affordable manner to the rural areas requires a secure transaction
processing platform that can be deployed cost-effectively.

Rural areas provide a geographically sparse customer base and therefore it is not
commercially viable for banks to open bank branches in these locations. An IT solution that is
based on a movable framework while providing the entire suite of banking applications is
ideally suited for this problem. At the same time, consumers in these segments have low
literacy levels hence security needs to be addressed with mechanisms different from those
used in urban areas.

Insurance Solution:

Insurance in the context of financial inclusion programs needs to first and foremost be easy to
use so that its acceptance can be improved in the rural segments, especially for health
insurance programs. To improve acceptance the entire issuance and claim settlement system
has to be done live through the use of secure transaction processing platforms, that can link in
real-time to the insurance management systems for on-the-spot approvals.

28
Micro Finance Solution:

Micro finance solutions require delivery of financial services at the doorstep of the rural
consumer and thus requires IT innovation in handheld devices that can record transactoins in
the bank's books in real-time. These solutions need to operate in locations where there may be
no bank branches, inconsistent power supply and inconsistent communication links. Hence the
entire solution neds to be conceptualized as a combination of innovative information
technology and banking business process innovation that can together deliver the services.

Financial inclusion in India : Some Key Statistics

Nearly 80% of the population is without life, health, non-life insurance cover.In April, India
had around 403 million mobile users. About 46% of them, or 187 million, did not have bank
accounts.. “People can do without bank accounts but not mobile phones. A bank account is
not everything about financial inclusion but it is still an important indicator. How many
Indians have bank accounts?

Reserve Bank of India deputy governor K.C. Chakrabarty, in a recent presentation on

financial inclusion in Mumbai, said about 40% Indians have check-in accounts. Going by his
presentation, 51 out of every 100 Indians had bank accounts in 1993. This has marginally
gone up to 54 in 2007.

Yet another presentation by another central banker, a few years back, had said 59% of adult
population in India has bank accounts and that there is a large gap between the coverage of
banking services in urban and rural pockets. In rural India, the coverage among the adult
population is 39% against 60% in urban India. This, of course, doesn’t necessarily mean that
60 out of every 100 Indian adults in cities have bank accounts as many people operate
multiple accounts.

The sources of these information are different and I cannot vouch for their accuracy but the
fact remains that the coverage of banking services in the world’s second fastest growing major
economy is very low, compared with a developed country. A British Bankers’ Association
survey says 92-94% of the population in the UK has either current or savings accounts.

The low coverage is true for other financial services as well. Ambani’s presentation says
barely 45 million Indians invest in mutual funds. This is about 4% of India’s population. The
comparable figure for the US is 31%. When it comes to direct investment in equities, the
29
number drops drastically and only 15 million Indians hold demat (electronic share) accounts
that one needs to buy stocks.

Nearly 80% of the Indian population is without life, health and non-life insurance coverage.
While life insurance penetration is 4%, non-life cover is even lower at 0.6%. The per capita
spend on life and non-life insurance is just about Rs2,000 and Rs300, respectively, compared
with a global average of at least Rs18,000 and Rs13,000.

Some other relevant data will help us understand the criticality of the issue. Only 5.2% of
India’s 650,000 villages have bank branches even though 39.7% of the overall branch network
of Indian banks, or 31,727, are in rural India.

Overall, the population covered by each branch has come down from 63,000 in 1969 to
16,000 in 2007 and the total number of check-in accounts held at commercial banks, regional
rural banks, primary agricultural credit societies, urban cooperative banks and post offices
during this period has risen from 454.6 million to 610.3 million. Still, very few people in the
low-income bracket have access to formal banking channels. Only 34% of people with annual

earnings less than Rs50,000 in urban India had a bank account in 2007. The comparative
figure in rural India is even lower, 26.8%.

The situation has definitely changed for the better with banks aggressively opening “no-frill
accounts”, that require very low or zero minimum balance but a recent study by Skoch
Development Foundation, a strategy and management consultancy, says only 11% of 25.1
million such basic banking accounts, opened between April 2007 and May 2009, are
operational. This means the business correspondent or BC model that the Indian central bank
is using to spread banking services across the country has failed. This model allows non-
governmental organizations, self-help groups, microfinance organizations, farmers’ clubs,
post offices, cooperatives, panchayats and many others, including IT-enabled rural outlets of
corporate entities and insurance agents to act as intermediaries on commission.

