Financial Inclusion and Financial

Literacy

Session 1
 Financial Inclusion
• What?
• Financial inclusion may be defined as the process of ensuring access to
financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and low income groups at an affordable cost
(The Committee on Financial Inclusion, Chairman: Dr. C. Rangarajan)
• What all ?- Facets of Financial inclusion
• Financial Inclusion, broadly defined, refers to universal access to a wide
range of financial services at a reasonable cost. These include not only
banking products but also other financial services such as insurance and
equity products (The Committee on Financial Sector Reforms, Chairman:
Dr.Raghuram G. Rajan).

• Why?
 Good Governance- a pre requisite
• Manner in which power is exercised to
manage a country’s economic and social
resources for development- World Bank
• UNDP lists 9 major characteristics of good Governance:
1. Participation
2. Rule of the Law
3. Transparency
4. Responsiveness
5. Consensus orientation
6. Equity
7. Effectiveness and Efficiency
8. Accountability
9. Strategic Vision
 History of Banking
• 9000 BC – Grain Money and Cattle Money
• 8000 BC- Record keeping
• Temples
• First banks – Merchants 2000 BC Babylonians-
later in ancient Greece and Roman Empire
• First bank – Venice 1157 AD
• Modern banking: Money Dealers in Florence
14th Century
 History of Banking In India
• Vedic Times: 2000 BC to 1400BC
• Rig Veda
• Arthashastra
• Mughal Period
• Agency House – Bombay, Calcutta and Madras
• 17th century
• Bank of Hindustan -1771 –collapsed in 1832
• Presidency Banks-
• Bank of Calcutta -2nd June 1806- Bank of Bengal 1809
• Bank of Bombay and Bank of Madras
• Imperial Bank of India – 1921- banker’s bank and Banker to Government
• RBI- 1935
• Imperial Bank of India - SBI- 1955 (SBI Act 1955)
 What are the advantages of having a
bank account?
• A Bank account gives us an identity which is
recognized
by other government agencies.
• Transactions are transparent in a bank account i.e.
we know all the details of deposits,
• withdrawals, interest etc.
• Banks are non discriminatory i.e. rules are same in
the bank for similar type of customers.
• Our money in a bank account is safe.
• Banks open savings, recurring and fixed deposit accounts according
to our needs and pay interest on deposits.
• We can get our wages/salary directly credited to the bank account.
• We can get all social benefits like MGNREGA wages, pensions etc.
directly credited to bank account through EBT.
• We can deposit or withdraw our money from the bank whenever
we need.
• We can take loan from the bank in case of necessity. Banks give
loans for productive purposes at reasonable interest rates.
• If we have a bank account, sanctioning of loans becomes easier.
• We can send remittance through the bank.
Different types of deposit accounts
• Savings deposit account
• is for depositing our day to day surplus.
• We can withdraw our money whenever we need it.
• We can also get an overdraft (Loan for emergency needs) in
our saving account.

• Term deposit account

• is for depositing our money for a fixed period suitable to
our needs.
• This may earn interest at higher rate than saving account,
as we deposit money for a pre decided fixed period.
• We can also withdraw before the due date but in that case
we will get less interest.
 Basic Savings Bank Deposit Account
• Basic Savings Bank Deposit Account is a saving bank account
with NIL balance.
• Banks will not charge fee for deposit of money any number of
times.
• In addition, banks will not charge for 4 withdrawals during a
month.
• We will also get a Passbook and an ATM/Smart card without
any fee.
• We can use this account for our day to day needs like deposit,
withdrawal, remittances, direct credit of social benefits, etc.
 Basic Savings Bank Deposit Account
• There is no requirement of minimum balance.
• The services available include deposit and withdrawal of cash at bank
branch as well as ATMs; receipt/credit of money through electronic
payment channels or by means of collection/deposit of cheques.
• Maximum of 4 withdrawals a month including ATM withdrawal. No such
limit for deposits.
• Facility of ATM card or ATM-cum-Debitcard.
• These facilities are to be provided without any extra cost.
• We can use this account for our day to day needs like deposit, withdrawal,
remittances, direct credit of social benefits, etc.
 Small Account
• A “Small Account” can be opened on the basis of a self-
attested photograph and putting his/her signatures or
thumb print in the presence of officials of the bank.
• those persons who do not have any of the ‘officially
valid documents’ can open “Small Accounts” with
banks.
• Such accounts have limitations regarding the aggregate
credits (not more than Rupees one lakh in a year),
aggregate withdrawals (nor more than Rupees ten
thousand in a month) and balance in the accounts (not
more than Rupees fifty thousand at any point of time).
• These accounts would be valid normally for a period of twelve
months.

