New Banking Licenses (India) and discussion on Business Model at unbanked centersBack Ground:-RBI has finally laid down, f...
Let’s discuss and understand the term Financial Inclusion. Financial inclusion program meaning and objective:-“Financial ...
Challenge:-Condition, that mandates 25% of branches in unbanked rural areas with population up to 9,999, is considered to ...
3. Leverage Phone- Banking & Mobile- Banking Phone Banking:-Phone banking has been introduced in India long back, where s...
M-Pesa is a branchless banking service, designed to enable users to complete basic banking transactions without the need t...
 Business CorrespondentsNGOs/ MFIs set up under Societies/ Trust Acts, Societies registered under Mutually Aided Cooperat...
FINO delivers these products and services to the customers of its client banks and insurance companies.Central government’...
and DCT, enables FINO to earn revenue out of these acquired accounts. Only concern area is the lower credit penetration of...
As discussed earlier, product delivery should be focused on Mobile banking platform, which will bring down the cost consid...
Free Mobile wallet services.Free Phone Banking platform, available in local language.Recurring deposits, Daily, Weekly, Mo...
For implementing the concept, Banks may be advised to have a Credit-Support officer, who can be someone with an agri back ...
Upcoming SlideShare
Loading in …5

New banking licenses (india) and discussion on business model at unbanked centers


Published on

Retail Banking

Published in: Business, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

New banking licenses (india) and discussion on business model at unbanked centers

  1. 1. New Banking Licenses (India) and discussion on Business Model at unbanked centersBack Ground:-RBI has finally laid down, following conditions on February 2013, to be followed by the interested applicants for New Banking Licenses inIndia, to be applied by July 1st 2013.Below article is an attempt at understanding the conditions laid down by RBI and its impact on the proposed Business Models.To start with, let’s analyze the conditions laid down by RBI.RBI Guidelines for setting up new Banks in India:- Entities both from private and public sector shall be eligible to set up a bank through a wholly-owned non-operative financialholding company (NOFHC). Minimum paid up equity capital of Rs 500 Crore. NOFHC ( should hold a minimum of 40 per cent of the equity capital of the bank with a lock-in period of five years, to be broughtdown to 15 percent within 12 year from that onwards. To be registered as non-banking finance companies with the RBI while the bank will be governed by the prudential regulations byRBI. The NOFHC and the bank shall not have any exposure to the Promoter Group. The bank shall not invest in the equity / debtcapital instruments of any financial entities held by the NOFHC. Past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. Business plan should be realistic and viable and should address how the bank proposes to achieve financial inclusion. Achieve priority sector lending target of 40%. 25% of branches in unbanked rural areas with population up to 9,999.Let’s analyze:- Top 6 conditions are aimed at ensuring licenses to only those applicants who are sound financially and ethically, and have a timetested track record to testify. Conditions 7, 8, 9 are the reason behind issuance of new Bank licenses.According to RBI estimates, almost 40-45% percent of population in India, does not have any access to Banking services and is presentlyoutside the purview prevailing banking system. Hence there was a need felt, to bring this population to the main stream by various measuresunder the heading of Financial Inclusion to ensure inclusive economic growth, without regional imbalances.New Banking License is one such measure aimed at Financial Inclusion, along with encouraging, fresh ideas and technology to existingbanking system by way of granting licenses to Institutions with proven track record.Under the conditions laid down, even Corporate Houses with clean track record may be permitted to set up Banks, which will add new flair tothe existing banking system and make it more dynamic and competitive.
