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Second Quarter Review of Monetary Policy click here

Second Quarter Review of Monetary Policy 2010-11
-Announced on the 2nd November 2010

Developmental and Regulatory Policies

IV. Credit Delivery and Financial Inclusion

Credit Flow to the Micro, Small and Medium Enterprises Sector

High Level Task Force on MSMEs

76. A High Level Task Force constituted by the Government (Chairman: Shri T.K.A. Nair) to consider various issues raised by micro, small and medium enterprises (MSMEs) associations and draw up an agenda for action submitted its report in January 2010. In terms of the recommendations of the Task Force, the Reserve Bank issued guidelines in June 2010, advising scheduled commercial banks that the allocation of 60 per cent of the micro and small enterprises (MSEs) advances to the micro enterprises was to be achieved in stages, viz., 50 per cent in the year 2010-11, 55 per cent in the year 2011-12 and 60 per cent in the year 2012-13. Further, banks were mandated to achieve a 10 per cent annual growth in the number of micro enterprise accounts and a 20 per cent year-on-year growth in credit to the MSE sector. The Reserve Bank is closely monitoring the achievement of targets by banks in this regard.

Rural Credit Institutions

Licensing of Co-operatives

77. The Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla) had recommended that rural co-operative banks, which failed to obtain a licence by 2012, should not be allowed to operate. Accordingly, it was proposed in the Annual Policy Statement of April 2009 to work out a roadmap for licensing of unlicensed state and central co-operative banks in a non-disruptive manner. For this purpose, revised guidelines, in consultation with National Bank for Agriculture and Rural Development (NABARD), were issued on licensing of these banks. Subsequent to the issuance of revised guidelines on licensing of state co-operative banks (StCBs)/district central co-operative banks (DCCBs), 10 StCBs and 133 DCCBs have been licensed, bringing down the number of unlicensed StCBs from 17 to 7 and DCCBs from 296 to 163 as on September 30, 2010.

Revival of the Rural Co-operative Credit Structure 78. The Government of India, based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof. A. Vaidyanathan) and in consultation with the state governments, had approved a package for revival of the short-term rural co-operative credit structure. As envisaged in the package, 25 states have so far entered into Memorandum of Understanding (MoU) with the Government of India and NABARD. Sixteen states have made necessary amendments to their respective Co-operative Societies Acts. As on August 31, 2010, an aggregate amount of about `7,990 crore has been released by NABARD to primary agricultural credit societies (PACS) in 14 states as the Government of India’s share under the package.

Financial Inclusion through Grass-root Co-operatives

79. It was proposed in the Monetary Policy Statement of April 2010 to constitute a Committee comprising representatives from the Reserve Bank, NABARD and a few state governments to study the functioning of well-run PACS, large adivasi multi-purpose co-operative societies (LAMPS), farmers service societies (FSS) and thrift and credit co-operative societies set up under the parallel Self-Reliant Co-operative Societies Acts to gather information on their working and assess their potential to contribute to financial inclusion. Accordingly, the Reserve Bank, in association with NABARD and the concerned state governments, is studying the working of select (about 220) well-functioning rural co-operatives across the country to assess their potential to contribute to financial inclusion. The study is expected to be completed by end-January 2011. Liberalisation in Branch Licensing of Regional Rural Banks

80. As part of further liberalisation of the extant branch licensing policy in respect of regional rural banks (RRBs), it is proposed:

to allow RRBs to open branches in Tier 3 to Tier 6 centres as identified in the Census 2001 (with population up to 49,999) without prior authorisation of the Reserve Bank, subject to their fulfilling certain conditions. 81. Detailed guidelines in this regard will be issued separately.

Priority Sector Lending

82. As announced in the Second Quarter Review of October 2009, a Working Group was constituted (Chairman: Shri V. K. Sharma) to examine the pros and cons of priority sector lending certificates (PSLCs) as recommended by the Committee on Financial Sector Reforms (Chairman: Dr. Raghuram G. Rajan). As indicated in the Monetary Policy Statement of April 2010, the terms of reference of the Working Group were expanded to review the pros and cons of inclusion of bank lending to micro-finance institutions (MFIs) under priority sector lending. The Working Group submitted its report in August 2010. However, considering the more recent developments in the MFI space, a Sub-Committee of the Central Board of the Reserve Bank (Chairman: Shri Y. H. Malegam) has been constituted to examine the various issues relating to micro-finance extended by non-banking financial companies (NBFCs) while also taking into account the recommendation of the Sharma Working Group. The Sub-Committee will make recommendations, among others, relating to regulation of micro-finance activities of NBFCs, especially with regard to issues impinging on borrowers’ interests. The Sub-Committee is expected to submit its report by end-January 2011. A holistic view will be taken on issues relating to PSLCs and bank lending to MFIs under priority sector lending after the Malegam Sub-Committee submits its report.

Financial Inclusion Plan for Banks

83. Considering the objective of increasing banking outreach for financial inclusion, domestic scheduled commercial banks, both in the public and private sectors, were advised, among others, to put in place a board approved three-year financial inclusion plan (FIP) and submit the same to the Reserve Bank by March 2010. Domestic scheduled commercial banks have since prepared and submitted their FIPs to the Reserve Bank. These plans have been discussed with major banks and revised plans based on the discussions have been submitted by banks. To closely monitor the progress made in implementation of these plans, a quarterly reporting format has been communicated to banks and the implementation of these plans is being closely monitored by the Reserve Bank.

Roadmap for Provision of Banking Services in Villages with Population of over 2000

84. In pursuance of the announcement made in the Monetary Policy Statement of April 2010, the roadmap to provide banking services in every village with a population of over 2000 has been finalised by state level bankers’ committees (SLBCs) and 73,113 unbanked identified villages as per 2001 Census have been allotted to various banks for provision of banking services by March 2012. The time line for provision of banking services has been extended to March 2012 from March 2011 in line with the Finance Minister’s announcement in the Union Budget 2010-11. March 2011 is retained as an intermediate target. The progress in the implementation of the roadmap is being discussed and closely monitored by respective SLBCs.

Opening of Sub-Offices of the Reserve Bank in North-Eastern States

85. At present, the Reserve Bank has only one office at Guwahati to cater to the needs of all the North-Eastern states. Over a period of time, while the population of these states and banking needs have increased significantly, bank branches have not kept pace with the requirements in these areas. Considering the relative economic and infrastructural backwardness of these states and the need for financial inclusion and general economic development in these states, it has been decided:

to open sub-offices of the Reserve Bank in the remaining six states of the north-east, viz., Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura and Meghalaya, in a phased manner. Business Correspondents - Relaxations

86. In pursuance of the announcement made in the Monetary Policy Statement of April 2010, the Reserve Bank issued guidelines in April 2010 permitting banks to engage any individual, including those operating common service centres (CSCs) as banking correspondents (BCs), subject to banks’ comfort level and their carrying out suitable due diligence as also instituting additional safeguards as may be considered appropriate to minimise the agency risks. A discussion paper on “Engagement of ‘for profit’ Companies as Business Correspondent” was placed on the Reserve Bank’s website in August 2010 inviting comments from the public by August 20, 2010. Taking into consideration the pros and cons and based on the feedback received from various quarters, banks were permitted to engage companies registered under the Indian Companies Act, 1956, excluding NBFCs, as BCs in addition to the individuals/entities permitted earlier, subject to compliance with the guidelines issued in September 2010.


Second Quarter Review of Monetary Policy 2010-11 ... click here

Highlights of 2nd Quarter Review of Monetary Policy 2010-2011... click here

RBI CREDIT AND MONETARY POLICIES (1999-2011)... click here

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