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Dr. V.A. Joseph M.D. & CEO, South Indian Bank 01/21/12 Trivandrum Management Association Silver Jubilee Convention 5 th  F...
01/21/12
01/21/12
01/21/12
01/21/12
01/21/12
01/21/12
01/21/12
01/21/12 East Asia (China– 42%) South Asia (India -22%) Financial Inclusion – A Global Picture
01/21/12 Source: IIFL Number of times China’s growth over India China’s Growth vs India’s
01/21/12
<ul><li>Equal Growth Opportunities rather than skewed at the top </li></ul><ul><li>No Geographical/cast/communal/gender ba...
<ul><li>Financial Inclusion </li></ul><ul><ul><li>Measures to ensure each house-hold/individual is financially literate </...
01/21/12
<ul><li>RBI which was set up in 1935, nationalized on 1949 </li></ul><ul><li>Banking Regulation Act, 1949 </li></ul><ul><l...
<ul><li>In 1969, 1833 rural bank branches ( 22% ) out of total of 8262  </li></ul><ul><li>In 2010, rural branches are 3249...
<ul><li>In 1980, for SCB, Total Deposit accounts in rural areas was  2.83  Crore, which increased to  19.97   Crore in 200...
<ul><li>SCB, Total Loan accounts in rural areas in 1980 was  76 Lakhs  which increased to  3.38 Crore  in 2009 </li></ul><...
<ul><li>Total Domestic Savings contribution of household sector was 578 Cr in 1950, which has increased to 11,50,135 Cr in...
<ul><li>The story thus far, </li></ul><ul><ul><li>Out of 6,00,000 habitations only 30,000 have commercial bank branch </li...
01/21/12
<ul><li>The rural penetration of banking even though good has not been sufficient mainly because it is perceived as not co...
<ul><li>High cost & burdensome procedures drive poor further away </li></ul><ul><li>Low Literacy hinders creating awarenes...
<ul><li>Basic infrastructure facilities are lacking in rural areas especially electricity & communication </li></ul><ul><l...
01/21/12
<ul><ul><li>RBI& Govt. have been a real driving force in promoting Financial Inclusion </li></ul></ul><ul><ul><ul><li>RBI ...
<ul><ul><li>RBI has been very strong in promoting FI </li></ul></ul><ul><ul><ul><li>By 2012, all villages with population ...
<ul><ul><li>No Frills Accounts – simplified KYC norms </li></ul></ul><ul><ul><li>General/Kissan Credit Cards (GCC) – small...
<ul><ul><li>A Bank can appoint individuals, groups, agencies etc. permitted as per RBI as Business Correspondents </li></u...
<ul><ul><li>Allows customer enrollment, debit & credit transactions, statements etc. </li></ul></ul><ul><ul><li>Savings Ac...
<ul><ul><li>New Pension System (NPS) & NPS Lite </li></ul></ul><ul><ul><ul><li>Banks have been allowed to act as points of...
<ul><ul><li>NABARD – Self Help Group (SHG) linkage program </li></ul></ul><ul><ul><ul><li>NABARD provides assistance to NG...
<ul><ul><li>Priority Sector Advances (40% of Net Bank Credit) </li></ul></ul><ul><ul><li>Agriculture Advances (18% of Net ...
<ul><ul><li>The banks using low cost methods get access to the most lucrative un-targetted population in the country </li>...
<ul><ul><li>We have come a long way, especially for a country with a very high population and diverse geographical, cultur...
