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Click here to return to main page of Annual Policy Statement 2006-07
Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2006-07
Credit Delivery Mechanisms and Other Banking Services
144. It has been the endeavour of the Reserve Bank to improve credit delivery mechanisms and banking services by creating a conducive environment for banks to provide adequate and timely finance at reasonable rates without procedural hassles to different sectors of the economy. Developments and further measures initiated in this regard are detailed below:
(a) Delivery of Credit to Agriculture and Other Priority Sectors
145. Recent initiatives taken by commercial banks to improve technology and processing practices are expected to increase their lending to the agricultural sector and, in particular, induce appropriate pricing of credit to micro level borrowers. The implementation of the recommendations of the Vaidyanathan Committee (I & II) is expected to revive the rural co-operative credit structure and reduce the cost of multi-layering. Initiatives have been taken by the Reserve Bank to enable banks to significantly step up their exposure to self-help groups (SHGs) and also to take increased recourse to micro-finance institutions and post offices as agents to widen and deepen their outreach. The setting up of a Committee on Financial Inclusion has been announced by the Finance Minister. These measures are aimed at facilitating the delivery of financial services in rural areas at a reasonable cost.
146. The Budget announced a scheme providing short-term credit to farmers at 7 per cent per annum with a view to providing some relief to farmers through fiscal measures rather than cross-subsidisation within the banking sector. The Reserve Bank has commenced implementation of the budget measures, while ensuring the commercial viability of banks and the overall soundness of the credit system.
(b) Revival of Rural Co-operative Banking Institutions and Long-term Co-operative Credit Structure
147. The recommendations of the Task Force (Chairman: Prof. A. Vaidyanathan) appointed by the Government of India to propose an action plan for reviving the short-term rural co-operative banking institutions were accepted in principle by the Government and consultative meetings were held with the State Governments.
148. The Government also entrusted the work of studying the long-term co-operative credit structure for agriculture and rural development to the Task Force which has since submitted its draft report to the Government. The report of the Task Force has been placed on the websites of the Government and the NABARD for wider dissemination and comments. The Reserve Bank’s comments on the report have been sent to the Government.
(c) Shifting and Opening of Branches of Regional Rural Banks
149. In view of the importance of the RRBs as purveyors of rural credit, sponsor banks were encouraged to merge the RRBs sponsored by them State-wise in order to strengthen them. In this context, the Government has so far issued notifications providing for amalgamation of 93 RRBs into 27 new RRBs, sponsored by 15 banks in 12 States. Further proposals for amalgamation of 36 RRBs into 13 new RRBs are under consideration.
150. As indicated in the Annual Policy Statement of April 2005, the Reserve Bank took further steps in December 2005 to reposition RRBs as an effective instrument of delivery of financial services in the rural areas. Necessary instructions have been issued to RRBs and sponsor banks in this regard.
151. At present, authorisations for opening branches by RRBs are issued by the Reserve Bank, based on requests received from them through the NABARD and duly recommended by sponsor banks. In order to liberalise and simplify the branch licensing policy, it is proposed:
• to permit RRBs to open/shift offices after obtaining clearance from the Empowered Committees (ECs). Similarly, requests for conduct of foreign exchange business as limited authorised dealers (for current account transactions) will be approved on clearance by the ECs.
(d) Relief Measures for Distressed Farmers
152. Despite the spread of banking facilities in rural areas and availability of bank finance at reasonable rates, farmers in several areas are still in distress. It is proposed:
• to constitute a Working Group to suggest measures for assisting distressed farmers, including provision of financial counselling services and introduction of a specific Credit Guarantee Scheme under the DICGC Act for such farmers.
(e) Technical Group for Review of Legislations on Money Lending
153. The AIl India Debt and Investment Survey (NSS Fifty-Ninth Round) has revealed that the share of money lenders in total dues of rural households has increased from 17.5 per cent in 1991 to 29.6 per cent in 2002. Considering that high indebtedness to money lenders can be an important reason for distress of farmers, it is proposed:
• to set up a Technical Group to review the efficacy of the existing legislative framework governing money lending and its enforcement machinery in different States and make recommendations to State Governments for improving the legal and enforcement framework in the interest of rural households.