• Thereafter, such accounts would be allowed to continue for a

further period of twelve more months, if the account-holder
provides a document showing that he/she has applied for any
of the Officially Valid Document, within 12 months of opening
the small account.
• Recurring deposit account
• is for depositing an amount periodically say
every day or every week or every month for a
certain period.
• This can be used for depositing regular
savings.
 KYC –Know your customer
• Banks are required to know our particulars before opening
of the accounts as per KYC regulations.
• Hence we need to submit necessary KYC documents, i.e., a
photograph, proof of identity and proof of residence to the
bank along with account opening form.
• The account can also be opened on the basis of the Aadhar
Card.
• Persons not having above documents may open the
account under relaxed KYC procedure based on MGNREGA
job card or self certification.
• The accounts opened under relaxed procedure will be
treated as small accounts and will be subject to certain
limitations.
Business Correspondent
 Lead Bank Scheme
• Lead Bank Scheme (LBS) was introduced in
1969 based on the recommendations of the
Gadgil Committee.
• LBS has envisaged assigning the main role of
numerous banks (both public sector and
private sector) for the allotted districts
• A bank which is a relatively large network of
branches in rural areas of a given district
• and is endowed with adequate financial and
manpower resources,
• it is generally assigned the main responsibility
of that district.
• The lead bank acts as
• a leader for coordinating the efforts of all credit
institutions in the allotted districts
– to increase the flow of credit to
– agriculture,
– small-scale industries
– and other economic activities included in the priority
sector
• in rural and semi-urban areas
• the district being the basic unit in terms of
geographical area.
 Objectives of Lead Bank Scheme

• Eradication of unemployment
• An appreciable rise in the standard of living
for the poorest of the poor
• Provision of some of the basic needs of the
people who belong to poor sections of the
society
 Role and Function of Lead Bank: lead
bank scheme
• A monitoring mechanism to periodically assess and evaluate the
progress made in achieving the roadmap to provide banking
services within the time frame prescribed.
• Identification of Non-banked/underbanked areas for providing
banking services in a time bound manner with a view to achieving
100% financial inclusion
• The specific issues inhibiting and enabling IT enabled financial
inclusion
• Issues to facilitate ‘enablers’ and remove/minimize ‘impede-rs’ for
banking development for inclusive growth
• Monitoring initiatives for providing ‘Credit Plus’ activities by banks
and State Governments such as setting up of Credit Counseling
Centers and RSETI type Training Institutes for providing skills and
capacity building to manage businesses.
• Review of performance of banks under Annual Credit
Plan (ACP)
• The flow of credit to priority sector and weaker
sections of the society
• Assistance under Government sponsored schemes
• Grant of educational loans
• Progress under SHG – bank linkage
• SME financing & bottlenecks thereof, if any
• Timely submission of data by banks
• Review of relief measures (in case of natural
calamities wherever applicable)
 Development Initiatives by RBI
• Lead bank Scheme:
• A district is chosen as a unit of development
• One bank is assigned as a Lead Bank for one district
• Lead bank scheme envisage:
• Credit planning
• Co-ordination of activities of banks, FIs and Govt Depts
• Overseas the flow of credit to various sectors in rural
areas
• Implementation of Govt sponsored poverty alleviation
and employment generation schemes.
 Structure
• State Level Bankers’ Committee(SLBC) apex inter-
institutional forum to create adequate coordination machinery in all States, on a uniform
basis for development of the State

• District Consultative Committee(DCC) &

District Level Review Committee (DLRC) a common
forum at district level for bankers as well as Government agencies/departments towards
coordination of activities in implementing various schemes under Lead Bank Scheme.