01/21/12 Data Courtesy : RBI speeches, articles, database & other public sources Experience Next Generation Banking
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  1. 1. Dr. V.A. Joseph M.D. & CEO, South Indian Bank 01/21/12 Trivandrum Management Association Silver Jubilee Convention 5 th February, 2011 @ Thiruvananthapuram
  2. 2. 01/21/12
  3. 3. 01/21/12
  4. 4. 01/21/12
  5. 5. 01/21/12
  6. 6. 01/21/12
  7. 7. 01/21/12
  8. 8. 01/21/12
  9. 9. 01/21/12 East Asia (China– 42%) South Asia (India -22%) Financial Inclusion – A Global Picture
  10. 10. 01/21/12 Source: IIFL Number of times China’s growth over India China’s Growth vs India’s
  11. 11. 01/21/12
  12. 12. <ul><li>Equal Growth Opportunities rather than skewed at the top </li></ul><ul><li>No Geographical/cast/communal/gender barriers </li></ul><ul><li>Reduction in poverty & disparities of income </li></ul><ul><li>Ensuring basic minimum standard of living (education, health, finance, housing, employment etc.) </li></ul><ul><li>Financial Empowerment </li></ul>01/21/12 Inclusive Growth
  13. 13. <ul><li>Financial Inclusion </li></ul><ul><ul><li>Measures to ensure each house-hold/individual is financially literate </li></ul></ul><ul><ul><li>Each house-holds/individual (urban/rural poor) have access to banking system (Deposits , Loans , Remittances, Insurance) </li></ul></ul><ul><ul><li>Affordable for the poorest of poor </li></ul></ul><ul><ul><li>Enables beneficiaries of Govt. welfare schemes to enjoy timely payment </li></ul></ul>01/21/12 Financial Inclusion
  14. 14. 01/21/12
  15. 15. <ul><li>RBI which was set up in 1935, nationalized on 1949 </li></ul><ul><li>Banking Regulation Act, 1949 </li></ul><ul><li>State Bank of India (Bank of Calcutta & later Imperial Bank) in 1806 & its subsidiaries were constituted later </li></ul><ul><li>14 banks were nationalized in 1969 </li></ul><ul><li>6 more were nationalized in 1980. (At that point almost 90% of banking business was under Govt. control) </li></ul><ul><li>Old Generation Private Sector banks started functioning from beginning of 1900s </li></ul><ul><li>In 1990s, new generation private sector banks were introduced </li></ul>01/21/12 Indian Banking History
  16. 16. <ul><li>In 1969, 1833 rural bank branches ( 22% ) out of total of 8262 </li></ul><ul><li>In 2010, rural branches are 32494 ( 38% ) out of a total of 84604 </li></ul>01/21/12 Indian Banking History
  17. 17. <ul><li>In 1980, for SCB, Total Deposit accounts in rural areas was 2.83 Crore, which increased to 19.97 Crore in 2009 </li></ul><ul><li>In 1980, for SCB Total Deposit amount in rural areas was 3,975.27 Crore, which increased to 3,63,910.19 Crore in 2009 </li></ul>01/21/12 Indian Banking History
  18. 18. <ul><li>SCB, Total Loan accounts in rural areas in 1980 was 76 Lakhs which increased to 3.38 Crore in 2009 </li></ul><ul><li>SCB, Total Loan amount in rural areas in 1980 was 2,051.54 Cr, which increased to 3,09,627 Crore in 2009 </li></ul>01/21/12 Indian Banking History
  19. 19. <ul><li>Total Domestic Savings contribution of household sector was 578 Cr in 1950, which has increased to 11,50,135 Cr in 2008 </li></ul><ul><li>Total agricultural credit by SCB was 378 Cr in 1970 & is 3,75,595 Cr in 2008-09 </li></ul><ul><li>In 1973-74 period, people below poverty line was around 54% which in 2004-05 has come down to 27.50% </li></ul>01/21/12 Indian Banking History
  20. 20. <ul><li>The story thus far, </li></ul><ul><ul><li>Out of 6,00,000 habitations only 30,000 have commercial bank branch </li></ul></ul><ul><ul><li>Only 40% of population across country have bank accounts </li></ul></ul><ul><ul><li>Out of the above many are dormant accounts </li></ul></ul><ul><ul><li>Proportion of people with life insurance 10% </li></ul></ul><ul><ul><li>Proportion of people with non life insurance 0.6% </li></ul></ul><ul><ul><li>People with debit cards 13% </li></ul></ul><ul><ul><li>People with credit cards 2% </li></ul></ul><ul><ul><li>51% of 90 million house-holds did not have credit from institutional/non-institutional sources </li></ul></ul><ul><ul><li>Only 27% had credit from formal financial sources </li></ul></ul>01/21/12 Financial Inclusion – Indian Story
