July 02, 2018
The Chairman/ Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
Madam/ Dear Sir
Master Circular on SHG-Bank Linkage Programme
The Reserve Bank of India has, from time to time, issued a number of guidelines/instructions to banks on SHG-Bank Linkage Programme. In order to enable banks to have instructions at one place, the Master Circular incorporating the existing guidelines/instructions on the subject has been updated and enclosed. This Master Circular consolidates the circulars issued by Reserve Bank on the subject up to June 30, 2018, as indicated in the Annex.
(Gautam Prasad Borah)
Chief General Manager-in-Charge
Encl: As above
Master Circular on SHG-Bank Linkage Programme
Self Help Groups have the potential to bring together the formal banking structure and the rural poor for mutual benefit. Studies conducted by NABARD in a few states to assess the impact of the linkage project have brought out encouraging and positive features like increase in loan volume of the SHGs, definite shift in the loaning pattern of the members from non-income generating activities to production activities, nearly 100 per cent recovery performance, significant reduction in the transaction costs for both the banks and the borrowers etc., besides leading to a gradual increase in the income level of the SHG members. Another significant feature observed in the linkage project is that about 85 per cent of the groups linked with banks were formed exclusively by women.
2. Recognizing the importance of SHG Bank linkage, banks have been advised to meet the entire credit requirements of SHG members, as envisaged in Paragraph 93 of the Union Budget announcement for the year 2008-09, made by the Honorable Finance Minister, wherein it was stated as under: "Banks will be encouraged to embrace the concept of Total Financial Inclusion. Government will request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members, namely, (a) income generation activities, (b) social needs like housing, education, marriage, etc. and (c) debt swapping". Linking of SHGs with banks has thus been emphasized in the Monetary Policy Statements of Reserve Bank of India and Union Budget announcements from time to time and various guidelines have been issued to banks in this regard.
3. Banks should provide adequate incentives to their branches in financing the Self Help Groups (SHGs) and establish linkages with them, making the procedures simple and easy. The group dynamics of working of the SHGs need neither be regulated nor formal structures imposed or insisted upon. The approach to financing of SHGs should be totally hassle-free and may also include consumption expenditures. Accordingly, the following guidelines should be adhered to enable effective linkage of SHGs with the banking sector.
4. Opening of Savings Bank A/C
a) The SHGs, registered or unregistered, which are engaged in promoting savings habits among their members are eligible to open savings bank accounts with banks. These SHGs need not necessarily have already availed of credit facilities from banks before opening savings bank accounts. The instructions of the Department of Banking Regulation in the Master Direction on KYC pertaining to SHG members (Part VI-Paragraph 43) shall be adhered to, while completing Customer Due Diligence (CDD)1 process.
b) Accordingly, the current instructions under Simplified norms for Self Help Groups (SHGs) mention that CDD of all the members of SHG as mentioned in the above Direction shall not be required while opening the savings bank account of the SHG. CDD of all the office bearers shall suffice. No separate CDD of the members or office bearers shall be necessary at the time of credit linking of SHGs.
5. Lending to SHGs
a) Bank lending to SHGs should be included in branch credit plan, block credit plan, district credit plan and state credit plan of each bank. Utmost priority should be accorded to the sector in preparation of these plans. It should also form an integral part of the bank’s corporate credit plan.
b) As per operational guidelines issued by NABARD, SHGs may be sanctioned savings linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). However, in case of matured SHGs, loans may be given beyond the limit of four times the savings as per the discretion of the bank.
c) A simple system requiring minimum procedures and documentation is a precondition for augmenting flow of credit to SHGs. Banks should strive to remove all operational irritants and make arrangements to expeditiously sanction and disburse credit by delegating adequate sanctioning powers to branch managers. The loan application forms, procedures and documents should be made simple. It would help in providing prompt and hassle-free credit.
6. Interest rates
The banks would have the discretion to decide on the interest rates applicable to loans given to Self Help Groups/member beneficiaries.