• Block Level Bankers’ Committee (BLBC) BLBC is a

forum for achieving coordination between credit institutions on one hand and field level
development agencies on the other.
 Functions of Lead Bank Scheme
• To address impediments of development of
banking system in the state with State Govt.
• To discuss issues. Problems in the field of
agriculture and rural development, banking
development, financial inclusion and evolve
consensus for action
• To undertake critical analysis of the progress of
the implementation of Annual Credit Plans, Credit
linkage programmes and schemes of Govt.
Financial Inclusion- policy and progress
• I. Financial inclusion: policy approach and interventions
• The Reserve Bank has since the last decade made the following policy
interventions in the area of financial inclusion.
• Allowing correspondent banking
• Providing banking services in villages with population more than 2,000
• Phase I :2010-2013 During Phase-I, as reported by SLBCs, banking outlets
have been opened in 74,414 unbanked villages with population more than
2,000.
• Opening banking outlets in unbanked villages with population less than
2,000 During Phase II- 2013-2016 About 4,90,298 unbanked villages with
population less than 2000 have been identified and allotted to various
banks
• As on June 30, 2016, as reported by SLBCs, 4,52,151 villages have been
provided banking services; 14,976 through branches, 4,16,636 through
BCs and 20,539 by other modes viz. ATMs, mobile vans, etc. thereby
achieving 92.2% of the target.
 Financial Inclusion Advisory
Committee (FIAC)
• Set up in 2012
• review Financial Inclusion (FI) policies on an
on-going basis and to provide expert advice on
additional efforts under FI.
• FIAC was reconstituted in July 2015 with
representation from the Government of India,
SEBI, IRDA, PFRDA
 Pradhan Mantri Jan Dhan Yojna
• Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for
Financial Inclusion to ensure access to financial services, namely,
Banking/ Savings & Deposit Accounts, Remittance, Credit,
Insurance, Pension in an affordable manner.
• Launched on 28th August 2014
• By 1 February 2017, over 27 crore (270 million) bank accounts were
opened and almost ₹665 billion (US$10 billion) were deposited
under the scheme
 Pradhan Mantri Jan - Dhan Yojana
(All figures in Crore)
Beneficiaries as on 23/01/2019

Number of Number of
Number of Number of
Beneficiaries at Beneficiaries at No Of Rural- Deposits in
Total Rupay Debit
Bank Name / Type rural/semiurban urban metro Urban Female Accounts(In
Beneficiarie Cards issued to
centre bank centre bank Beneficiaries Crore)
s beneficiaries
branches branches

