During 2015-16, the Reserve Bank intensified its efforts towards expanding formal banking facilities covering
hitherto excluded sections of society. Greater focus was placed on ensuring adequate credit flow to various
segments in the priority sectors. Measures such as introduction of Priority Sector Lending Certificates (PSLCs)
and implementation of the recommendations of the Committee on Medium Term Path on Financial Inclusion
are expected to provide further impetus to financial inclusion in the country.
IV.1 The Reserve Bank continued its focus
on ensuring the availability of banking services
throughout the country and instituting an efficient
and comprehensive credit delivery mechanism
catering to the productive sectors of the economy.
During 2015-16, efforts were directed at fostering
a more conducive environment for flow of credit
to priority sectors, in particular to the micro,
small and medium enterprises (MSME) sector.
A national programme for capacity building of
bankers was launched with the sole objective of
upgrading skills related to the financing of the
MSME sector. The Committee on Medium-Term
Path on Financial Inclusion submitted its report
charting out a measurable action plan for financial
inclusion that will guide the financial inclusion
process going forward. The Financial Inclusion
and Development Department (FIDD) is the nodal
department for the seamless implementation of
the Reserve Bank’s financial inclusion agenda.
Agenda 2015-16: Implementation Status
Priority Sector Lending
IV.2 During 2015-16, PSLCs were introduced
as a mechanism for incentivising banks having
surplus in lending1 to different categories of
the priority sector thereby enhancing lending to these sectors (Box IV.1). Like carbon credit
trading, PSLCs will allow the market mechanism
to drive priority sector lending by leveraging the
comparative strengths of different banks. For
trading purposes, a dedicated portal was launched
in April 2016. In view of the critical role played by
regional rural banks (RRBs) in driving the financial
inclusion agenda, priority sector lending guidelines
were revised for RRBs in December 2015 and an
overall target of 75 per cent of the total outstanding
loans to the priority sector was set for them.
Initiatives for MSME Sector
IV.3 In August 2015, the banks were advised
to review their existing lending policies to the
micro and small enterprises (MSEs) sector and
fine-tune them by allowing for standby credit
facilities in case of term loans, additional working
capital limits, mid-term review of regular working
capital limits and timelines for credit decisions.
Subsequent to the notification of a ‘Framework
for Revival and Rehabilitation of Micro, Small and
Medium Enterprises’ by the Government to provide
a simpler and faster mechanism for addressing
the stress in MSME accounts, the Reserve Bank
issued related guidelines along with operating
instructions on March 17, 2016. Under this
framework, the revival and rehabilitation of MSME units having loan limits up to ₹ 250 million will be
undertaken. Banks were also required to put in
place Board approved policies to operationalise
the framework not later than June 30, 2016.
Box IV.1
Priority Sector Lending Certificates (PSLCs)
A scheme of PSLCs was introduced in April 2016. The
Reserve Bank provided a platform to enable trading in the
certificates through its core banking solution (CBS) portal
(e-Kuber). All scheduled commercial banks (including
RRBs), urban co-operative banks, small finance banks
(when they become operational) and local area banks are
eligible to participate in trading. Some of the main features
of the scheme are:
-
Four kinds of PSLCs: Agriculture, Small and Marginal
farmers (SF/MF), Micro enterprises and General can be
bought and sold via the platform.
-
The certificates will have a standard lot size of ₹ 2.5
million and its multiples.
-
There will be no transfer of credit risk on underlying
assets as there is no transfer of tangible assets or
related cash flows.
-
Banks will be permitted to issue PSLCs up to 50 per
cent of the previous year’s priority sector lending achievement without having the underlying in their
books. Banks should meet priority sector targets
through direct lending and net PSLCs.
-
Banks may be required to invest in the Rural
Infrastructure Development Fund (RIDF)/other funds to
the extent of the shortfall.
-
A bank with a shortfall in achieving any sub-target (for
example, SF/MF, micro enterprises) will have to buy
specific PSLCs to achieve the target. However, if a bank
has a shortfall only with respect to the overall target, it
could buy any PSLC.
-
PSLCs will not be valid beyond the reporting date
(March 31), irrespective of the date of first sale.