  2. 2. Let’s discuss and understand the term Financial Inclusion. Financial inclusion program meaning and objective:-“Financial inclusion is the delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups”Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature ofpublic good, it is essential that availability of banking and payment services to the entire population without discrimination is the primeobjective of the public policy.One of the benchmarks employed to assess the degree of reach of financial services to the population of the country, is the quantum of depositaccounts (current and savings) held as a ratio to the adult population, data available as on March 31, 2004 suggests Banked population to thetotal adult population was only 59%.Objective of Financial Inclusion:- Improving Saving rate /Capital formation – Banking services will encourage people to save their money, which getsconsumed completely due to the absence of banking systems. In the absence of any savings, they are exposed to various risks withnowhere to look up. Banks in fact inculcate habits of saving by providing an opportunity to save and park money in bank accounts.Similarly, Capital formation is boosted once people move away from traditional modes of investments; in land, buildings, bullion, etc andpark their money in financial assets. Availability of Bank credit – Unbanked population has been exploited by channels like money lenders for years, and many atimes there is no way credit can be arranged, effectively killing the entrepreneur spirits of population in the unbanked area. Thusaffordable, adequate and transparent credit from banks will augment business initiatives, resulting increased outputs, productivityand prosperity. Eliminate leakages of various welfare schemes – Since India accounts for 22% of world’s poor, our Budgets allocatessubstantial sums towards social sector but due to absence of financial inclusion, seldom these sums reach the targeted sections andget leaked in between by middlemen and corrupt bureaucrats. Hence schemes like direct cash transfer (DCT) will ensure directcredit to beneficiary account without interference of middlemen, provided beneficiaries have bank accounts and bank branches intheir localities.Hence new banks will have to develop a business model, which will cater to the objectives of financial inclusion as well as the expectation ofthe share holders.Key elements of proposed business models should be, cost of transaction and credit risk management. Business model should specifyactionable, to bring down costs and manage risks, without affecting the objective of financial inclusion and profitability.Lets us discuss few opportunities, which can be leveraged for building a viable Business model, which will have enough strength in competingwith Old and existing banks, along with meeting objectives laid down by RBI.1. Leverage Cluster branch business model2. Leverage solar energy technology3. Leverage M-Banking & Phone Banking4. Leverage Business Correspondence Channel & Governments social sector spendingLets us discuss each opportunity:-1. Leverage Cluster branch business model
  3. 3. Challenge:-Condition, that mandates 25% of branches in unbanked rural areas with population up to 9,999, is considered to be a costly proposition,considering the time lag, in breaking even of these branches.Typically, a public sector bank takes about 5 years or more to turn profitable in unbanked rural areas and considering higher standards ofinfrastructure adopted by new generation banks, their branches normally takes double the time, to break even.Solution: -Low cost branches, attached to a nearby full-fledged branch at semi-urban or urban centre can be the solution.Low cost branches can be classified as branches with less than 1000 square feet (Including ATM Space), cost (Rent) not exceeding Rs.15 persquare feet.Maximum staff strength, capped at 3 (Branch Manager and 2 Officers) plus 1 office boy.Total operating cost of the branch including salaries , utility bills , conveyance, rent ,stationary ,postage & telegram , maintenance & repair etcshould be capped at Rs.1,50,000/-.Bonus eligibility for staff should be only after breaking even and should not exceed certain percentage of the profits generated but once breakeven; staff should be compensated higher allocation of ESOPs and other perks.Branch should undertake only cash /transfers & clearing transactions directly at the branch, all other financial & non financial transactionsshould be routed through scanned documents to be processed at cluster branch.Cluster branch concept will enable Banks to open a Main branch and along with few low cost branches at nearby unbanked centers. SinceMain branch is around, low cost branches can fall back on the main branch, in case of any requirement or emergencies.Cluster of branches will have larger command area, where more business opportunities will be available, than a mere stand along branch atunbaked area, where population is less than 10,000.2. Leverage solar energy technologyBarring the upfront cost, where Government has various subsidy schemes, solar energy comes up as the most cost efficient form of energy.Various advantages of using solar energy are, the power source of the sun is absolutely free, production of solar energy produces no pollution,technological advancements in solar energy systems have made them extremely cost effective and most systems do not require anymaintenance during their lifespan, which means you never have to put money into them throughout the a life span of 30 to 40 years alongwith full warranty for 20 to 30 years or more.For Branches across, cost of electricity as well as the undisrupted supply of electricity remains a major cost and convenience challenge andunbanked areas being rural centers, availability of uninterrupted electricity is a bigger challenge. Thus cost of running diesel generators willhave huge impact on overall operating cost of the branch.Hence it makes sense to set up solar energy systems at branches for its energy requirements, instead of resorting high cost generators as wellas the unpredictable electricity supply. And with respect to cost, if we compare the cost of obtaining an electricity connection (Deposit to bemade at respective electricity board) and the cost of a new generator, solar systems where various government subsidies are available, worksout a better costing decision not just at the beginning but as discussed for next 30-40 years.In India, Indusind Bank has already started using solar energy to run its ATMs and for new banks, it will be a prudent management decisionto invest good money initially to roll out a stable solar energy model, which will keep a major variable cost under control along withundisrupted power supply at its branches.