  21. 21. 01/21/12
  22. 22. <ul><li>The rural penetration of banking even though good has not been sufficient mainly because it is perceived as not cost effective </li></ul><ul><li>The rural finance sector is still being dominated by non-institutional factors such as money-lenders who offer tailor made products </li></ul><ul><li>They do not fall under normal credit worthiness parameters denying them opportunities of normal institutional credit </li></ul>01/21/12 Reasons for financial exclusion
  23. 23. <ul><li>High cost & burdensome procedures drive poor further away </li></ul><ul><li>Low Literacy hinders creating awareness on healthy financial planning at rural centres </li></ul><ul><li>Economic Growth has not trickled down </li></ul><ul><li>The gap between haves & have nots has increased significantly </li></ul>01/21/12 Reasons for financial exclusion
  24. 24. <ul><li>Basic infrastructure facilities are lacking in rural areas especially electricity & communication </li></ul><ul><li>Vast amount of migration has created a new segment of Urban Poor </li></ul><ul><li>The poor whose primary source of income is agrarian, is highly susceptible to vagaries of nature </li></ul>01/21/12 Reasons for financial exclusion
  25. 25. 01/21/12
  26. 26. <ul><ul><li>RBI& Govt. have been a real driving force in promoting Financial Inclusion </li></ul></ul><ul><ul><ul><li>RBI liberalized licensing norms for Tier-III centres and lower.(below 50,000 pop) </li></ul></ul></ul><ul><ul><ul><li>1/3 rd of branches opened in Tier-III centre should be underbanked districts/states for priority in Tier-I&II centres </li></ul></ul></ul><ul><ul><ul><li>No prior requirement of license to open branches in North-East </li></ul></ul></ul><ul><ul><ul><li>ATMs can be opened by banks without prior approval </li></ul></ul></ul><ul><ul><ul><li>Opening Loan Counselling Centres </li></ul></ul></ul><ul><ul><ul><li>Adoption of villages by banks </li></ul></ul></ul>01/21/12 Measures for Inclusion
  27. 27. <ul><ul><li>RBI has been very strong in promoting FI </li></ul></ul><ul><ul><ul><li>By 2012, all villages with population more than 2000 will have access to financial services through a banking outlet of any one bank </li></ul></ul></ul><ul><ul><ul><li>Each Bank to have a board approved policy for rolling out Financial Inclusion </li></ul></ul></ul><ul><ul><ul><li>All banks have been urged to include criteria regarding financial literacy and financial inclusion in performance evaluation of their field staff </li></ul></ul></ul><ul><ul><li>Promotion of financial literacy </li></ul></ul>01/21/12 Measures for Inclusion
  28. 28. <ul><ul><li>No Frills Accounts – simplified KYC norms </li></ul></ul><ul><ul><li>General/Kissan Credit Cards (GCC) – small ticket credit facility upto Rs. 25,000, cash withdrawal, revolving credit, for crop cultivation </li></ul></ul><ul><ul><li>Targetted financial inclusion drive by RBI based on ICT (Information & Communication Technology) products </li></ul></ul><ul><ul><li>Business Correspondent Model takes banks to masses </li></ul></ul><ul><ul><li>UID Project shall be a key catalyst in easy KYC </li></ul></ul><ul><ul><li>Education Loans for eligible candidates with staggered repayment options and interest rate subvention </li></ul></ul>01/21/12 Banking Products/Services for FI
  29. 29. <ul><ul><li>A Bank can appoint individuals, groups, agencies etc. permitted as per RBI as Business Correspondents </li></ul></ul><ul><ul><li>The BC is allotted a village within 30 kms of branch. </li></ul></ul><ul><ul><li>BC provided with hand-held devices with biometric authentication </li></ul></ul><ul><ul><li>In areas with connectivity, Hand held devices are connected to branch/CBS data centre </li></ul></ul><ul><ul><li>Else it works in offline model, using smart cards </li></ul></ul>01/21/12 Business Correspondent Model
