1. Role of State-owned Banks in Financial Inclusion
Presentation by Dr H K Bhanwala, Chairman, NABARD
Asia Microfinance Forum
Sanghai, China
04 – 08 August 2014

2. India, briefly 192 million households 400 million, 70% rural
1.21 billion, 69% rural, density: 382 persons/sq km
105 million cultivators, 65 million agricultural labourers
30% (355 million) poor, 10% unemployed
192 million households
Low per capita US $ 1527

3. Banking Structure in India
Reserve Bank of India
Commercial Banks
Nationalized (28)
Private (17)
Foreign (12)
Development Banks
Agricultural (NABARD)
Industrial (SIDBI)
EXIM
Cooperative Banks
Regional Rural Banks

4. Banking with the Poor- Few Landmarks
Year
Event
1904
Cooperative Movement
1991
Indian Economy Liberalized
1935
Reserve Bank of India established
1992
SHG Pilot Launched by NABARD
1969
Bank Nationalization
2000s
New Age Banks came into being
1975
Formation of Regional Rural Banks
2006
RBI allows Agency Model (BC Model)
1982
NABARD established
2008
Government announces Financial Inclusion Plan

5. Enabling Environment in India
Financial Inclusion in India
Outsource (Agency) Model
Bank-led Model
Technology driven
Banks, incl. SoBs & incl RRBs allocated villages
CBS, PoS, Micro ATM, Smart Cards (RuPay), Biometric
BC Model
All social benefits, wages of employment generation programmes, student scholarships to be credited directly to the accounts
Offer small value savings, credit, deposit, micro insurance, micro pension & remittance

6. Financial Inclusion and Public SubsidiesBC
Bank Branch
Customers
Two funds created by Govt of India & housed in NABARD
Commission based (not subsidy oriented)
As per RBI directive, SoBs are expected to take financial inclusion as a business opportunity
FIF
FITF
For strengthening demand side thru financial literacy, capacity building etc.
Supporting ICT solutions in banks (RRBs & Coop Banks, not SoBs)

7. NABARD & Group Approach
Self Help Groups (SHGs)
Joint Liability Groups (JLGs)
Experimented by NABARD in 1992
A savings first, credit later model
Norm: Credit Discipline & Social Collateral
Solved the twin problems faced by banks: low recovery & high transaction costs
7.3 million SHGs (81% exclusive women groups), covering 95 million households
of which 4.5 million availed credit of INR 394 billion
Comprises share croppers, oral lessees
such groups
INR 46 billion availed as loan

8. Collaboration with other players
In India, MFIs have been receiving support from SoBs for increasing their credit outreach
Bank Loan provided to MFIs – as on 31 March 2013
Banks No
Amount (INR Billion)
SoBs
1497 84
Private Banks
268 40
Foreign Banks 4
1.31
RRBs
153
0.71
Coop Banks 18
0.068
Other FIs
102
18.80
Total
2042
144
The experience with MFIs are mixed ones – profit motive & high rate of interest have gone against their reputation
The Central Bank (RBI) had to step in to curb their profit instincts
MFIs have their limitations under Indian law - they can’t open bank accounts, can’t provide savings and remittance products though they can deliver other financial products like insurance, pension etc.
Nevertheless, Bandhan, an MFI with 5.4 million as its rural customers bagged the banking license in a stiff competition

9. Using Technology for Financial Inclusion
Requires initial CAPEX investment
Creates Customer Segmentation
But is cheaper in the long run
Secular (Customer Neutral)
904.5 million out of 1221 million (74%) mobile phone users in India
Technology has always been at the core of Financial Inclusion – it has been ‘the’ driving force
India is going M Banking way viz. Mobile Wallet (a la M-PESA, Airtel Money etc.)

10. Thanks www.nabard.org chairman@nabard.org