  4. 4. 3. Leverage Phone- Banking & Mobile- Banking Phone Banking:-Phone banking has been introduced in India long back, where services are provided through automated IVRS (integrated voice recordingservice) or via call centre.Electronic banking is always cost effective, compare to brick & mortar model of business. For phone banking services to be effective forcustomers at rural centers, it has to be available in local languages and should be available 24/7.Since many prospective customers are hesitant or do not feel comfortable or doesn’t have enough time to travel to the branch for interactingwith banker on various needs or schemes and programs. Here is where phone banking employees across the banks have been able to crackgood results in cross selling various products & services to users, who doesn’t visit branches due to any of the above reasons.Phone Banking should be used to attend to service calls, panicky calls as well as for relationship maintenance and cross selling. There can’t bebetter way of getting connected with population in rural centers, considering their lack of exposure to social media or to even DTH services,unlike their counter parts at cities and towns.Banks like HDFC Bank has been highly successful in activating dormant accounts through phone banking channel, by cross selling secondaccounts, deposits, loans and investment products. Thus highlighting the effectiveness of phone banking channel, in activation and crossselling.New banks should develop a phone banking model, which will be localized in nature to service the customers at rural centers by relationshipmanagement and cross selling. M-Banking or Mobile Banking:-Mobile banking is one tool, which can change the face of banking in India; it has been long identified as the real game changer in the bankingsector by none other than Mr. K V Kamath, present non executive chairman of ICICI Bank.Mobile penetration in India is around 75% against banking penetration of about 55% and mobile phones are now a necessity and no more aluxury; used by rich and poor alike. This is where the opportunity lies in developing mobile banking channel as an important channel forproviding banking products & services.Mobile Banking services have been offered from last few years in India. RBI defines m-banking as “Undertaking banking transactions usingmobile phones by bank customers that involve credit/debit to their accounts.” It also covers customers accessing bank accounts for non-monetary transactions such as balance enquiry, requesting a check book etc.Against 75%to 80% penetration of Mobile phones in India, only 5% of the mobile users are said to be using mobile banking services.Common services like SMS alerts is popular amongst users, but other services are not popularly used by account holders. Many banks inIndia, now has developed advanced mobile banking solutions, offering all the existing products and services available under net bankingbouquet by way of friendly mobile banking platform, but popularity and usage is far from satisfactory.Let’s discuss and understand new initiatives in the mobile banking arena, like IMPS and Mobile wallet services. Interbank Mobile Payment Service (IMPS)Interbank Mobile Payment Service (IMPS) feature enables customers to transfer and receive money from the customers of about 22 banks,which are a part of this network. IMPS allow account holders to send money to other account holders (who have an account with any of thebanks on the network) by typing the mobile number and the beneficiary’s 7 digit MMID. Federal Bank in Kerala has tied up Auto rickshawdrivers under this scheme, where travelers can avoid the inconvenience of hard currency, coins etc. Mobile wallet service like Ypay cash, M-pesa etc
  5. 5. M-Pesa is a branchless banking service, designed to enable users to complete basic banking transactions without the need to visit a bankbranch. M-Pesa customers can deposit and withdraw money from a network of agents that includes airtime resellers and retail outlets actingas banking agents.The service enables its users to Deposit and withdraw money, Transfer money to other users and non-users, Pay bills ,Purchase airtime,Transfer money between the service and a bank account.YPayCash is a mobile based prepaid payment instrument which can be used for making payments for products and services using yourmobile. The instrument is issued by Y-Cash Software Solutions Pvt. Ltd. which is authorized by the RBI to issue pre-paid instruments.YPayCash can be used for making physical payments at designated merchants/ retail shop, to send money to friends and family and torecharge your mobile/DTH.HDFC Bank has tied up with M-pesa for offering services at certain centers; Karur Vysya Bank has tied up with Ypaycash for mobile walletservices.Hence new banks should develop a mobile banking platform bringing all these technological platforms together; Existing mobile bankingservices, IMPS services and Mobile wallet services, enabling customers to carry their bank in their pockets. Factors supporting mobile banking:-Command area for mobile banking is as large as the mobile net work, which is spread across the nation but out of these mobile users, onlyabout 5 % is using mobile banking and over all penetration of mobile phone users is 20 % or more than the, overall banking penetration.These two factors represents a huge opportunity , Banks will have to make mobile banking as safe as internet banking and branch bankingalong with addressing the concerns of connectivity