7. Service/ Processing charges
No loan related and ad hoc service charges/inspection charges should be levied on priority sector loans up to ₹ 25,000. In the case of eligible priority sector loans to SHGs/ JLGs, this limit will be applicable per member and not to the group as a whole.
8. Separate Segment under priority sector
In order to enable the banks to report their SHG lending without difficulty, it is decided that the banks should report their lending to SHGs for on-lending to members of SHGs under the respective categories, viz. 'Advances to SHGs' irrespective of the purposes for which the loans have been disbursed to the SHG members. Priority Sector loans to SHGs are considered under “Weaker Sections” category.
9. Presence of defaulters in SHGs
Defaults by a few members of SHGs and/or their family members to the financing bank should not ordinarily come in the way of financing SHGs per se by banks, provided the SHG is not in default. However, the bank loan may not be utilized by the SHG for financing a defaulter member to the bank.
10. Capacity Building and Training
a) Banks may initiate suitable steps to internalize the SHGs linkage project and organize exclusive short duration programmes for the field level functionaries. In addition, suitable awareness/sensitization programmes may be conducted for their middle level controlling officers as well as senior officers.
b) Banks shall refer to instructions on Financial Literacy by FLCs and rural branches – Policy review vide Circular FIDD.FLC.BC.No.22/12.01.018/2016-17 dated March 02, 2017 conducting tailored programs targeting SHGs.
11. Monitoring and Review of SHG Lending
Considering the potential of SHGs, banks shall closely monitor the progress regularly at various levels. In order to give a boost to the ongoing SHG bank linkage programme for credit flow to the unorganized sector, monitoring of SHG bank linkage programme shall be a regular item on the agenda for discussion at the SLBC and DCC meetings. It should be reviewed at the highest corporate level on a quarterly basis. Further, progress of the programme may be reviewed by banks at regular intervals. The progress under SHG-BLP, as prescribed vide RBI letter FIDD.CO.FID.No.3387/12.01.033/2017-18 dated April 26, 2018 shall be reported to NABARD (Micro Credit Innovations Department), Mumbai, on a quarterly basis, and the returns in the prescribed format shall be submitted within 15 days from due date.
12. Reporting to CICs
Recognizing the importance of credit information reporting in respect of the SHG members for financial inclusion, banks are advised to adhere to the guidelines issued by Department of Banking Regulation on Credit information reporting in respect of Self Help Group (SHG) members dated June 16, 2016 and Credit information reporting in respect of Self Help Group (SHG) members dated January 14, 2016.
List of Circulars consolidated in the Master Circular
||Improving Access of Rural poor to Banking- Role of Intervening Agencies- Self Help Groups
||Linking of Self Help Groups with banks- Working Group on NGOs and SHGs- recommendations – Follow up
||February 10, 1998
||Opening of Savings bank accounts in the name of Self Help Groups(SHGs)
||July 24, 1998
||Linking of Self Help Groups with Banks
||Loans to Micro Credit Organizations- Rates of Interest
||September 30, 1999
||Credit delivery through Micro Credit Organizations/ Self Help Groups
||February 18, 2000
||November 03, 2003
||January 09, 2004
||Credit flow to the unorganized sector
||March 03, 2005
||Submitting progress report under micro credit
||June 20, 2007
||Microfinance-Submission of progress reports
||April 15, 2008
||Total Financial inclusion and Credit Requirement of SHGs.
||March 28, 2013
||Know Your Customer Norms/Anti Money Laundering Standards/ Combating of Financing of Terrorism/Obligation of banks under Prevention of Money Laundering Act, 2002 – Simplifying norms for Self Help Groups
||May 21, 2015
||SHG-Bank Linkage Programme – Revision of progress reports
|January 14, 2016
||Credit information reporting in respect of Self Help Group (SHG) members
|June 16, 2016
||Credit Information Reporting in respect of Self Help Group (SHG) members
||Master Direction DBR.AML.BC.No.81/14.01.001/2015-16
||April 20, 2018
||Master Direction - Know Your Customer (KYC) Direction, 2016