The Skoch study, based on 28 financial inclusion projects and a large banking correspondent
project in Andhra Pradesh, finds that the BC model is not commercially viable. The gap
between what the banks are paying BCs or vendors and what actually such entities spend in
two years, works out to Rs26.25 per account.

30
The regulator and the banks need to address this immediately. Mere opening of accounts and
branch expansion will not solve the problem. The biggest challenge before Indian banks is
lowering transaction costs for small loans and deposits, using technology.

Committee on Financial Inclusion:

The Committee has defined Financial Inclusion 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 major recommendations of the Committee include :

 Launching of a National Rural Financial Inclusion Plan (NRFIP) in mission mode with
a clear target to provide access to comprehensive financial services, including credit,
to at least 50% (say 55.77 million) of the financially excluded rural cultivator/non-
cultivator households, by 2012 through rural/semi-urban branches of Commercial
Banks and Regional Rural Banks .

 Constitution of two funds with NABARD – the Financial Inclusion Promotion &
Development Fund(FIPF) and the Financial Inclusion Technology Fund(FITF) with an
initial corpus of Rs. 500 crore each to be contributed by GoI / RBI / NABARD. Use of
PACSs as Business Facilitators and Correspondents .

 Micro finance – Non Banking Finance Companies (MF-NBFCs) could be permitted to

provide thrift, credit, micro-insurance, remittances and other financial services up to a
specified amount to the poor in rural, semi-urban and urban areas. Such MF-NBFCs
may also be recognized as Business Correspondents of banks for providing only
savings and remittance services and also act as micro insurance agents.

 Opening of specialised microfinance branches / cells in potential urban centers for

exclusively catering to microfinance and SHG - bank linkages requirements of the
urban poor. An enabling provision be made in the NABARD Act, 1981 permitting
NABARD to provide micro finance services to the urban poor .

31
CHAPTER 5

32
One common measure of FI is the percentage of adult population having bank accounts
(Chart-1). Going by the available data on the number of savings bank accounts and assuming
that one person has only one account, (which assumption may not be correct as many persons
could have more than one bank account) we find that on an all India basis 59 per cent of adult
population in the country have bank accounts – in other words 41 per cent of the population
is unbanked. In rural areas the coverage is 39 per cent against 60 per cent in urban areas. The
unbanked population is higher in the North Eastern and Eastern regions

33
The extent of exclusion from credit markets is much more, as number of loan accounts
constituted only 14 per cent of adult population (Chart-2). In rural areas, the coverage is 9.5
per cent against 14 per cent in urban areas. Regional differences are significant with the credit
coverage at 25 per cent for the Southern Region and as low as 7, 8 and 9 per cent respectively
in North Eastern, Eastern and Central Regions.

The extent of exclusion from credit markets can be observed from a different view point. Out
of 203 million households in the country, 147 million are in rural areas 89 million are farmer
households. 51.4 per cent of farm households have no access to formal or informal sources of
credit while 73 per cent have no access to formal sources of credit. Similar data are not
available for non farm and urban households.

Looking at the different sources of credit, it is observed that the share of non institutional
sources reduced from 70.8% in 1971 to 42.9% in 2002. However after 1991, the share of non
institutional sources has increased; specifically, the share of moneylenders in the debt of rural
households increased from 17.5 % in 1991 to 29.6% in 2002. In urban areas the share of non
institutional sources has come down significantly from 40% in 1981 to around 25 % in 2002.

34
Huge increase in no frills accounts:

The outcome of the efforts made is reflected in the increase of 6 million new ‘no frills’
bank accounts opened between March 2006 and 2007. In view of their vast branch network
(45000 rural and semi urban branches) public sector banks and the regional rural banks have
been able to scale up their efforts by merely leveraging on the existing capacity. FI is being
viewed by these banks as a huge business opportunity in an overall environment that
facilitates enterprise and growth. It provides them a competitive advantage and defines a clear
niche for their growth.

35
Recent initiatives by Reserve Bank of India:

The period 1969 to 1991 saw a huge increase in the branch outreach in India as the average
population covered by a bank branch fell from 64,000 to 13,711. In 1991 along with reforms
for liberalising and opening the economy, financial sector reform aimed at deregulation,
increased competition and strengthening the banking sector through recapitalisation and
adoption of prudential measures. The Indian banking industry today is quite robust and strong
to be able to take on the challenges of achieving greater financial inclusion.