-
A bank’s priority sector lending achievement will be
computed as the sum of outstanding priority sector
loans and the net nominal value of the PSLCs issued
and purchased. Such computation will be done
separately where sub-targets are prescribed as on the
reporting date.
IV.4 In a move to boost entrepreneurial
sensitivity among banks’ field-level functionaries,
the Reserve Bank in collaboration with the College
of Agricultural Banking (CAB), Pune, launched the
National Mission for Capacity Building of Bankers
for financing the MSME sector (NAMCABS). Since
its inception, NAMCABS has imparted training to
about 3,000 bankers.
Natural Calamities and Policy Response
IV.5 Following the Government’s revision of the
criteria for crop loss from 50 per cent to 33 per
cent for providing input subsidies (compensation)
to farmers, State Level Bankers’ Committees/
District Level Consultative Committees/banks
were allowed to take a view on rescheduling of
loans if the crop loss turned out to be 33 per cent or more. Banks were permitted to allow a maximum
period of repayment of up to two years (including
the moratorium period of one year) if the loss was
between 33 per cent and 50 per cent. If the crop
loss is 50 per cent or more, the restructured period
for repayment can be extended to a maximum of
five years (including the moratorium period of one
year).
CREDIT DELIVERY
Priority Sector
IV.6 The objective of priority sector lending
is to ensure that timely and adequate credit is
available to vulnerable sections of society. Priority
sector loans include small value loans to farmers
for agriculture and allied activities; MSMEs;
loans up to ₹ 2.5 million for low cost housing and
up to ₹ 1 million to students for education; social
infrastructure and renewable energy; and to other
low income groups and weaker sections of society.
Usually these categories of people/activities are unable to access credit due to a perceived lack
of viability and creditworthiness even though there are some recent signs of improvement on this
front (Box IV.2).
Box IV.2
Bank Credit to Small Borrowers: Some Insights
The term ‘small’ in ‘small borrowers’ has been redefined
from time to time. Currently, accounts with a credit limit of
₹ 200,000 are taken as small borrowal accounts (SBAs).
The credit limit for SBAs was ₹ 25,000 till 1998 and ₹ 10,000
till 1983.
There has been a fall in the share of SBAs in total loan
accounts and amount since the 1990s (Charts 1 and 2).
However, real bank credit per SBA has been on the rise
in rural areas; this is contrary to the trend in urban areas
(Chart 3). Secondly, gender disparities in bank credit too
appear to have been on a decline in rural areas. On average,
for every 100 SBAs held by rural men, rural women held about 32 accounts in 2015. As against this, urban women
held only 16 loan accounts per every 100 accounts held
by urban men. Thirdly, the ratio of bank credit per capita
(under SBA) for rural women to urban women has also
been largely on a rising trend (Chart 4).
This underlines the need for focused attention to urban
poor, keeping in view the increasing urbanisation. Besides
expanding the branch network, tailor-made platforms
and products need to be designed to reach out to small
borrowers in urban areas, including slum-dwellers and
domestic workers.
Reference:
Chavan, Pallavi (2016), ‘Bank Credit to Small Borrowers: An Analysis based on Supply and Demand-side Indicators’, mimeo.
Table IV.1: Performance in Achievement of Priority Sector Lending Targets |
(₹ billion) |
End-March |
Public Sector Banks |
Private Sector Banks |
Foreign Banks |
1 |
2 |
3 |
4 |
2015 |
17,512 |
5,303 |
970 |
|
(37.3) |
(42.8) |
(35.9) |
2016* |
19,850 |
6,480 |
1,104 |
|
(39.3) |
(44.1) |
(35.3) |
Notes: Figures in parentheses are percentage to adjusted net
bank credit (ANBC) or credit equivalent of off balance sheet
exposures (OBE), whichever is higher, in the respective
groups.
* Provisional. |
IV.7 The performance of various bank groups
in achieving priority sector targets is given in Table
IV.1.
Flow of Credit to Agriculture
IV.8 Led by the performance of scheduled
commercial banks (SCBs), the actual credit flow
to agriculture exceeded the target fixed by the
Government for 2015-16 (Table IV.2).