(f) Micro-finance
154. The programme of linking self-help groups (SHGs) with the banking system continues to be the major micro-finance programme in the country. By end-March 2006, as many as 1,996,488 (provisional) SHGs were linked to banks and the total flow of credit to SHGs was Rs.9,495 crore. The Union Budget, 2006-07 has proposed to enhance the annual target of credit linkage to 385,000 SHGs during the year.
155. The Internal Group (Chairman: Shri H.R. Khan), constituted by the Reserve Bank to examine issues relating to rural credit and micro-finance submitted its report in July 2005, which was placed on the Reserve Bank’s website for wider dissemination. On the basis of the recommendations of the Group, banks have been permitted on January 25, 2006 to use the services of non-governmental organisations/self-help groups (NGOs/SHGs), micro-finance institutions (MFIs) and other civil society organisations (CSOs) and post offices as intermediaries in providing financial and banking services through the use of Business Facilitator and Correspondent
models.
(g) Financial Inclusion
156. The Mid-term Review of October 2005 urged all banks to make basic banking facilities accessible to vast sections of population with a view to achieving greater financial inclusion. Accordingly, banks were advised to make available a basic ‘no-frills’ account either with ‘nil’ or very low minimum balances as well as charges. Banks were also advised to provide a simplified general purpose credit card (GCC) facility without insistence on collateral or purpose, with a revolving credit limit up to Rs.25,000 based on cash flow of the household to enable hassle-free access to credit to rural households. Such finance could be included by banks under indirect finance to agriculture. A simplified mechanism for one-time settlement (OTS) of loans with principal amount up to Rs.25,000 which have become doubtful and loss assets as on September 30, 2005 was suggested for adoption. In case of loans granted under Government-sponsored schemes, banks were advised to frame separate guidelines following a State-specific approach to be evolved by the State Level Bankers’ Committee (SLBC). Banks have been specifically advised that borrowers with loans settled under the OTS scheme will be eligible to re-access the formal financial system for fresh credit. Banks are urged to give effect to these measures at all branches for achieving greater financial inclusion.
(i) Pilot Project of SLBCs for 100 per cent Financial Inclusion
157. The SLBC in the Union Territory of Pondicherry has taken steps to achieve 100 per cent financial inclusion by ensuring that every household in the Union Territory is given access to a ‘no-frills’ account as also a general purpose credit card (GCC) by December 2006. In order to ensure maximum financial inclusion, it is proposed:
• to advise SLBC convenors in all States/UTs to identify at least one district in their area for achieving 100 per cent financial inclusion by providing a ‘no-frills’ account and a GCC on the lines of the initiative taken in Pondicherry. On the basis of the experience gained, the scope for providing 100 per cent financial inclusion would be considered by each SLBC to cover other areas/districts.
(ii) Committee on Financial Sector Plan for the North-Eastern Region
158. A Committee (Chairperson: Smt. Usha Thorat) with members from banks, State Governments from the North-Eastern States and academics has been constituted by the Reserve Bank in order to improve provision of financial services in the North-Eastern region and prepare an appropriate State-specific monitorable action plan. The Committee is expected to submit its report by end-June 2006.
(h) Customer Service
159. The progress made in specific areas and further initiatives in this regard are detailed below:
(i) The Banking Ombudsman Scheme 2006
160. As indicated in the Annual Policy Statement of April 2005, the Banking Ombudsman Scheme, 2002 was revised and the Banking Ombudsman Scheme, 2006 came into force with effect from January 1, 2006. The scope of the Scheme has been enlarged to cover customer complaints in areas such as credit card complaints, deficiencies in providing the services assured by banks and banks’ sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks. The Scheme also provides for on-line submission of complaints. Furthermore, the Banking Ombudsman page on the Reserve Bank’s website has been incorporated to provide details of awards given by Consumer Courts on deficiencies in services over the last few years.