In the Annual Policy of the Reserve Bank for 2004-05, the Governor, Dr. Reddy observed and
quote –

There has been expansion, greater competition and diversification of ownership of banks
leading to both enhanced efficiency and systemic resilience in the banking sector. However,
there are legitimate concerns in regard to the banking practices that tend to exclude rather than
attract vast sections of population, in particular pensioners, self-employed and those employed
in unorganised sector. While commercial considerations are no doubt important, the banks
have been bestowed with several privileges, especially of seeking public deposits on a highly
leveraged basis, and consequently they should be obliged to provide banking services to all
segments of the population, on equitable basis.

In order to ensure that persons belonging to low income group, both in urban and rural areas
do not encounter difficulties in opening bank accounts, the know your customer (KYC)
procedures for opening accounts has been simplified for those persons with balances not
exceeding Rs 50000/- (about GBP 600) and credits in the accounts not exceeding Rs.100000/-
(about GBP 1200) in a year. The simplified procedure allows introduction by a customer on
whom full KYC drill has been followed.

Banks have been asked to consider introduction of a General purpose Credit Card (GCC)
facility up to Rs. 25000/- at their rural and semi urban braches. The credit facility is in the
nature of revolving credit entitling the holder to withdraw upto the limit sanctioned. Based on
assessment of household cash flows, the limits are sanctioned without insistence on security or
purpose. Interest rate on the facility is completely deregulated.
36
A simplified mechanism for one-time settlement of overdue loans up to Rs.25,000/- has been
suggested for adoption. Banks have been specifically advised that borrowers with loans settled
under the one time settlement scheme will be eligible to re-access the formal financial system
for fresh credit.

Strategies and approach :

At the regional level, a forum called the State Level Bankers Committee (SLBC) has been in
operation since nationalisation. SLBC is a group of bankers and government officials and is
convened by a bank having major presence in the State called the SLBC convenor bank. It
meets quarterly and reviews the banking developments in the State. At the district level, the
district level committee functions; it is headed by the District Commissioner and is convened
by a designated lead bank for the district. In early 2006, one district in each State was
identified by the SLBC for 100 per cent financial inclusion. So far, SLBCs have reported
having achieved 100 per cent financial inclusion in the Union Territory of Puducherry and in
some districts in Haryana, Himachal Pradesh, Karnataka, Kerala and Punjab. Reserve Bank
proposes to undertake an evaluation of the progress made in these districts by an independent
external agency to draw lessons for further action in this regard.

Role of Government:

State Governments can play a proactive role in facilitating FI. Issuing official identity
documents for opening accounts , creating awareness and involving district and block level
functionaries in the entire process, meeting cost of cards and other devices for pilots,
undertaking financial literacy drives are some of the ways in which the State and district
administration have involved themselves.

India Post is also looking to diversify its activities and leverage on its huge network of post
offices, the postmans intimate knowledge of the local population and the enormous trust
reposed in him. Banks are entering into agreements with India Post for using post offices as
agents for branchless banking.

Work in progress:

The Finance Minister in his budget for 2007-08 has announced the setting up of two funds for
FI; the first called Financial Inclusion Fund for developmental and promotional interventions
and the other called Financial Inclusion Technology Fund to meet cost of technology adoption
of about $ 125 million each. The scope of these funds is being worked out. Setting up of

37
financial literacy centres and credit counseling on a pilot basis, launching a national financial
literacy campaign, forging linkages with informal sources with suitable safeguards through
appropriate legislation, evolving industry wide standards for IT solutions, facilitating low cost
remittance products are some of the initiatives currently under way for furthering FI.

Use of intermediaries:

One of the ways in which access to formal banking services has been provided very
successfully since the early 90s is through the linkage of Self Help Groups (SHGs) with
banks. SHGs are groups of usually women who get together and pool their savings and give
loans to members. Usually there is a NGO that promotes and nurture these groups. National
Bank for Agriculture and Rural Development has played a very significant role in supporting

group formation, linking them with banks as also promoting best practices. The SHG is given
loan against guarantee of group members. The recovery experience has been very good and
there are currently 2.6 million SHGs linked to banks touching nearly 40 million households
through its members. Banks provide credit to such groups at reasonable rates of interest.
However the size of loans is quite small and used mostly for consumption smoothening or
very small businesses.

