Rural banking turnaround

Team Member Tushar Arora 9176633879 Sushant Midha 9176610426Siddhant Gupta 8939922215

Vikram Choudhary 9381766572College : Great Lakes Institute of Management

The Rural Banking Turnaround Model

Team INVICTUS

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The Rural India- A Snapshot

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 Income

http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx

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The Rural Banking Sector

Present State of Rural Banking Sector in India.

Number of Rural Branches – 31277 ( only 39.7% of the total Number)

Only 54 saving account for every 100 person in rural Areas

Only 26% of the people with income less than Rs 50000 have a bank account

Only 13% of the farmers availed bank loans while 54% have used non-institutional and other forms of lending

http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx

Huge potential

Advanced Technology

TurnAroundPossible

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Rural Banking - Challenges

Bank’s Perspective

Rural people are

considered un-bankable

Small loan Amount

Long Distance for services/

Branches

High Transaction

Cost

Lack of collateral

Information Asymmetry

Human Resource

Constraints

http://tejas-iimb.org/articles/74.php

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Rural Banking - Challenges

Customer’s perspective

High Transaction Cost for client for E.g. Travel

Documentation

Lack of Awareness

Lack of social capital

Non- Availability of special products

Convenience of informal lending

Prior rejection by formal

banking system


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Existing Solutions for Rural Banking

Local area banks (LABs)

http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=5817

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 LABs

http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=5817

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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.


NGO/MFI bulk-lending

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SHG –BankLinkage 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 model


Self Help Groups(SHGs)

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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.


Kisan Credit Card (KCC)

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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.


Business Facilitator or Correspondent Model (BCs)

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TurnAround Solutions for Rural Banking

As per this model, we propose to set up new branches of the banks, say-one for every 100 villages acting as a Hub for all transactions

Around this branch will be a network of MFIs/ NGOs and business correspondents which will act as spokes and will be in direct contact with the Banks.

To increase the spread to even larger levels, MFIs/NGOs can further become 2nd level hubs.

The final leg of this model would be the local agents who would be the direct point of contact with the villagers at grass-root level.

Hub and Spoke model for Rural Banking

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LocalAgents

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Bank


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.

10/04/2023 http://www.tsi.in/Rural_Banking.html 12

Product 1 : Banking Transactions - Via BCs , Local Agents and Mobile

10/04/2023


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

Catching the Technology Wave: Mobile Phone Banking and Text-A-Payment in the Philippines 13

Cashless Banking- Mobile transactions

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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.

Pricing Model for Product 1

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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 of the credit rating of the correspondent and the amount of collaterals reserved by him with bank.

The local agents stand responsible to do a complete customer profiling at the time of opening the bank account itself so as to foresee what kind of products/loans the customer may require.

Large Amount Loans MFI/NGOs will evaluate, recommend, originate the

loans, help in disbursal and subsequently track and collect the loans.

Loans will sit on the books of the Bank and MFI/NGOs are not exposed to the risk.

Product 2 : Loan / Credit Process

Bank

BCLocal Agent

Local Agent

BCLocal Agent

Local Agent

Disburse a fixed amount of loan to a BC Distributes loans

to local agents based on expected business, etc.

Direct POC for villagers to apply and collect loans

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REVENUE MODEL

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Distribution Channels

‘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.

http://www.thehindubusinessline.com/todays-paper/tp-others/tp-editorial-feature/article2601894.ece

AADHAR

http://www.thehindubusinessline.com/todays-paper/tp-others/tp-editorial-feature/article2601894.ece

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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.

Crisil Report

FMCG

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http://bonelessresearch.blogspot.com/2011/03/indias-mobile-tele-density-to-reach-100.html

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/

TELECOM

http://bonelessresearch.blogspot.com/2011/03/indias-mobile-tele-density-to-reach-100.html




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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.

Government Schemes

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Marketing Channels

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.

FMCG

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Marketing Channels

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

Village Panchayats

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Marketing Channels

Bank’s mobile van will make frequent visits to the rural places and organizing camps in remote areas. The main objective of this initiative would be to understand the pain-points of the villagers and help them understand how banks could help them with their problems.

MOBILE VANS

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Rural Prosperity- Indian Prosperity!INDIA grows with the a prospering rural sector…

“THANKYOU”

Rural banking turnaround

Economy & Finance

Transcript of Rural banking turnaround