and speed. Further Mobile banking needs to cost effective for the customer in comparisonto Brick & Mortar banking options. Advantages of Mobile Banking:-Cost of transaction will come down drastically for banks, as cash, cheque processing cost will reduce with higher mobile banking penetration.Physical cash holding will reduce substantially, resulting in more float money for banks.Population outside the banking network can be pulled in to the system by effective implementation (All those population who are presentlyoutside banking network and preferring to deal in hard cash).Increased command area for business, as banks can effectively play a role in linking various towns, cities with remotest villages in the countryand tap huge float money.According to various data available, total contribution of remittances (Inter-state) to GDP is about 10%, working out to $925 million (GDP-2011).Presently majority portion of it goes through hawala route, courier or by hand (hard cash), hence for banks there is huge opportunityon float balances, provided money is routed through banking system, enabling branches at unbanked rural centers as the sourcing point forthe large migrant remittances. A state like Kerala had witnessed domestic outward remittances to the tune of Rs.17000 Crore in the last fewyears highlights the huge opportunity.Similarly, taking the population as 9000 on an average, and average saving of Rs.100/per day for 20 days will mean Rs.1.80 Crore balancessaved in a month, which normally get consumed one way or other way if remains on hand, but if hard cash can be converted easily in tomobile bank money, these funds will remain within the banking system and will be available for creation of financial assets.Thus potential is huge and key to success is in implementation of mobile banking as a cheap and reliable form of banking channel.4. Leverage Business Correspondence Channel and Social sector spending of governmentLet’s understand the RBI’s definition and scope of Business Correspondence and meaning of Social sector spending by government.
  6. 6.  Business CorrespondentsNGOs/ MFIs set up under Societies/ Trust Acts, Societies registered under Mutually Aided Cooperative Societies Acts or the CooperativeSocieties Acts of States, section 25 companies, registered NBFCs not accepting public deposits and Post Offices, Retired bank employees, ex-servicemen and retired government employees, Kirana Shop owners, Insurance agents etc may act as Business Correspondents.While appointing individuals as BCs, banks have to ensure that these individuals are permanent residents of the area in which they proposeto operate as BCs and also institute additional safeguards as appropriate to minimize agency risk.Scope of activities to be undertaken by the Business Correspondents will include:- Disbursal of small value credit, Recovery of principal / collection of interest Collection of small value deposits Sale of micro Insurance/ mutual fund products/ pension products/ other third party products Receipt and Delivery of small value remittances/ other payment instruments. Identification of borrowers and fitment of activities Collection and preliminary Processing of loan applications including verification of primary information/data Creating Awareness about savings and other products and education and advice on managing money and Debt counseling Processing and submission of applications to banks Promotion and Nurturing Self Help Groups/ Joint Liability Groups Post-sanction monitoring Monitoring and handholding of Self Help Groups/ Joint Liability Groups/ Credit Groups/ others Follow-up for recovery.The activities to be undertaken by the BCs need to be within the normal course of the banks banking business, but conducted through thepermitted entities at places other than the bank premises. Payment of commission/ fees for engagement of BCsBanks may pay reasonable commission/ fee to the Business Correspondents, the rate and quantum of which may be reviewed periodically. Itwas also stipulated that the agreement with the BC’s should specifically prohibit them from charging any fee to the customers directly forservices rendered by them on behalf of the bank. Social Sector Spending meaning:-Considering 22% of world’s poor lives in India, Government of India has been committed to improve lives of poor by spending on variousprograms under the head known as social sector spending.Social sector spending is largely focused on poverty alleviation programs, broadly classified into, Self-employment programs / Wageemployment programs / Food safety programs and Social security program. For ex: - MNREGA, PMRY, Food Security Bill etc. Potential of BC Channel:-BC Channel’s potential can be gauged by the success of FINO (Financial Information Network & Operations Ltd), a project incubated byICICI Bank in the early 2000.Since inception, Fino has added more than 50 million customers through its network of “Bandhus” along with registering profits and raisingcapital successfully from various leading institutions.The government business is FINOs bread and butter, where FINO distributes various government initiatives like pension and other benefits.Unlike MFIs that have been largely focusing on women in rural areas and enterprises involving one product (micro-credit or small loans),FINO has an entire bouquet of products and services, like Mitra (mobile banking), Sure (insurance), Parichay (identification services),Sayana Ravi (financial advice), Tatkaal (remittances) and several others.