Credit to the MSME Sector
IV.9 Reflecting several of the Government’s
initiatives for the MSME sector, such as ‘Make in
India’, ‘Start-up India’, ‘Ease of Doing Business’
and ‘Udyog Aadhar’, which were reinforced by
the Reserve Bank’s initiatives such as capacity
building of field level banking functionaries, addressing life-cycle needs of enterprises and
providing simpler and faster mechanisms to
address the stress in MSME accounts, credit to
this sector has improved in recent times (Table
IV.3).
Table IV.2: Targets and Achievements for Agricultural Credit |
(₹ billion) |
Year |
Scheduled
Commercial
Banks |
Cooperative
Banks |
Regional
Rural Banks |
Total |
Target |
Achievement |
Target |
Achievement |
Target |
Achievement |
Target |
Achievement |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
2014-15 |
5,400 |
6,044 |
1,400 |
1,385 |
1,200 |
1,025 |
8,000 |
8,453 |
2015-16* |
5,900 |
6,047 |
1,400 |
1,533 |
1,200 |
1,193 |
8,500 |
8,772 |
*: Provisional.
Source: NABARD. |
Table IV.3: Credit Flow to MSEs |
Year |
Number of Accounts
(million) |
Amount Outstanding
(₹ billion) |
MSE credit as per cent of
ANBC |
1 |
2 |
3 |
4 |
2014-15 |
13.8 |
9,612 |
15.5 |
2015-16 * |
20.5 |
9,957 |
14.6 |
* Provisional. |
Studies on the Efficacy of Credit Delivery Models
IV.10 A number of studies were commissioned
during the year to assess the efficacy of various
schemes and models for credit delivery and
financial inclusion – the business correspondent
(BC) model, self-help group (SHG)-bank linkage
programme, credit guarantee trust for micro and
small enterprises (CGTMSE), and the lead bank
scheme. A study on farmers’ funding requirements
was also undertaken in collaboration with CAB,
Pune.
IV.11 The study on the efficacy of the BC model
brought out the need for certification-training
programmes for BCs along with providing them
other support in terms of timely and adequate
remuneration, effective ways of cash management
and improving the acceptance infrastructure and
technology. The need for creating a BC registry
and effective monitoring and supervision involving
banks were also highlighted in the study. The
study on the efficacy of SHG-bank linkage found
that banks could consider appointing Bank Mitras
functioning under the Deendayal Antyodaya
Yojana-National Rural Livelihoods Mission (DAYNRLM)
as BC agents so that they can formally
transact the banking business for SHG members as well as for other customers of banks in a
specific area. The study also recommended that
the SHG-bank linkage activity may be treated as
corporate social responsibility. Furthermore, there
could be an SHG specific mark for every product
involving the engagement of SHGs. A cadre of last
mile delivery nodes may be created by leveraging
the BC model.
FINANCIAL INCLUSION
IV.12 The Reserve Bank continued its efforts
towards fulfilling the financial inclusion agenda
during the year. In this direction, the Committee
on Medium-Term Path on Financial Inclusion
suggested improvements in the governance
system as a means of strengthening credit infrastructure and augmenting the government’s
social cash transfers to the poor, propelling
the economy on to a medium-term sustainable
inclusion path (Box IV.3).
Financial Inclusion Plan
IV.13 The Financial Inclusion Plan (FIP)
provides a structured and planned approach
to financial inclusion with a commitment at the
highest echelons within banks in terms of Board
approval of the plans. Out of 2,259 rural bank
branches opened during April 2015-March 2016,
1,670 branches were opened in unbanked rural
centres under FIP. Around 71 million basic savings
bank deposit accounts were added taking the total
to 469 million by March 2016. The total number of small farm sector credits (Kisan Credit Cards)
and small non-farm sector credits (General
Credit Cards) stood at 47 million and 11 million,
respectively (Table IV.4). With the conclusion of
FIP’s Phase II (2013-16) on March 31, 2016, all
domestic scheduled commercial banks (including
RRBs) were advised to set new Board approved
FIP targets for the next three years (April 2016 to
March 2019).
