New Delhi, 29 th November, 2012 International Workshop Enhancing Delivery of G2P Payments for Rural Areas

The number of bank branches multiplied ten-fold - from 8,000+ in 1969 when the first set of banks were nationalized to 80,000+ today. But clearly, these are not enough. Major barriers to providing banking services include: Lack of reach Higher cost of transactions and time taken in providing those services. The existing business model does not pass the test of convenience, reliability, flexibility and continuity. BASIC INFRASTRUCTURE FOR DELIVERY – PRESENCE OF BANK OUTLET

3 ACCESS TO BANKING FACILITIES Source: World Bank Financial Access Survey 2010 CountryNumber per 1 lakh population BranchesATMs USA France UK Austria Brazil Mexico Philippines India Afghanistan

ALLIANCES (or Partnerships) help the Banks in reaching the last mile in a reliable and cost effective manner. These are : Self Help Groups (SHGs) Micro Finance Institutions Business Correspondents SO, WHAT ARE THE ALTERNATIVES?

BUSINESS CORRESPONDENT (BC) CHANNEL BCs are agents employed by Banks to deliver services in unbanked/under- banked areas. Positives: Low cost vis-à-vis branch channel Capital investment about Rs. 30,000 Revenue expenditure Rs. 5-6,000 per month Easier to scale up (~75,000 BC outlets set up by banks in the last 2 years. Limitations: Not all products can be offered. KYC, Credit decision, etc. cannot be outsourced. Risks of outsourcing. In a nutshell, BC channel is useful for rapid scale up of banking outfits in areas with low business potential. Even in other locations, can be used for decongestion of branches from low value – high volume customers.

Geography Branches Outlets of BCs Growth (in last 2.5 years) Rural 4,857 (37.3) 5,448 (38.3) 59125,216 Semi Urban 3,797 (27.2) 4,027 (28.3) 2302,176 Urban 2,303 (17.7) (17.7) 2202,141 Metro 2,059 (15.8) 2,232 (15.7) 1732,017 Total13,01614,2301,11431,550 Figures in brackets indicate percentage share in total branches OUTREACH THROUGH BRANCHES 6 More than 53% of new branches are in rural areas All BC outlets set up in the last 5 years.

Features of Business Correspondent Channel 7 Products available: i.SB-cum-Overdraft/GCC ii.(Flexi) Recurring Deposit iii.Micro Chanel Finance (Overdraft for small shop keepers) iv.Remittances. v.Credits to branch based accounts vi.SHG Savings Bank accounts Technology:  All products are technology enabled.  Accounts on CBS platform.  Both ‘on line’ and ‘off line’ transactions allowed. ‘On line’ is the preferred mode.  Central authentication.  Ease of operation and cost effectiveness are the parameters for choice of technology.

Basic Bank Accounts 8 Number – in Lakh BC channel outpaced branch channel Strategy:  Account opening campaigns involving students and local Panchayats. Special monetary incentives to BCs for meeting stretched targets.

9 Proof of Pudding is in eating Total Balance Rs. Crores Average balance per account Rupees Rs. 438 crore low cost deposits mobilized through BC channel. 5 fold rise in ‘Average balance per account’ 24

10 Utility of Basic Bank Accounts in BC channel Number Lakh; Amount Rs. Crores ,026 5,392 2,107 About 50% CAGR growth in No. of transactions

MEETING REMITTANCES NEEDS OF MIGRANTS (P2P) 11 3,919 3,888 1,

G2P – SERVING THE RURAL POOR

ISSUES AND CHALLENGES (1) 13 Internal:  Winning over staff: Staff sensitization – to the BC channel in general and to G2P projects in general. Training on  Monitoring and Mentoring the Channel.  Mitigation of risks associated with outsourcing. Technology:  Technologies are multiple and is still evolving.  Many of the current Technical Service Providers are start-up Companies. Banks need to procure their own technology/technologies to  De-link BCs from TSPs  Give uniform experience for Customers across BCs  Enable inter-operability.

ISSUES AND CHALLENGES (2) 14 Infrastructure: Roads, Power, Telecommunications, Law & Order, etc. which affect other sectors of economy affect Financial Inclusion projects also. Business Case:  Standalone G2P projects can not be viable.  They need to be dovetailed into overall FI efforts. Manage stake holders’ (remitting Governments, BCs and Customers) expectations Viability of BC (short run) and Bank (long term)  Increase number of Products (RD, TDR, Micro Loans, etc.)  Introduce customer charging (and share these with BC)  Run special campaigns periodically to keep the BCs enthused.

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All Banks Data from RBI 16

17 6, ,513 1,569 1,600 2, ,027 1, ,362 1, ,133 1, Outreach through BC Channel Outlets Spread across all geographies  25,794 villages covered through BC channel  4,550 link branches & 113 FICs supervise the outlets  All CSP operators are trained  A Grievance Redressal Mechanism for complaints is in place. 7

 Innovative advertisement/customer campaigns through comic books, ‘Nukkad Natak’, etc. Innovative advertisement/customer campaigns through comic books, ‘Nukkad Natak’, etc.  Financial Literacy programs in Factories. Financial Literacy programs in Factories. Customer awareness and financial literacy go hand in hand. INNOVATIONS – AWARENESS CAMPAIGNS 18