Public Sector Banks 14.75 12.55 14.36 27.3 70,670.07 22.46

Regional Rural Banks 4.77 0.89 3.13 5.66 15,474.56 3.72

Private Sector Banks 0.62 0.45 0.57 1.07 2,422.30 0.99

Grand Total 20.14 13.89 18.06 34.03 88,566.92 27.17

 Pradhan Mantri Jan Dhan Yojna
• Special Benefits under PMJDY Scheme
• Interest on deposit.
• Accidental insurance cover of Rs. 1 lac
• No minimum balance required.
• The scheme provide life cover of Rs. 30,000/- payable on death of the beneficiary,
subject to fulfillment of the eligibility condition.
• Easy Transfer of money across India
• Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
• After satisfactory operation of the account for 6 months, an overdraft facility will be
permitted
• Access to Pension, insurance products.
• The Claim under Personal Accidental Insurance under PMJDY shall be payable if the
Rupay Card holder have performed minimum one successful financial or non-financial
customer induced transaction at any Bank Branch, Bank Mitra, ATM, POS, E-COM etc.
Channel both Intra and Inter-bank i.e. on-us (Bank Customer/rupay card holder
transacting at same Bank channels) and off-us (Bank Customer/Rupay card holder
transacting at other Bank Channels) within 90 days prior to date of accident including
accident date will be included as eligible transactions under the Rupay Insurance
Program 2016-2017.
• Overdraft facility upto Rs.10,000/- is available in only one account per household,
preferably lady of the household
• Rupay Debit Card is an indigenous domestic debit card
introduced by National Payment Corporation of India (NPCI).
• This card is accepted at all ATMs (for cash withdrawal) and at
most of the PoS machines (for making cashless payment for
purchases) in the country.
 PMJDY - documents are required to
open an account
• An account can be opened by presenting an officially valid
document
• (i) the passport,
• (ii) the driving license,
• (iii) the Permanent Account Number (PAN) Card,
• (iv) the Voter’s Identity Card issued by Election Commission
of India,
• (v) job card issued by NREGA duly signed by an officer of
the State Government,
• (vi) the letter issued by the Unique Identification Authority
of India containing details of name, address and Aadhaar
number,
 PMJDY - documents are required to
open an account
• or (vii) any other document as notified by the Central
Government in consultation with the Regulator:
• Provided that where simplified measures are applied for
verifying the identity of the clients the following documents
shall be deemed to be officially valid documents: —
• (a) identity card with applicant's Photograph issued by
Central/State Government Departments,
Statutory/Regulatory Authorities, Public Sector
Undertakings, Scheduled Commercial Banks, and Public
Financial Institutions;
• (b) letter issued by a Gazetted officer, with a duly attested
photograph of the person.
 Demonitization
• On 8 November 2016, the Government of India announced
the demonetisation of all ₹500 and ₹1,000 banknotes of the Mahatma
Gandhi Series.
• By the end of August 2017, 99% of the banned currency was deposited in
banks, leaving only around ₹14,000 crore of the total demonetised
currency discarded
• Effects of demonetization:
• Radical groups: The Demonetisation has badly hit Maoist and Naxalites as
well. The surrender rate has reached its highest since the demonetisation
is announced.
• Hawala: Mumbai police reported a set back to Hawala operations.
• Digitization and cashless transactions:
• According to data of Pine Labs, the demand for its POS machines doubled
after the decision
• The company stated that the debit card transactions rose by 108% , Credit
Card Txn by
• The number of I-T returns filed for 2016-17 grew by 25 per cent to 2.82 crore
• Total Tax Payers 2013= 4 Crore
• Total Tax payers 2017= 6.75 Crore ( 68% increase)
• 2.26 lakh Shell companies busted(1.68 lakh deposited cash in accounts post
DeMo)
• advance tax collections during that period rose 41.8% over the 1-year period
• GDP for FY 16-17 – 7.1%
• IMF predicted GDP for 18-19 – 7.4%
• Income Tax department has issued notices to 1.16 lakh individual and firms
that made cash deposits over Rs 25 lakh after the demonetisation move last
year, but have not filed their tax returns yet.
 Recent Initiatives

• JAM/ India Stack

• DBT
• P2P
 Peer to Peer Lending
• the practice of lending money to individuals or businesses through
online services that match lenders directly with borrowers.
• companies function online thus lowering the overhead cost
• cheaper services than traditional financial institutions
• Lenders get a better return than traditional savings and investment
products
• Borrowers can borrow the money at a lower interest rate
• In some countries Governments have directly invested in P2P
lending to bypass High Street banks as they are reluctant to lend to
small companies
• Securitization of loans for liquidity to investors: can be transferred
to others for debt collection or profit
• Lenders investment ( loan) not protected by any government
guarantee
 P2P process as per RBI
If
Borrower • Major
Verification of accepts Platform
borrower and lender
Documentation for facilitates concerns:
by P2P Platform collection
lending and • KYC- as all
borrowing –Arranged of post transaction will be
by P2P Platform dated done through bank
cheques accounts ,KYC will
Reverse auction from the be deemed to have
bidding by Lenders borrower been done