Box IV.3
Committee on Medium-Term Path on Financial Inclusion
The Committee on Medium-Term Path on Financial
Inclusion (Chairman: Shri Deepak Mohanty) which
was constituted to work out a medium-term (five year)
measurable action plan for financial inclusion, submitted its
report in December 2015. The Committee recognised that
substantial progress had been made in terms of access to
financial products and services especially after the launch
of the Pradhan Mantri Jan Dhan Yojana (PMJDY). The
Committee identified significant gaps in terms of usage,
inadequate ‘last mile’ service delivery, exclusion of women
and small and marginal farmers and a very low formal link
for micro and small enterprises. Against this background,
the committee set a much wider vision of financial inclusion
as ‘convenient’ access to a basket of basic formal financial
products and services that should include savings,
remittances, credit, government-supported insurance and
pension products to small and marginal farmers and low-income
households at reasonable costs with adequate
protection progressively supplemented by social cash
transfers. The Committee also suggested increasing micro
and small enterprises’ access to formal finance with a
greater reliance on technology to cut costs and improve
service delivery, such that by 2021 over 90 per cent of the
hitherto underserved sections of society become active
stakeholders in economic progress empowered by formal
finance.
Some of the recommendations of the committee are:
-
Welfare scheme “Sukanya Shiksha” for the girl child
with a view to linking education with banking habits.
-
A low-cost solution based on mobile technology for
enhancing the effectiveness of last mile delivery as also
to facilitate usage.
-
Phasing out of the interest subvention scheme and
ploughing the amount into universal crop insurance.
-
An open specialised interest-free window with
simple products like demand deposits, agency and
participation securities, offering products based on
cost-plus financing, deferred payment and deferred
delivery contracts.
-
Exploring a system of professional credit intermediaries/
advisors for MSMEs to help bridge the information gap
and thereby help banks take better credit decisions.
-
Creating a registry for BCs, encouraging BC certification/
training programmes.
-
Inter-operability for pre-paid instruments and mobile
transactions.
-
Strengthening the financial literacy centre (FLC)
network and grievance redressal mechanism and
devising a scheme based on transparent criteria that
incentivises banks to expeditiously address customer
grievances.
Roadmap for Banking Facilities in Unbanked
Villages
IV.14 Banks were initially advised to complete
Phase II of the roadmap for covering all 490,298
unbanked villages with population less than 2,000
by March 31, 2016. The timeline was advanced
to August 14, 2015 in view of the on-going
implementation of the Pradhan Mantri Jan Dhan
Yojana (PMJDY). At end-March 2016, as reported
by the State Level Bankers’ Committees (SLBCs),
450,686 villages (91.9 per cent of the target) had been covered by 14,901 branches, 415,207
villages through BCs and 20,578 villages through
other modes such as ATMs and mobile vans.
Keeping in view the necessity of brick and mortar
branches for promoting banking penetration and
financial inclusion, a roadmap for establishing
such branches in villages with population above
5,000 but without a bank branch of a scheduled
commercial bank was rolled out in December
2015. SLBC convenor banks have been advised
to ensure opening of bank branches under this
roadmap by March 2017.
Financial Inclusion Advisory Committee (FIAC)
IV.15 The Reserve Bank set up an advisory body,
the FIAC, in 2012 to review financial inclusion
policies on an on-going basis and to provide expert
advice to the Reserve Bank in this matter. Given
the renewed focus on financial inclusion by the
Government of India, the on-going implementation
of the PMJDY and the need for convergence of the efforts of various stakeholders, FIAC was
re-constituted in June 2015. Its revised terms of
reference include: (i) preparing a national strategy
for financial inclusion which aims at converging
financial inclusion efforts of various stakeholders
and PMJDY, apart from monitoring the progress;
(ii) monitoring progress on FIP; and (iii) monitoring
progress on financial literacy.
