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Role of State-owned Banks in Financial Inclusion

Role of State-owned Banks in Financial Inclusion. Presentation by Dr H K Bhanwala , Chairman, NABARD Asia Microfinance Forum Sanghai , China 04 – 08 August 2014. India, briefly. 400 million, 70% rural. 105 million cultivators, 65 million agricultural labourers.

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Role of State-owned Banks in Financial Inclusion

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  1. Role of State-owned Banks in Financial Inclusion Presentation by Dr H K Bhanwala, Chairman, NABARD Asia Microfinance Forum Sanghai, China 04 – 08 August 2014

  2. India, briefly 400 million, 70% rural 105 million cultivators, 65 million agricultural labourers 1.21 billion, 69% rural, density: 382 persons/sq km 30% (355 million) poor, 10% unemployed 192 million households Low per capita income @ US $ 1527

  3. Banking Structure in India

  4. Banking with the Poor- Few Landmarks

  5. Enabling Environment in India Financial Inclusion in India Outsource (Agency) Model Bank-led Model Technology driven BC Model Banks, incl. SoBs & incl RRBs allocated villages CBS, PoS, Micro ATM, Smart Cards (RuPay), Biometric All social benefits, wages of employment generation programmes, student scholarships to be credited directly to the accounts Offer small value savings, credit, deposit, micro insurance, micro pension & remittance

  6. Financial Inclusion and Public Subsidies BC Bank Branch Customers Two funds created by Govt of India & housed in NABARD Commission based (not subsidy oriented) As per RBI directive, SoBs are expected to take financial inclusion as a business opportunity FITF FIF Supporting ICT solutions in banks (RRBs & Coop Banks, not SoBs) For strengthening demand side thru financial literacy, capacity building etc.

  7. NABARD & Group Approach Self Help Groups (SHGs) Joint Liability Groups (JLGs) • Experimented by NABARD in 1992 • A savings first, credit later model • Norm: Credit Discipline & Social Collateral • Solved the twin problems faced by banks: low recovery & high transaction costs • 7.3 million SHGs (81% exclusive women groups), covering 95 million households • of which 4.5 million availed credit of INR 394 billion • Comprises share croppers, oral lessees • 529000 such groups • INR 46 billion availed as loan

  8. Collaboration with other players In India, MFIs have been receiving support from SoBs for increasing their credit outreach • The experience with MFIs are mixed ones – profit motive & high rate of interest have gone against their reputation • The Central Bank (RBI) had to step in to curb their profit instincts • MFIs have their limitations under Indian law - they can’t open bank accounts, can’t provide savings and remittance products though they can deliver other financial products like insurance, pension etc. • Nevertheless, Bandhan, an MFI with 5.4 million as its rural customers bagged the banking license in a stiff competition

  9. Using Technology for Financial Inclusion Technology Creates Customer Segmentation But is cheaper in the long run Requires initial CAPEX investment Secular (Customer Neutral) 904.5 million out of 1221 million (74%) mobile phone users in India Technology has always been at the core of Financial Inclusion – it has been ‘the’ driving force India is going M Banking way viz. Mobile Wallet (a la M-PESA, Airtel Money etc.)

  10. Thankswww.nabard.orgchairman@nabard.org

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