• Possibility of use of
Platform moderates coercive methods
for recovery cannot
interaction between Lender be ruled out
borrowers and transfers
lenders money to
borrowers
Borrower accepts or bank account
rejects
Revenue and fee structure of P2P
models

• Zopa charges fixed 0.5%

of the sum from both
parties
• Prosper charges 1-2% of
funded loan from
borrowers and 0.5%
annually from lenders
• 30 players including Faircent, LendBox, LenDenClub,
IndiaMoneyMart, Monexo, Rupaiya Exchange, LoanBaba, CapZest,
i2iFunding
• Global top players:
• Prosper (USA)
• Zopa(UK based -1st P2P lender)
• Rate Setter
• 5 Billion £ on top 5 platforms in 2014
• No eficiency gains in Banking since 1900-oligopoly
• P2P Volumes have grown at 169% since 2009
• Unit cost of financial intermediation under 2% for 30 years
 Financial Literacy
• Initiatives by RBI:
• Holding News Exhibitions, Quiz Competitions
• Town Hall Events- Interaction of RBI top management
with public
• Outreach visits to villages by RBI Top management
• Visits by School and college children to RBI
• Visits to schools and colleges by RBI officials
• Inclusion of financial literacy in school curriculum
• Distributing books and pamphlets on financial literacy
 Financial Literacy
• Savings
• Deposits
• Demand deposits
• Term Deposits
• Cheques
• Demand Drafts
• Negotiable Instruments
Financial Literacy
 References

• The following material / sources have been used for the preparation of this PPT
• Financial Inclusion Growth and Governance – by Deepali Panth Joshi
• http://planningcommission.nic.in/reports/genrep/rep_fr/cfsr_all.pdf
• https://pmjdy.gov.in/
• https://www.rbi.org.in/scripts/PublicationsView.aspx?id=17412\
• https://www.prnewswire.com/news-releases/metlife-foundation-innovation-competition-in-partnership-with-verb-inc-
awards-100000-grant-to-swadhaar-saathi-300448792.html
• https://www.appbrain.com/app/swadhaar-saathi-beta/com.swadhaar
• https://en.wikipedia.org/wiki/Main_Page
• https://rbidocs.rbi.org.in/rdocs/content/pdfs/CPERR280416.pdf
Session 2
 Basics of Insurance
• Categories of pure risk
– Personal Risk
– Property Risk
– Liability Risk
– Failure of others
• Peril: The event that is causing risk
• Hazard: accentuating factor of peril
• Physical Hazard: Building, house, bank of a
river etc.
• Moral Hazard: Tendency to take the system for
a ride
• Legal Hazard: Consequence of government
regulations
• Dynamic Risk: Changes with time
• Static Risk: Remains same with time
• Fundamental Risk: eg floods- requires
government to step in
• Particular Risk: which a private insurance
company can manage
 Insurance Terminology
• Ex Ante
• Ex Post
• Aleatory Contract
• Pecuniary relationship
• Valued Policy
• Cash Policy
• Pro Rata
• Exculpatory Clause
• Concealment
• Warranty
• Proximate Loss
• Deductible
• Endowment
 Insurance Terminology
• Exclusion
• Conditions/ duties
• Agency ship
• Express Authority
• Implied Authority
• Apparent Authority
• Reinstatement- put you back where you were
• Indemnity- exactly the loss that is suffered
• Marine Cover
 General Insurance
• Crop Insurance
• Health Insurance
• Fire Insurance
• Marine Insurance
• https://uiic.co.in/en/product/marine/Marine-Cargo
• Householder’s Insurance
• https://orientalinsurance.org.in/householder-policy