IT solutions for financial inclusion :

The use of IT solutions for providing banking facilities at doorstep holds the potential for
scalability of the FI initiatives. Pilot projects have been initiated using smart cards for
opening bank accounts with bio metric identification. Link to mobile or hand held
connectivity devices ensure that the transactions are recorded in the banks books on real time
basis. Some State Governments are routing social security payments as also payments under
the National Rural Employment Guarantee Scheme through such smart cards (see pictures
below). The same delivery channel can be used to provide other financial services like low
cost remittances and insurance. The use of IT also enables banks to handle the enormous
increase in the volume of transactions for millions of households for processing, credit
scoring, credit record and follow up.

38
39
40
41
42
Regionwise:

Another way to analyse the financial inclusion is to see the region-wise distribution of the
bank offices, credit and deposit ratios. Table 2 shows the population per office has increased
in the rural areas of all the regions indicating lower financial deepening in rural areas. In
urban areas the population per bank office has declined in all the regions except Western
region.Despite the increase in financial deepening in the urban regions, the savings account
per hundred persons has declined in all regions. Contrastingly, in the rural regions, savings
account per hundred persons has increased in North-East,Central and Southern Regions,
indicating banks in these rural regions have led to more financial inclusion than their
counterparts in other rural regions and all urban regions. In Credit accounts per 100 persons,
the situation is no different with the figure falling in all regions except Southern and Western
regions in Urban India.

43
Financial Inclusion in India- Policy Perspective:
Financial Inclusion has become a buzzword now but in India it has been practiced for quite
sometime now. RBI has made efforts to make commercial banks open branches in rural areas.
Priority sector lending was instituted to provide loans to small and medium enterprises and
agricultural sector. Further special banks were set up for rural areas like Rural Cooperative
Banks,Regional Rural Banks. The government also set up national level institutions like
NABARD, SIDBI to empower credit to rural areas and small and medium enterprises.
Appendix 1 presents the banking structure in India and one can see the emphasis on having
banks in the rural sector.Despite the rural policy-push, above statistics suggest majority of the
population continues to be financially excluded. The efforts were further intensified by RBI
and its Annual Policy (2005-06) mentioned:

 RBI will implement policies to encourage banks which provide extensive services
while disincentivising those which are not responsive to the banking needs of the
community, including the underprivileged.
 The nature, scope and cost of services will be monitored to assess whether there is any
denial, implicit or explicit,of basic banking services to the common person.
 Banks are urged to review their existing practices to align them with the objective of
financial inclusion.

This RBI focus led to a few key developments:

No-Frill accounts:
In November 2005, RBI asked banks to offer no-frills savings account which enables
excluded people to open a savings account. Normally, the savings account requires people to
maintain a minimum balance and most banks now even offer various facilities with the same.
No-frills account requires no (or negligible) balance and is without any other facilities leading
to lower costs both for the bank and the individual. The number of no-frills account has
increased mainly in public sector banks from about 0.4 million to 6 million between March
2006 and March 2007. The number of No-frill accounts in private sector banks also increased
from 0.2 million to 1 million in the same period. No significant increases were there in foreign

44
banks. This is understandably so as majority of rural and sub -urban bank offices are in public
sector banks.

Usage of Regional language:

The Banks were required to provide all the material related to opening accounts,disclosures
etc in the regional languages.

