The Rural Banking Turnaround Model

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The Rural Banking Turnaround Model

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The Rural Banking Turnaround Model

  1. 1. Team Member Tushar Arora 9176633879 Sushant Midha 9176610426 Siddhant Gupta 8939922215 Vikram Choudhary 9381766572College : Great Lakes Institute of Management
  2. 2. Consists of 61.35% of the Indian Population (740 Million People) Around 638000 Villages and 135 million households In 2010, Rural GDP stands out to be around US $ 460.08 Billion Contribute 43% of the National Income4/8/2012 2 http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx
  3. 3. Number of Rural Branches – 31277 ( only 39.7% of the totalPresent Number)State of Only 54 saving account for every 100 person in rural AreasRuralBanking Only 26% of the people with income less than Rs 50000 have a bank accountSector Only 13% of the farmers availed bank loans while 54% havein India. used non-institutional and other forms of lending Huge Advanced TurnAround potential Technology Possible 4/8/2012 http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx 3
  4. 4. Rural people are considered un-bankable Human Small loan Resource Amount Constraints Bank’s Perspective Long Distance Information for services/ Asymmetry Branches High Lack of Transaction collateral Cost4/8/2012 http://tejas-iimb.org/articles/74.php 4
  5. 5. High Transaction Cost for client for E.g. Travel Prior rejection by formal Documentation banking system Customer’s perspective Convenience of Lack of informal Awareness lending Non- Availability of Lack of social special capital products4/8/2012 http://tejas-iimb.org/articles/74.php 5
  6. 6. Local area banks are set up in private sector to cater to the credit needs of the local people and to provide efficient and competitive financial intermediation services in their area of operation. RBI Guidelines to set up LABs can be Accessed at this link: RBI Guidelines to set up LABs4/8/2012 http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=5817 6
  7. 7. NGO/MFI BULK-LENDING  Funds placed at disposable of NGOs or MFIs for lending to SHGs or individuals.  Hindering factor-Banks exposed to two levels of risk  Low capitalization and inability to undertake role of financial intermediation by NGOs and MFIs.4/8/2012 http://tejas-iimb.org/articles/74.php 7
  8. 8. SELF HELP GROUPS(SHGS)  SHG –Bank-Linkage Programme in 2009-10  A ”Savings-first” model in which a group of people collude and take loan from the bank.  Major features include- credit discipline as a norm, joint liability and social collateral.  Collaboration with the help of a NGO, however absence of NGOs in some states has been hurting the growth of this model4/8/2012 http://tejas-iimb.org/articles/74.php 8
  9. 9. KISAN CREDIT CARD (KCC)  Enable farmers to get loan over a 3 to 5 year period as a revolving credit entitlement thus, providing them control over their cash flows and reduced transaction costs for both the banks and the farmers.  Creation of point of sale kiosks is the biggest constraint.4/8/2012 http://tejas-iimb.org/articles/74.php 9
  10. 10. BUSINESS FACILITATOR OR CORRESPONDENT MODEL (BCS)  Business facilitator are the Institutions or persons, who interface between the rural poor and banks, and are leveraged to provide support services under well- defined terms and conditions by way of contractual arrangements.  Provides basic support services such as customer identification, collection of information/applications, credit appraisal, marketing etc.  While BCs are specific agencies e.g. MFIs, NBFCs etc. which also provide disbursal of small value credit as “pass through” agents for the parent bank.4/8/2012 http://tejas-iimb.org/articles/74.php 10
  11. 11. HUB AND SPOKE MODEL FOR RURAL BANKING Local As per this model, we propose to set up new Agents branches of the banks, say-one for every 100 villages acting as a Hub for all transactions Bank BANK Local Agents Around this branch will be a network of MFIs/ BC NGOs and business correspondents which will act as spokes and will be in direct contact with Local the Banks. Local Agents Agents Local To increase the spread to even larger levels, Local Agents MFIs/NGOs can further become 2nd level hubs. Agents Local The final leg of this model would be the local Local BANK BC BANK Agents agents who would be the direct point of Agents Local Local Agents Local contact with the villagers at grass-root level. Agents Agents Local Local Agents Agents BC 4/8/2012 11
  12. 12. PRODUCT 1 : BANKING TRANSACTIONS - VIA BCS , LOCAL AGENTS AND MOBILE Proposed Model works on the same approach as Mobile recharge model. Correspondents would help rural customers in opening their saving bank accounts just as they currently work in opening mobile accounts. This bank account would be linked to the Mobile phone number account. Correspondent will have a credit limit defined by the bank based on their credit ratings, to credit the cash in the bank accounts of the rural customer just like a recharge transaction through mobile phone. Correspondents will credit the account of the rural customer on cash payment and this money will then follow back to the banks through the local agents. In case of those customers who don’t have access to mobile connection, Local agents would act as their point of contact for money collection and disbursement. 4/8/2012 http://www.tsi.in/Rural_Banking.html 12