  7. 7. FINO delivers these products and services to the customers of its client banks and insurance companies.Central government’s decision to distribute funds under its various social service schemes through electronic benefit transfers (EBT) hasbrought in excellent revenue for FINO, where it gets a fee of 1.75 percent per transaction. In FY12, it disbursed Rs 2,300 crore in EBTs andclocked revenue of $55 million, 34 percent of its total revenue kitty. For every account it opens, the bank pays FINO a commission,contributing to 40 percent of its revenues. The company also works with the government’s RSBY insurance scheme and earns a share of theRs 30 fee paid by each customer and once Governments most ambitious project Direct Cash Transfer (DCT) is in place, FINO’s revenues willimprove further. Potential of Governments Social Sector spending:-Government of India’s social sector expenditure has been pegged at about 7% of GDP. Let’s see few heads under which, the allocation hasbeen made in 2013-14 budgets.Various heads and allocation amount Backward Regions Grant Fund: INR11500 CRORE Left Wing Extremism (LWE) affected districts: INR 1000 CRORE Nirbhaya Fund: INR 1000 CRORE Ministry of Health and Family Welfare: INR 37330 CRORE Medical education, training and research: INR 4727 CRORE Students belonging to Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorities, and girl children: INR 5284CRORE The Mid-day Meal Scheme: INR 13215 CRORE Integrated Child Development Scheme (ICDS): INR 17700 CRORE Scheduled castes sub plan: INR 41561 CRORE Tribal sub plan: INR 24598 CRORE The gender budget: INR 97134 CRORE Child budget: INR 77236 CRORE Ministry of Minority Affairs: INR 3511 CROREThe Union Government announced rolling out Direct Benefit Transfer Scheme throughout the country and Finance Minister has announcedthat around 11 lakh beneficiaries received the benefits directly into their bank accounts and government would make sure that digitizedbeneficiaries lists are available and bank account is opened for each beneficiary. This is a big opportunity for new acquisition.The Finance Minister’s announcement extending interest subvention on short-term crop loans to private banks would make crop loan ratesfrom private banks competitive and will encourage them to offer crop loans from their branches, opening up another opportunity to tap in torural markets.Further to highlight the opportunity at the unbanked areas, a recent report from McKinsey & Co projects rural banking in India to be worth$24 billion in assets by 2015 and government may save about $18 billion by direct cash transfer of subsidies to the beneficiary accounts. How to take advantages of BC Channel and Social Sector spending potential:-Since new Banks will have to set up 25% of their branches at unbanked rural centers along with ensuring 40% of priority sector targets fromday one, banking profitably at unbanked centers is a critical task for their long term success.New banks can take a leaf out of Fino’s success, while developing their BC channel model. BC Channel & key take away from Fino:-Fino’s success can be attributed to the network of Bandhus (Field work force) and entire bouquet of products and services, enabling them toacquire more and more from remote villages. Government’s initiatives of transferring funds directly to beneficiaries accounts through EBT
  8. 8. and DCT, enables FINO to earn revenue out of these acquired accounts. Only concern area is the lower credit penetration of around 5%,which exposes the base to retention risk.Similar to Fino, one more institution which needs to be discussed is Sahara India. Sahara has a liability book in excess of Rs.1.5 lac crore, asof 2012, raised predominantly from rural India and they have been able to achieve this by offering, even 1 rupee daily deposit accountsthrough their agency channel spread across the country. This highlights the importance of taping in to the daily savings of rural populationnotwithstanding the ticket size.Further according to Mr. Khera (CEO-FINO) a transaction costs US$1 at a bank, 40 cents at an ATM and 10 cents at a BC, clearly pointing tothe cost advantage of BC Channel.But if we analyze a bit deep, BC channel like FINO, in effect adds one more layer of intermediation between bank and the customer, addingadditional layers of costs; commission to the BC and cost of technology ( smart cards, point-of-sales terminals, cost of regulation and the costof the carrier -- mobile or VSAT (satellite ground station).Hence it would make sense, for new banks to set up BC channel of their own, which will be cost efficient as well as an opportunity for directengagement.Models suggested for BC Channel and Effective delivery of social sector spending LIC-Field Officer & Agents modelBC channel should be set up with a Team Leader, who will hand hold and manage the entire BCs assigned to him. Insurance agency