 Simple KYC Norms: In order to ensure that persons belonging to low income group
both in urban and rural areas do not face difficulty in opening the bank accounts due to
the procedural hassles, the KYC procedure for opening accounts
has been simplified for those persons who intend to keep balances not exceeding
rupees fifty thousand (Rs. 50,000/-) in all their accounts taken together and the total
credit in all the accounts taken together is not expected to exceed rupees one
lakh (Rs.1,00,000/-) in a year.
 Easier Credit facilities: Banks have been asked to consider introducing General
purpose Credit Card (GCC) facility
up to Rs. 25,000/- at their rural and semi urban branches. GCC is in the nature of
revolving credit entitling the holder to
withdraw upto the limit sanctioned. The limit for the purpose can be set Based on
assessment of household cash flows, the
limits are sanctioned without insistence on security or purpose. The Interest rate on the
facility is completely deregulated.
A simplified mechanism for one-time settlement of overdue loans up to Rs.25,000/-
has been suggested for adoption.
Banks have been specifically advised that borrowers with loans settled under the one
time settlement scheme will be
eligible to re-access the formal financial system for fresh credit.
 Other rural intermediaries: Banks were permitted in January 2006, to use other rural
organisations like Nongovernmental organizations, self-help groups, micro-finance
institutions etc for furthering the cause of financial inclusion.
 Using Information Technology: A few Pilot projects have been initiated to test how
technology can be used to increase
financial inclusion. Usha Thorat in her speech (June 19, 2007) pointed to a few
measures:
o Smart cards for opening bank accounts with biometric identification.
45
 o Link to mobile or hand held connectivity devices ensure that the transactions
are recorded in the bank's books on real time basis.
o Some State Governments are routing social security payments as also payments
under the National Rural Employment
o Guarantee Scheme through such smart cards. The same delivery channel can be
used to provide other financial services like low cost remittances and
insurance.
o The use of IT also enables banks to handle the enormous increase in the
volume of transactions for millions of households for processing, credit
scoring, credit record and follow up.
 Financial inclusion is aimed at providing banking / financial services to all people in a
fair, transparent and equitable manner at affordable cost.Households with low income
often lack access to bank account and have to spend time and money for multiple visits
to avail the banking services, be it opening a savings bank account or availing a loan.
These families find it more difficult to save and to plan financially for the future. Thus,
the unbanked public is largely cut off from the Banking products/services. It is the
endeavor of the Bank to provide the basic banking facility of SB a/cs to all the
unbanked.Towards this initiative the Bank has taken the lead and evolved two
different models i.e. Rural and Urban Financial Inclusion Model to take care of the
requirement of the people in rural and urban areas which differ from each other.

 Rural Financial Inclusion Model:

 Indian Bank as SLBC, convenor in the Union Territory of Puducherry (UTP), for the
first time in the Country launched a National Pilot Project on Financial Inclusion in
2006 under Rural model involving all banks operating in UTP with the aim of
providing at least one Bank account to each household.Financial Inclusion Package:
To start with, the Bank provided ‘No frills’ SB accounts. As a next step, small
overdraft facilities were allowed in the SB accounts in order to cater to the account
holder’s general purpose or consumption needs, which eventually would provide credit
history for the future. Those who are engaged in income generation activities were
provided with General Credit Card facility (GCC) with a flexibility of rollover
facility.The project was successfully completed within a period of twelve months and
declared 100% financially Included on 19.12.2006. Thus UT of Puducherry became
the first State/UT in the entire country where all the families in the Union Territory
have been provided with a Bank account, besides overdraft and General Credit Card
46
 facility.Recognizing the need for providing social security to the unreached persons,
the Bank has in association with Insurance Companies introduced innovative micro
insurance policies at affordable cost. Janashree Bima Yojana (JBY)-for members of
the groups such as SHGs, JLGs etc - in association with Life Insurance Corporation of
India to provide life and disability cover and Universal Health Care Policy (UHCP), a
Mediclaim insurance scheme in association with United India Insurance Company Ltd
aimed at Below Poverty Line families.

Replication of Rural Model:

 After experiencing the success of the project implemented in the UT of Puducherry by

Indian Bank and other Banks, the Governor, Reserve Bank of India in the annual
policy statement for the year 2006-07 has called upon SLBC convenors in all State /
UTs to identify at least one district in their area for achieving 100 percent financial
inclusion on the lines of the initiative taken in Puducherry. Accordingly, in Tamilnadu,
Cuddalore District, lead district of the Bank was the first district chosen to be covered
under financial inclusion. Indian Bank has completed the coverage of 100%
households and other banks are in the verge of completion of 100% Financial
inclusion in Cuddalore District.Financial Inclusion project is also implemented in
Kollam, the lead district of the bank in Kerala involving all other banks operating in
the District. Now all the households in the District have been brought under banking
ambit.Besides UTP, Cuddalore and Kollam Districts, the Bank is also taken up
implementation of 100% Financial Inclusion project in other 11 lead districts across
the Country. The Bank has also initiated the process in other districts where it has no
lead bank responsibilities.Two sponsored Regional Rural Banks of the Bank have
opened 196214 “No frills “SB accounts and issued 839 Overdraft (OD) in ‘ No frills’
a/cs, and 3225 General Credit card(GCC) with an outlay of Rs. 605.10 lakhs.