  13. 13. CASHLESS BANKING- MOBILE TRANSACTIONS For transaction of money, SMS based system will be introduced where the rural consumer would be able to have cash less transaction via secured text messages. Sender or payee will be able to text the amount and the phone number (which is linked to the bank account of the receiver) and cash transaction would take place automatically like an online transaction. Transaction could also be taken place between a registered user and a non register user , pay bills, and purchase mobile, airtime credit 4/8/2012 Catching the Technology Wave: Mobile Phone Banking and Text-A-Payment in the Philippines 13
  14. 14. PRICING MODEL FOR PRODUCT 1 Collaboration with one of the biggest mobile service providers. No charges for the transaction messages received. Charges are applied only for transactions initiated by the user in lieu of saved time and additional benefits and convenience enjoyed. Charges are uniform all over the country and would be fixed rather than depending upon the transaction size. Transaction charges are subtracted from the account of the initiator directly. Vendor/ Business Correspondents/Mobile service providers can collect their commission for all the transactions done through them directly from the Bank. Transaction Type Transaction Range Charges( Paise) Minimum Maximum Amount Amount Deposit Cash 100 50000 0 Send money to other registered user 100 10000 30 10001 25000 40 25001 50000 50 Withdraw of Cash from Outlet 100 250 30 251 500 40 501 1000 30 1000 10000 20 10001 50000 10 Pay Bill Transaction RS 10 4/8/2012 14
  15. 15. PRODUCT 2 : LOAN / CREDIT PROCESS Small Amount Loans  Each Business Correspondent will be given a separate Loan Credit Limit i.e. the amount up to which he can disburse the loan amount directly.  This credit limit will be set by the bank on the basis Local Agent of the credit rating of the correspondent and the BC amount of collaterals reserved by him with bank. Local Agent  The local agents stand responsible to do a complete customer profiling at the time of opening Bank the bank account itself so as to foresee what kind Disburse a Local Agent of products/loans the customer may require. fixed BCLarge Amount Loans amount of loan to a BC Local Agent  MFI/NGOs will evaluate, recommend, originate the Distributes loans to local agents loans, help in disbursal and subsequently track and based on Direct POC for collect the loans. expected villagers to apply and  Loans will sit on the books of the Bank and business, etc. collect loans MFI/NGOs are not exposed to the risk. 4/8/2012 15
  16. 16. 4/8/2012 16
  17. 17. AADHAR ‘Aadhaar the unique identification number, will be a support to banks in many ways. It would reduce the customer acquisition cost (estimated at Rs. 150 an account) It would reduce customer distribution costs and provide banks credible information for credit risk analysis in the years to come. With this, 1.2 billion credit histories will be available which will be a good KYC (know your customer) for bankers. 4/8/2012 http://www.thehindubusinessline.com/todays-paper/tp-others/tp-editorial-feature/article2601894.ece 17
  18. 18. FMCG Extensive distribution channels which have a reputation for running well oiled and deeply entrenched rural distribution networks. According to a Crisil research report, released earlier this year, HUL, which works with around 4000 stockists has access to 6.3 million retail outlets and 166 million households in India. Such distribution channels could be leveraged upon by business correspondents. 4/8/2012 Crisil Report 18
  19. 19. TELECOM High growth in tele-density in India can be leveraged upon as one of the channels for rural banking. Currently rural tele-density in India is 37% and is slated to reach over 60% by 2013.http://www.business-standard.com/india/news/rural-tele-density-will-reach-over-60-in-next-3-4-years-telecom-experts/427298/ 4/8/2012 http://bonelessresearch.blogspot.com/2011/03/indias-mobile-tele-density-to-reach-100.html 19
  20. 20. GOVERNMENT SCHEMES Tying up with government schemes and initiatives could act like a catalyst for this “financial inclusion” model. Here the money to be disbursed would be channelized through the suggested model hence motivating people to adopt it. Imagine what big impact a Rs 22,000 cr NREGA scheme could do this model? Moreover, as per Mr Rajesh Bansal, Assistant Director-General of Unique Identification Authority of India, post Aadhar, around Rs 3-lakh crore of subsidy transfer opportunity is waiting to be unlocked. 4/8/2012 20
  21. 21. FMCG Banks can leverage the distribution channels of FMCG companies in rural areas for marketing. Posters, pamphlets etc. in vernacular languages can be circulated through these networks. 4/8/2012 21
  22. 22. VILLAGE PANCHAYATS Bank personnel can personally go to Panchayats and educate people about the rural banking process and also about the work of business correspondent. This will build the trust among the people towards the mobile technology and the business correspondent. Typing up with existing rural based NGOs , MFIs and self-help groups could be a good way to get word-of-mouth publicity 4/8/2012 22
  23. 23. MOBILE VANSBank’s mobile van will makefrequent visits to the ruralplaces and organizing campsin remote areas. The mainobjective of this initiativewould be to understand thepain-points of the villagersand help them understandhow banks could help themwith their problems. 4/8/2012 23
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