  30. 30. <ul><ul><li>Allows customer enrollment, debit & credit transactions, statements etc. </li></ul></ul><ul><ul><li>Savings Account /Recurring Deposit Schemes provided </li></ul></ul><ul><ul><li>Loans based on pre-sanctioned limits provided </li></ul></ul><ul><ul><li>Customer need not come to a bank branch </li></ul></ul><ul><ul><li>Soon inter-bank remittances may also be possible </li></ul></ul><ul><ul><li>Flexibility of banking times as BC mostly resides in the village </li></ul></ul><ul><ul><li>High level of security to remove middle-men </li></ul></ul>01/21/12 Business Correspondent Model
  31. 31. <ul><ul><li>New Pension System (NPS) & NPS Lite </li></ul></ul><ul><ul><ul><li>Banks have been allowed to act as points of presence </li></ul></ul></ul><ul><ul><ul><li>NPS Lite targets weaker & economically disadvantaged sections of society & promotes small savings for providing annuity (i.e. pensions) at old age </li></ul></ul></ul><ul><ul><li>Mahatma Gandhi National Rural Employment Guarantee Act(NREGA) Scheme </li></ul></ul><ul><ul><ul><li>Govt. assures 100 days of employment to adult members of rural house-holds </li></ul></ul></ul><ul><ul><ul><li>Now payments done through banks using EBT (Electronic Benefit Transfer) relying on smart cards </li></ul></ul></ul><ul><ul><ul><li>Ensures transparency and elimination of middle-men </li></ul></ul></ul><ul><ul><ul><li>Timely wage payment to beneficiary </li></ul></ul></ul>01/21/12 Bank linked Govt. Welfare Schemes
  32. 32. <ul><ul><li>NABARD – Self Help Group (SHG) linkage program </li></ul></ul><ul><ul><ul><li>NABARD provides assistance to NGOs </li></ul></ul></ul><ul><ul><ul><li>Facilitates SHGs to access credit from formal banking channels </li></ul></ul></ul><ul><ul><ul><li>Started in 1992 and currently has more than 26 lakh SHG & 4 crore households </li></ul></ul></ul><ul><ul><li>RIDF (Rural Infrastructure Development Fund) </li></ul></ul><ul><ul><ul><li>To finance rural infrastructure development </li></ul></ul></ul><ul><ul><ul><li>Banks which have not met their Priority sector sub targets invest in RIDF </li></ul></ul></ul>01/21/12 Bank linked Govt. Welfare Schemes
  33. 33. <ul><ul><li>Priority Sector Advances (40% of Net Bank Credit) </li></ul></ul><ul><ul><li>Agriculture Advances (18% of Net Bank Credit) </li></ul></ul><ul><ul><li>Advance to weaker sections (10% of Net Bank Credit) </li></ul></ul><ul><ul><li>Education Loan Schemes to Students </li></ul></ul><ul><ul><ul><li>Liberalized norms on collateral security </li></ul></ul></ul><ul><ul><ul><li>Interest Rate subsidies </li></ul></ul></ul><ul><ul><ul><li>Staggered repayment </li></ul></ul></ul>01/21/12 Bank linked Govt. Welfare Schemes
  34. 34. <ul><ul><li>The banks using low cost methods get access to the most lucrative un-targetted population in the country </li></ul></ul><ul><ul><li>Access to cheap float funds </li></ul></ul><ul><ul><li>Small charges for services rendered can give reasonable revenue </li></ul></ul><ul><ul><li>Once, the poor (urban/rural) have responsible access to financial services, they will become better income earners, thereby increasing the savings portfolio </li></ul></ul><ul><ul><li>In short, it is a win-win for all stakeholders & the ultimate catalyst for real economic growth </li></ul></ul>01/21/12 Win – Win Situation
  35. 35. <ul><ul><li>We have come a long way, especially for a country with a very high population and diverse geographical, cultural barriers </li></ul></ul><ul><ul><li>Unless we seriously pursue the literacy programs we cannot create awareness & stimulate demand </li></ul></ul><ul><ul><li>Measures to revive Real sectors of economy </li></ul></ul><ul><ul><li>From the supply side, we have to constantly improvise & leverage technology to reduce costs </li></ul></ul><ul><ul><li>Basic infrastructure such as power & communication should be spruced up. </li></ul></ul>01/21/12 To sum up
  36. 36. 01/21/12 Data Courtesy : RBI speeches, articles, database & other public sources Experience Next Generation Banking
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