model ofLIC, where field officer recruits, motivates and manages his agents can be an ideal model to look for. PRO (Public Relation Officer) model of public sector banksPublic sector banks, uses their PRO’s to great effectiveness in building relationship with various stake holders, in the society.Probably new generation banks for unknown reasons failed to take advantage of such a channel across their command areas, resulting in asituation where customer base of new generation banks has largely remained exclusive of government, local bodies, panchayats and theirconstituents till recently.Only way to break in to these segments is, effective and active engagement. For that a senior banker (Retired-VRS) or a retired governmentemployee, should be the ideal candidates to look for.PRO should engage with Government, Local bodies, Panchayats, Private business and other influential personalities regularly and effectivelyto build a relationship and a robust prospect line for business.PRO’s should be tasked to draw business potential than business. Co-ordination Committees at Cluster BranchesCluster Branch level committee should bring together the activities of Branch Heads of both Cluster and Local branch, PRO and Team Leaderof BC Channel, reviewed by the Cluster Head.Business plans and progress should be reviewed periodically with adequate wieghtage of performance assigned to each of the constituent.This will ensure better co ordination amongst them for delivering goals resulting in better results.Product Delivery and Products & Services sold Products Delivery:-
  9. 9. As discussed earlier, product delivery should be focused on Mobile banking platform, which will bring down the cost considerably and willbring in many segments presently outside the purview of existing banking network.Reduction in cash holding on hand in form of currency will mean, increase in bank balances. Hence there has to be a major drive forimplementation of Mobile Banking platform, by involving Mobile operators and Mobile wallet service providers. This in way means notencouraging the existing focus on micro Atms or point of sale devices, that enables Bcs to disburse cash.Signing up of Kirana shops, other retail outlets, local health centers, place of worships, medical shops etc, will be the first task, as hard cash iscarried for various spending at these centers.Availability of local language for operating the device, comfort and simplicity of operation, safety and fast response will be crucial insuccessful implementation.Phone banking (24*7) should be there as a back –up, as in case of emergency customer should be able to contact human voice through phonebanking services.And even cross selling of various products, should be done through both phone banking and BC channel directly, as with Mobile bankingimplementation , BCs ideally shouldn’t have to meet customers regularly , rather should be running around to acquire more and more, andcross selling happening either at the time of acquiring or in a few days after the acquisition time. Hence phone banking will have to add up asthe cross sell channel. Products & Services:-From Fino’s success, main attraction is in acquiring fresh accounts linked with Aadhar number, where government’s EBT and CBT transferwill happen, ensuring activation and float.In order to acquire these customers afresh as well as switching from channels like Fino, will mean offering of better services and products bynew banks.Hence new banks will have to offer full bouquet of products and services, which will include even daily deposit schemes. Banks ability to sellgold loans, other small loans and social sector loans profitably will be most crucial for success, as unless Banks actively build its assetsportfolio, retention of liability portfolio may become difficult.Only liability -focus model may be successful in acquiring numbers, but retention and activation will remain herculean tasks as is the casewith most of the private sector banks today.Banks management should reward employees on successful credit business management, as it is the credit delivery which is going to decidehow much liability business banks are going to add and retain in the future. Liability / Third Party & Asset Products to be sold & serviced at branches at the Unbanked centersRural or Unbanked area population’s inflow source is either wages or subsides, both have gone up considerably in the last few years.Hence taping these inflows should be the focus by pitching in daily savings products and developing a platform (M-banking), which willreduce the physical cash holding to M-Money and thus increasing bank’s float. Liability Products to be offered:-Regular Saving & Current accounts (No frills), where no conditions are attached. Products should be developed keeping in mind the existingproducts available in the market.Free Mobile Banking platform, available in local language.