(ii) Banking Codes and Standards Board of India
161. As indicated in the Mid-term Review of October 2005, the Banking Codes and Standards Board of India (BCSBI) has been set up in February 2006 as a society promoted by banks. The management of the Board has been entrusted to a Governing Council under the chairmanship of Smt. K.J. Udeshi, former Deputy Governor.
(iii) Fair Practices Code: Reasonableness of Bank Charges
162. The Reserve Bank continues to receive representations from the public about unreasonable and non-transparent service charges being levied by banks indicating that the existing institutional mechanism in this regard is not adequate. In order to ensure fair practices in banking services, it is proposed:
• to make it obligatory for banks to display and update, in their offices/branches as also on their websites, the details of various service charges in a format to be approved by the Reserve Bank. The Reserve Bank would also place such details on its website.
• to constitute a Working Group comprising a nominee of the IBA and representatives of customers to formulate a scheme for ensuring reasonableness of bank charges and to incorporate the same in the Fair Practices Code, the compliance of which would be monitored by the BCSBI.
(iv) Pension Payment Services by Banks
163. The Reserve Bank has taken certain initiatives to improve services provided by agency banks to pensioners under various pension schemes announced by the Government from time to time. In order to reduce the time lag between the announcement of Government orders relating to dearness relief arrears and payments released by banks to pensioners, banks have been advised to put in place a mechanism to collect copies of government orders and send them to pension paying branches for release of pension amounts to pensioners. Controlling offices/head offices of agency banks have also been advised to closely monitor and supervise timely and correct disbursement of pension to eligible pensioners. In order to facilitate payment of the pension amount to the nominees of pensioners, banks have been advised to record the names of nominees as declared on the nomination forms on the front page of the passbooks.
(v) Services to Depositors and Small Borrowers in Rural and Semi-Urban Areas
164. The Annual Policy Statement of April 2005 proposed a survey in order to make an assessment of customer satisfaction on credit delivery in rural areas by banks. Accordingly, the National Council of Applied Economic Research (NCAER) has been entrusted to carry out a study to find out the quality of services rendered by branches of commercial banks to their customers, both depositors and small borrowers, in rural and semi-urban areas. The study would also attempt to bring out regional and inter-bank comparisons of various services provided by banks to their customers, besides covering the expectations and requirements of the customers from the banks.
(i) Priority Sector Lending
165. As indicated in the Mid-term Review of October 2005, the draft Technical Paper of the Internal Working Group (Chairman: Shri C. S. Murthy), set up by the Reserve Bank to review the existing policy on priority sector lending, was placed on the Reserve Bank’s website for wider dissemination and comments. Based on the feedback, it is proposed:
• to place revised draft proposals on the website for further feedback.
(j) Relief Measures by Banks in Areas Affected by Natural Calamities
166. As recommended by the Advisory Committee on Flow of Credit to Agriculture and Related Activities from Banking System (Chairman:Prof. V.S. Vyas), banks were advised by the Reserve Bank in October 2005 that if a District Consultative Committee (DCC) is satisfied that there has been extensive crop loss on account of natural calamities, the relief including conversion/restructuring facilities of agricultural loans as per the extant guidelines could be extended to the farmers without declaring Annewari.
167. As indicated in the Mid-term Review of October 2005, an Internal Working Group (Chairman: Shri G. Srinivasan) was constituted to examine various issues in respect of areas affected by natural calamities and suggest suitable revisions to the existing guidelines with a view to making them comprehensive. The Group’s recommendations include restoration of banking operations and activities for providing continuous banking access to customers, restructuring of existing loans and easier guidelines for issuance of fresh loans and rationalisation of regulatory reportings. The draft report of the Group has been placed on the Reserve Bank’s website for wider dissemination and comments.
168. An Empowered Task Force was constituted for adopting a bank-specific approach in the Union Territory of Andaman and Nicobar Islands to expedite measures for tsunami-affected borrowers. The Task Force has submitted its recommendations and the banks concerned are being suitably advised.
Click Here For Highlights of Annual Policy Statement for the Year 2006-07
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