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Second Quarter Review of Monetary Policy click here

Second Quarter Review of Monetary Policy 2009-2010
-Announced on the 27th October 2009

Part B. Developmental and Regulatory Policies

V. Financial Inclusion

Business Correspondent (BC) Model

142. As proposed in the Annual Policy Statement of April 2009, a Working Group (Chairman: Shri P. Vijaya Bhaskar) was constituted to examine the experience gained to date with the business correspondent (BC) model and to suggest measures to enlarge the category of persons that can act as BCs, keeping in view the regulatory and supervisory framework and consumer protection issues. The Group’s Report has been placed on the Reserve Bank’s website. Based on the Group’s recommendations, it is proposed:

• to allow banks to appoint the following entities as BCs in addition to those permitted already: (i) individual kirana/medical/fair price shop owners; (ii) individual public call office (PCO) operators; (iii) agents of small savings schemes of Government of India/insurance companies; (iv) individuals who own petrol pumps; (v) retired teachers; and (vi) authorised functionaries of well-run self-help groups (SHGs) linked to banks; and

• to allow banks to collect reasonable service charges from the customer in a transparent manner under their Board- approved policy for delivering the services through BC. This should be clearly explained to the customer.

143. Based on the experience gained, the working of the scheme will be reviewed after one year.

Pilot Project of SLBCs for 100 per cent Financial Inclusion

144. Of the total of 623 districts in the country, 431 districts have so far been identified for 100 per cent financial inclusion. Of these, 204 districts in 18 States and six Union Territories have reported having achieved the target. All districts of Haryana, Himachal Pradesh, Karnataka, Kerala, Uttarakhand, Goa, Chandigarh, Puducherry, Daman & Diu, Dadra & Nagar Haveli and Lakshdweep have reported having achieved 100 per cent financial inclusion. The Reserve Bank had undertaken an evaluation study through external agencies in 26 districts of eight States claiming 100 per cent financial inclusion, to draw lessons for further action. The study reports had, inter alia, revealed that although the SLBCs had declared several districts as 100 per cent financially included, the actual financial inclusion was short of that. A large number of no-frills accounts are dormant, the number of transactions is small and ICT-based financial services are yet to reach many villages. The findings of the study were communicated to banks in January 2009 with an advice to take appropriate action.

Special Task Force in North-Eastern Region

145. The Annual Policy Statement of April 2009 had indicated the formulation of a scheme of providing financial support to banks by the Reserve Bank for setting up banking facilities at centres in the North-Eastern region which were found to be commercially viable by banks, provided the State Governments made available necessary premises and other infrastructural support. As its contribution, the Reserve Bank would bear one-time capital cost and recurring expenses for a limited period of five years as per the lowest bid offered by a bank. The Government of Meghalaya has since agreed to the proposal of providing premises and security. Accordingly, eight centres have been allotted to three public sector banks. Action has also been initiated in respect of other States in the region.

Quicker Adoption of Electronic Benefit Transfer (EBT) for Government Schemes

146. To encourage banks to adopt ICT solutions for enhancing their outreach, the Reserve Bank formulated a scheme to quicken the pace of adoption of the smart card-based electronic benefit transfer (EBT) mechanism by banks and rolled out the EBT system in the States that are ready to adopt the scheme. As per the scheme, the Reserve Bank would reimburse the banks a part of the cost of opening accounts with bio-metric access/smart cards at the rate of Rs.50 per account through which payment of social security benefits, National Rural Employment Guarantee Act (NREGA) payments and payments under other Government benefit programmes would be routed to persons belonging to below poverty line (BPL) families. The scheme is currently being implemented in Andhra Pradesh. So far, seven banks have been paid Rs.1.8 crore for smart cards issued by banks in Andhra Pradesh during July-December 2008. The process is at different stages of implementation in other States such as Karnataka and Uttarakhand and the scheme of partial reimbursement by the Reserve Bank has been extended by one year up to June 30, 2010. Banks are advised to work in co-ordination with the respective government departments at the Central and State levels to ensure that all State benefits are delivered to individuals only through bank accounts within a specific timeframe.

High Level Committee on Lead Bank Scheme

147. The High Level Committee on Lead Bank Scheme (Chairperson: Smt. Usha Thorat) submitted its draft report on May 21, 2009. The Report was placed on the Reserve Bank’s website inviting comments from public and other stakeholders. Based on the feedback received, the Committee submitted its final report to the Reserve Bank on August 20, 2009 and the report was placed on the Reserve Bank’s website on August 24, 2009. While the recommendations of the Committee are under consideration, it is proposed:

• to advise the lead banks to constitute a Sub-Committee of the District Consultative Committees (DCCs) to draw up a roadmap by March 2010 to provide banking services through a banking outlet in every village having a population of over 2,000, by March 2011. Such banking services may not necessarily be extended through a brick and mortar branch but can be provided through any of the various forms of ICT- based models, including through BCs.

Micro-finance: Status

148. The self-help group (SHG)-bank linkage programme has emerged as the major micro-finance programme in the country and is being implemented by commercial banks, RRBs and co-operative banks. As on March 31, 2009, 4.2 million SHGs were operating with an outstanding bank credit of Rs.22,680 crore, up by 34 per cent over March 31, 2008. During 2008-09, banks financed 1.6 million SHGs, including repeat loans to existing SHGs, to the tune of Rs.12,254 crore. There were 6.1 million savings accounts of SHGs with banks as on March 31, 2009 with total deposits amounting to Rs.5,546 crore.

149. The role of micro-finance institutions (MFIs) in providing financial services to the poor is growing in importance. The banking sector has been extending loans to MFIs for on-lending to SHGs. During 2008-09, bank loans amounting to Rs.3,732 crore were disbursed to 581 MFIs, increasing the total outstanding loans to Rs.5,009 crore to 1,915 MFIs as on March 31, 2009.

Priority Sector Lending Certificates (PSLCs): Working Group

150. The Committee on Financial Sector Reforms (Chairman: Dr. Raghuram G. Rajan), inter alia, recommended introduction of priority sector lending certificates (PSLCs) for purchase by banks for achieving the priority sector lending target. According to the Committee’s recommendation, PSLCs would be issued by registered lenders such as MFIs, NBFCs, co-operatives, and registered money lenders for the amount of loans granted by them to the priority sector, and also by banks for the amounts in excess of their stipulated priority sector lending requirements. These certificates could be traded in the open market, and banks having shortfall in meeting the priority sector lending targets could buy such certificates and thus meet the priority sector lending norms. The Committee further recommended that in the trading of PSLCs, the actual loans would continue to remain on the books of the original lender unlike in outright purchase of loan assets. However, the buyer bank would show the amount in its priority sector lending requirements. The seller of PSLC, if it is a bank, will take it off its priority sector lending requirements even though it will continue to carry the loan on its books.

151. Preliminary discussions indicated that there are both merits and demerits of the proposal. Therefore, it is proposed:

• to constitute a Working Group to examine the issues involved in the introduction of priority sector lending certificates and make suitable recommendations.

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