  10. 10. Free Mobile wallet services.Free Phone Banking platform, available in local language.Recurring deposits, Daily, Weekly, Monthly, Yearly options, with as low as Rs.10/-.Fixed Deposits with amount as low as Rs.1000/-. Investments / Third party products to be offered:-Mutual Funds, Ideally SIP route.General Insurance & Insurance (Needs to work out low premium products with AMCs, preferably with monthly premium payment options)Bonds issued by Public Sector Companies.Gold and Silver coins in smaller denominations. Assets products to be offered:-Credit ratio to GDP in India has been around 52% GDP compared to more than 100% in developed countries. Latest deposits and advancesfigures (Feb-8, 2013) of the Indian banking industry, highlights huge untapped opportunity available outside the present banking system.Assets products can be classified in to Banks Products & Government sponsored products. Banks Products:-Over Draft (Against FD), Gold Loan, Cash Credit Facility for small business, Temporary Over draft for business, Auto Loan, Mortgage Loan,personal loan.And all the non-fund based products, presently offered at other centers. Government Sponsored schemes:-Various schemes of government, announced from time to time.Banks who are able to deliver credit successfully (Maintaining healthy books); will have more opportunities in acquiring liability business,thus success of credit delivery will be critical to long term success.Considering the importance of product delivery and performance in Credit business, it is important to have a support system which willenable banks to deliver credit successfully (Maintaining healthy books) at rural centers.Concept of “Credit- Support Officer” developed under the principles of Islamic Banking is suggested for credit delivery support.Let’s discuss in detail. Credit-Support Officer and Islamic banking conceptIslamic Banking principles of sharing risk can be adopted for credit delivery at rural areas, where financially no risk sharing is possible butfrom bank’s point of view, it needs to own the share of risk with each loan disbursed by way of providing guidance and active engagementswith the buyer of loans.
  11. 11. For implementing the concept, Banks may be advised to have a Credit-Support officer, who can be someone with an agri back ground, fromeither agricultural departments or fertilizer segments.Whose scope of job, will be monitoring, guiding and motivating the customer in successful implementation of the project on hand as well asguiding him on various opportunities available around. Even in cases of emergency, there are government schemes which helps the customerto mitigate his loses and thus protecting banks interests.Credit-Support Officer should own the risk factor in his KRA and his goals should be successful implementation of each projects on whichBank’s money is involved. Social Cause without negating business prudence:-Every Bank must undertake their business at unbanked centers as a service to the nation as development in rural centers will enable nation toreduce poverty hence successful involvement of Bank management and employees on the ground should be rewarded adequately.Business growth won’t happen, unless Bank is a partner in the development process along with the constituents of rural centers. Hence theBanks, who are able to partner the society effectively and profitably will succeed in capturing majority, stake in the 45 %, unbankedpopulation of the 2 trillion dollar Indian economy.Social cause without negating business prudence should be mantra way forward for the banks as well as its employees.Let’s conclude discussion on Business Model, by listing out various opportunities discussed and can be leveraged towards developing arobust, viable and profitable model at unbanked centers.Key opportunities discussed:-1. Reduce Cost of transaction with Low cost branch under Cluster business model, Adopting Solar energy and Implementing Mobilebanking as an alternative to cash.2. BC Channel supported by concepts of Team Leader , PRO Officer, Credit Support Officer and Cluster level Co ordinationcommittee for acquiring ever growing inflows from wages and subsidies as well as improving credit delivery with ground levelengagements, to ensure highest level of risk management.3. Social cause along with business prudence, to be the theme for banking at the unbanked centers.4. Realization of opportunity at unbanked centers as the major social sector beneficiaries of government spending and importance ofbeing an active player in the segment for sustainable future growth.Let’s wish success to all, to be crowned Bankers and hope their success will bring prosperity and stability in our rural neighbor hoods, whichin turn will realize RBI’s objective of meaningful financial inclusion for nation’s prosperity.