Table IV.4: Financial Inclusion Plan – A Progress Report |
Particulars |
End-March 2010 |
End-March 2015 |
End-March 2016 |
1 |
2 |
3 |
4 |
Banking Outlets in Villages – Branches |
33,378 |
49,571 |
51,830 |
Banking Outlets in Villages – Branchless Mode |
34,316 |
504,142 |
534,477 |
Banking Outlets in Villages –Total |
67,694 |
553,713 |
586,307 |
Urban Locations covered through BCs |
447 |
96,847 |
102,552 |
BSBDA-Through branches (No. in million) |
60 |
210 |
238 |
BSBDA-Through branches (₹ billion) |
44 |
365 |
474 |
BSBDA-Through BCs (No. in million) |
13 |
188 |
231 |
BSBDA-Through BCs (₹ billion) |
11 |
75 |
164 |
BSBDA-Total (No. in million) |
73 |
398 |
469 |
BSBDA Total (₹ billion) |
55 |
440 |
638 |
OD facility availed in BSBDAs (No. in million) |
0.2 |
8 |
9 |
OD facility availed in BSBDAs (₹ billion) |
0.1 |
20 |
29 |
KCCs -Total (No. in million) |
24 |
43 |
47 |
KCCs -Total (₹ billion) |
1,240 |
4,382 |
5,131 |
GCC-Total (No. in million) |
1 |
9 |
11 |
GCC-Total (₹ billion) |
35 |
1,302 |
1,493 |
ICT-A/Cs-BC-Total Transactions (No. in million) |
26.5 |
477.0 |
826.8 |
ICT-A/Cs-BC-Total Transactions (₹ billion) |
6.9 |
859.8 |
1,686.9 |
Financial Inclusion Fund (FIF)
IV.16 The financial inclusion fund (FIF) and the
financial inclusion technology fund (FITF) were
set up in 2007-08 for a period of five years with
a corpus of ₹ 5 billion for each to be contributed
by the Government of India, the Reserve Bank
and NABARD in the ratio of 40:40:20. The
Government of India merged FIF and FITF to form
a single financial inclusion fund in July 2015 with
a corpus of ₹ 20 billion. The new FIF, which will be
administered by an advisory Board constituted by
the Government, will be maintained by NABARD.
The fund will be in operation for another three
years or till such period as may be decided by
the Government of India and the Reserve Bank in
consultation with other stakeholders. FIF aims to
support developmental and promotional activities
leading to greater financial inclusion, for example,
the creation of FI infrastructure across the country,
capacity building of stakeholders, spreading
awareness to address demand side issues,
enhanced investments in green information
and communication technology (ICT) solutions,
research and transfer of technology and improving
the technological absorption capacity of financial
service providers/users. The fund will not be
utilised for normal business/banking activities.
FINANCIAL LITERACY
IV.17 Financial literacy is crucial for imparting
efficacy to financial inclusion initiatives. In the
context of a changing financial landscape, especially with the introduction of PMJDY, the
emphasis is on keeping new bank accounts
operationally active. Banks were, accordingly,
advised in January 2016 to focus on enhancing the
efficacy of financial literacy programmes through:
(i) Board-level policies for a stronger financial
literacy architecture; (ii) a tailor-made approach
to financial literacy and organising camps for
different target groups; and (iii) following a
concerted approach among various stakeholders
at the district/panchayat/village level (local officials
of NABARD and the Reserve Bank, district and
local administration, block level officials, NGOs,
SHGs, BCs, farmers’ clubs, panchayats, primary
agricultural credit society (PACS), and village level
functionaries).
IV.18 As at end-March 2016, 1,384 financial
literacy centres (FLCs) were operational in the
country, up from 1,181 FLCs at end-March 2015.
During the year ended March 2016, 87,710
financial literacy activities were conducted by
FLCs as against 84,089 activities during the
preceding year.
Agenda for 2016-17
IV.19 Going forward, an action plan based on the
recommendations of the Committee on Medium-Term Path on Financial Inclusion will be worked out.
Three recommendations of the committee, viz.,
creating a BC registry; formalising certification-training
programmes for BCs; and designing a
framework for accreditation of credit counsellors
have been identified for immediate implementation.
Formulating a National Strategy for Financial
Inclusion, which forms part of the revised terms
of reference of FIAC, will be taken up during the
year. District level data on the progress made by
banks under FIP will also be collected for better
monitoring of banks’ FI initiatives. As an impetus
to financial literacy activities, capacity building
programmes for financial literacy counsellors will
be launched in collaboration with CAB, Pune.
|