Urban Financial Inclusion model:

There is a general feeling that Financial Inclusion is not necessary in Urban & Metro
Centers. In reality, large numbers of persons in urban centers are not having banking
facility and financial exclusion is very common particularly in respect of the migrated
labour who moved into the urban/metro centers in search of jobs. Most of them do not
have bank accounts and knowledge of banking facilities. Hence they send money to
their family members through informal sources such as friends, relatives etc or carry
cash whenever they visit their native place.The situation was not different in Dharavi
47
(Mumbai) Asia’s largest slum, in the country's commercial capital. The Bank opened a
branch at Dharavi in February 2007 as part of its Urban Financial Inclusion endeavor
with Core Banking Solution (CBS) and ATM facility. Besides linking the migrant
workers of Dharavi to formal system of savings and borrowing, this step has also
enabled easy and reliable money remittance to their family members in their native
places.

Financial Inclusion in India – in Statistics:

Financial inclusion in developing economies is different than that of developed

economies. In latter where inclusion is a minority,in former it could be a majority.
Elaine Kempson in his research (2006) showed that in Sweden lower than two per cent
of adults did not have an account in 2000 and in Germany, the figure was around three
per cent. Another research by (Buckland et al(2005) showed that less than four per
cent of adults in Canada and five per cent in Belgium, lacked a bank account.
Therefore,it is also mentioned in academia that a better way to analyze financial
inclusion in developing economies is to actually see financial exclusion.

All India level: Figure 1 shows that rural and Semi-urban offices constitute a majority
of the Commercial Bank offices in India. Rural bank offices as a % of total have
increased from 22% in 1969 to 41% in 2007. This is mainly because of the inclusive
focus of the policymakers mentioned above. However, that is just one part of the story.
If we look at figure 2, it can be seen that bulk of the deposits received and credit
allocated is to the urban and metropolitan areas. Infact, the share of rural and semi-
urban in deposits and credit has been declining. Table 1 provides further clarity
providing a break-up of the deposit accounts. Both the deposit and credit accounts are
lower in rural households than urban households. Hence despite the rural-push, the
rural population has not come forward and avail even basic banking services (a fact

mentioned in the section above - Rationale for Financial Inclusion).

48
CHAPTER 6

49
About Shreyas Gramin Bank:-

Regional Rural Banks were formed under RRB Act 1976. Canara Bank
sponsored 8 RRBs earlier out of which three RRBs were in Uttar Pradesh viz.
Aligarh Gramin Bank, in Distt. Aligarh , Etah Gramin Bank in Distt. Etah and
Jamuna Gramin Bank, in Distt. Agra.

The Govt.of India has amalgamated the three three U.P. based RRBs sponsored
by Canara Bank i.e. Aligarh Gramin Bank, Etah Gramin Bank & Jamuna Gramin
Bank vide Government of India Notification F.No.1/4/2006-RRB (i) dated
01.06.2006 and formed a bigger and cost effective bank, named ‘Shreyas
Gramin Bank’ with its head office at Distt Aligarh.

Guideline given by RBI

Regional Rural Banks (RRBs) have been advised to offer 'no frills' account
facilities with zero or low minimum balance requirements as also nominal
charges, so as to make such accounts available to vast sections of the population.
Further, they have been advised to explore the provision of small clean overdraft
facility in such accounts without linkage to purpose. The procedures for opening
such accounts, including KYC compliance, will be simple

SGB is using the four packages of financial inclusion.

1. Savings Bank Accounts are meant to promote the habit of saving

among the citizens while allowing them to use their funds when required. The
main advantage of Savings Bank Account is its high liquidity and safety. On top
of that Savings Bank Account earn moderate interest too. The rate of interest is
decided and periodically reviewed by the Government of India. Presently, the
rate of interest is 3.5% compounded half yearly.

50
 2. Current Account/Bank overdraft:

current account is primarily meant for businessmen, firms, companies, public

enterprises etc. that have numerous daily banking transactions. Current Accounts
are cheque operated accounts meant neither for the purpose of earning interest
nor for the purpose of savings but only for convenience of business hence they
are non-interest bearing accounts. In a Current Account, a customer can deposit
any amount of money any number of times.

Bank overdraft is when someone is able to spend more than what is

actually in their bank account. Obviously the money doesn't belong to them but
belongs to the bank so this money will need to be paid back; normally
automatically done when money goes into the persons account. The overdraft
will be limited.

3. Term deposit:-

A deposit held at a financial institution that has a fixed term. These are
generally short-term with maturities ranging anywhere from a month
to a few years. When a term deposit is purchased, the lender (the
customer) understands that the money can only be withdrawn after
the term has ended or by giving a predetermined number of days
notice.

SGB is using two kind of term deposit :-

1. Kamadhenu deposit (KDR)
2. Fixed deposit (FDR)

Loan & Advances:-

51
 1. AGRICULTURE LOANS AND ADVANCES
Sl. Category of Loans/Advances Rate of Interest

No. w.e.f. 1.04.2009

1. Kisan Credit Card: 9.00%

Up to Rs.3.00 lac
Above Rs.3.00 lac & Up to Rs.10.00 lac 13.50%
Above Rs.10.00 Lac 14.00%
2. Kisan Tatkal Yojna 12.50%
3. KCC to Joint Liability Groups of Tenant Farmers 10.00%
4. Tractor/Power Triller & Combine Harvester Loan 12.50%
(Irrespective of Limit)
5. Vehicle Loans to Agriculturists 12.75%

Up to Rs.5.00 lac
Above Rs.5.00 lac 13.25%
6. Self Help Groups (Short Term & Term Loans)
Irrespective of quantum of loan
11.00%
(i) SGSY
11.50%
(ii) SHG (Direct)
7. Swarojgar / General Credit Cards 12.00%
8. All Other Priority Sector Advances Up to13.00%
Rs.2.00 lac

2 -OTHER LOANS AND ADVANCES

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Sl Category of Loans/Advances Rate of Interest

No. w.e.f. 1.4.2009

1. AGRICULTURAL LOANS:

(A) Ag. Term Loans including Agri Clinic/ Agri14.00%

Business/ Allied Activities/ Pledge Loan to
Producers against agriculture Commodities
(B) Cold Storage/Construction of Rural Godown 12.25%
2. House Loan to Customers

(i) Loan upto Rs.15.00 lac repayable within 511.00%

years
(ii) Upto Rs.15.00 lac repayable more than 5 11.50%
years
3. Educational Loan

(i) Upto Rs.4.00 lac 12.00%

(ii) Above Rs.4.00 lac 13.00%

4. Home Improvement Loan 13.00%
5. Shreyas Mobile (Mobile Phone) 13.00%

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3 - OTHER Category of Loans/Advances Rate of Interest
SPECIFIED
w.e.f. 10.07.2008
CATEGORIES
NO.
1. Loan to qualified Medical Practitioners 13.00%

(Shreyas Jeevan Rekha)

2. Teachers’ Loan 12.25%
3. Loans to Salaried Class (Shreyas Budget) 14.00%
4. Personal Vehicle Loans (LHV) for 2 wheelers
&
14.50%
4 wheelers (Shreyas Vahan)
5. Loans against approved securities i.e. NSC,
KVP & LIP etc.
13.50%
6. Loans against Rent/Loans against Mortgage of14.50%
Property
7. Loans under Asset Gain Scheme

(a) For Salaried Class

1) LHV/DUAL fully secured by Term 12.50%

Deposits/Approved Securities

2) LHV/DUAL 50% secured by Term

13.00%
Deposits/Approved Securities

3) LHV/DUAL secured by Mandate from the

Employer 13.50%

(b) For Businessmen / Professionals

12.50%
1) LHV/DUAL fully secured by Term
Deposits/Approved Securities 13.00%

2) LHV/DUAL 75% secured by Term

Deposits/Approved Securities
8. Premises Loan 14.50%

54
9. Loans/Advances against our Term Deposits 2% over & above
the R.O.I. Offered
on Deposits

CONCLUSION

The financial system in India has grown rapidly in the last three decades. The
functional and geographical coverage of the system is truly impressive.
Nevertheless, data do show that there is exclusion and that poorer sections of the
society have not been able to access adequately financial services from the
organized financial system. There is an imperative need to modify the credit and
financial services delivery system to achieve greater inclusion. The
implementation of the recommendations made in this Report could go a long
way to modify particularly the credit delivery system of the banks and other
related institutions to meet the credit requirements of marginal and sub-marginal
farmers in the rural areas in a fuller measure. However, creating an appropriate
credit delivery system is not the only requirement. This needs to be
supplemented by efforts to improve the productivity of small and marginal
farmers and other entrepreneurs so that the credit made available can be
productively employed. While banks and other financial institutions can also
take some efforts on their own to improve the absorptive capacity of the clients,
it is equally important for Government at various levels to initiate actions to
55
enhance the earnings capacity of the poorer sections of the society. The two
together can bring about the desired change of greater inclusion quickly.

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