• Motor Insurance
• Cattle Insurance
• Poultry Insurance
• Weather insurance
 Crop Insurance
• Pradhan Mantri Fasal Bima Yojna:
• to provide insurance coverage and financial support to
the farmers in the failure of any of the notified crop as a
result of natural calamities, pests and diseases to restore
their creditworthiness for the ensuing season
• Subsidising the premium( 10-20% by the insured and 80-
90% by the government)
• There will be a uniform premium of only 2% to be paid by
farmers for all Kharif crops
• 1.5% for all Rabi crops
• In case of annual commercial and horticultural crops, the
premium to be paid by farmers will be only 5%.

• Weather Insurance
• The following general insurance
companies are empanelled by Govt of India to
transact Crop Insurance:

• S.No Name of the Company

1. Agriculture Insurance Company of India
Limited,
2. ICICI Lombard General Insurance Co. Ltd.
3. IFFCO TOKIO General Insurance Co. Ltd.
4. HDFC ERGO General Insurance Co. Ltd.
5. Cholamandalam MS General Insurance Co. Ltd.
6. Tata-AIG General Insurance Co. Ltd.
7. Future Generali India Insurance Company Ltd.
8. Reliance General Insurance Company Ltd.
9. Bajaj Allianz General Insurance Co. Ltd.
10. Universal Sompo General Insurance Co. Ltd.
11. SBI General Insurance Co. Ltd.
This list is indicative only and subject to change by Govt of India
from time to time.
 Cattle and livestock insurance
• All indigenous/cross breed/exotic animals in the
prescribed age groups duly fixing the value and
certifying the health of the proposed animal by a
qualified Veterinary Doctor.
• Animal owners / private dairies / cooperative
dairies / NDDB owned dairies can be insured
• Insured against risks-
– Death due to accidents including fire, lightning flood and cyclone or
disease contracted or occurred during the currency of the policy period.
– Permanent Total Disability due to total incapacity to conceive or yield milk
by paying extra premium.
• Policy pays sum insured or market value prior
to illness subject to production of following
documents.
– Duly completed claim form.
– Death certificate from a qualified veterinary surgeon.
– Policy / Certificate.
– Ear tag.
• Policy does not cover
• Malicious or wilful misconduct or neglect over loading unskilled treatment
or use of the animal for the purpose other than stated in the policy
without the consent of the company in writing.
• Accidents occurred or diseases contracted prior to commencement of risk.
• Intentional slaughter.
• Transport by air / sea and road beyond 80 kms.
• Theft / clandestine sale missing of insured animal.
• Partial disablement of any type.
• War perils.
• Nuclear perils
• Death of animals due to disease within 15 days from the inception of
policy.
• Pleuro pnemonia --- Lakhimpur ----- districts of Assam.
Poultry Farming
 Poultry Insurance
• Brief Description
• This provides indemnity to Poultry birds which includes layers,
broilers and hatchery birds. (Breeding stock) which are exotic and
cross-bred. Indigenous and non-discriptive birds will not be
• Covered Risks
• The policy shall provide indemnity against death of birds due to
accident (including fire, lightning, flood, cyclone, strike, riot and civil
commotion and terrorism) or diseases contracted or occurring
during the period of insurance.
Major Exclusions
• Wilful injury, transit by any mode,theft and clandestine
sale,intentional slaughter, Avian Leucosis complex disease, war and
nuclear perils, improper management, undergrowth, cannibalism,
predators action, permanent and partial disablement, loss of
production
• Claim Procedure
• In the event of death of birds immediate intimation should be given to the
Company and the Insurer should be supplied with the following
documents and required information :
– Duly filled in claim form.
– Vet. P.M. Report for sample birds.
– Daily records of mortality, feeding etc.
– Purchase invoices for the birds.
– Any other point to substantiate the loss like photographs, medical bills, etc. as
and when required.
• In case of alarming death/outbreak of epidemic nature immediate notice
within 12 hours should be given to the Company and all birds should be
segregated and produced to the representative of the Company or to any
person authorised by the Company for inspection.
• Daily mortality details should be sent to the Company on weekly basis
failing which report will be treated as nil for that particular week.
• Delay in reporting of the claim should be avoided and if there is delay for
more than three days the claim would be treated as non-standard.
 Micro Insurance
• A micro-insurance policy is:
A general or life insurance policy with a sum
assured of Rs 50,000 or less(The IRDA Micro-
insurance Regulations, 2005)
• A general micro-insurance product is any:

• Health insurance contract

• Any contract covering belongings such as
• Hut
• Livestock
• Tools or instruments or
• Any personal accident contract
• They can be on an individual or group basis
• A life micro-insurance product is:

• A term insurance contract with or without return

of premium
• Any endowment insurance contract or
• A health insurance contract
• They can be with or without an accident benefit
rider and
• Either on an individual or group basis
• Category of Products: Endowment/ Savings/ Pension
• Features:
Under this category, there is life protection, both on
survival and death.
• Pension can also be built into the product. Some
Insurers offer accident benefit and permanent
disability benefit during the premium paying term only,
or for the full term.
• The sum is capped between Rs 30,000 and Rs 50,000. A
majority of the insurers offer policies under the non-
medical scheme and automatic acceptance if size
of the group is more than 200 members.
• It is possible to offer an automatic cover facility
after two years of premium payment. A policy
bond is given and administration is done through
a micro-insurance agent.
• Exclusions:
Some Insurers may exclude the risk coverage for
the first 45 days. Suicide during the first year is
covered to protect the third party interest/
refund of premiums, excepting in the case of
some insurers.
• Prospects:
While it is popularly sold as an individual policy, Group
Endowment is currently being issued by some Insurers
for economically weaker sections.
• Capping:
Insurers are allowing a maturity age of up to 60 years,
capping premium payment up to 45/ 50/ 55 years under
different modes of premium payment, including monthly
payment with the maximum term being 10/ 15 years.
• Freelook Cancellation:
Insurers are offering a free look cancellation during the
30/ 15 days period, after receiving the policy bond. Most
of them are giving a 30 day grace period. All are giving
liberal surrender values after 1/ 2/ 3 years.
• Category of Products: Protection (Term insurance)

• Benefits:
Life risk with accident benefit, is generally being offered under term
products. A majority offer accident benefit and some offer permanent
disability benefit too under term products.
Capping:
No one is paying any Bonus in addition to the sum assured. The sum
assured is capped between Rs 5,000 and Rs 50,000 or is defined as 100
times the annual premium. Some are giving refund or more than 110% of
premium at maturity under term products. Others are not giving any
maturity value. Majority are offering under non-medical scheme.
Automatic acceptance if size of the group is more than 200 members.
• Refund of Premium:
Most insurers are giving a refund of premium in case of suicide during the
first year. Some entertain a refund for Single premium cases only.
• Terms of Product:
While majority offer one year term, some are offering 5/ 10 year terms
under Group product.
• Term of Policy:
Insurers offering Individual Term are offering 3/5/10/15
(premium paying term restricted to 10 years) year policies.
Majority are allowing different modes of premium payment,
including Monthly and Yearly premium.
• Freelook Cancellation:
Insurers are offering a Free look cancellation during the 30/15
days period after receiving the policy bond. Majority are
giving a 30 day Grace period. Revival eligibility varies between
6 months to 2 years.
• Category of Products: Health

• Benefits:
Disability, hospitalisation, loss, etc Popular format of Health
insurance cover is a fixed sum in case of the hospitalisation
(Pre, during and Post).
• Generally, benefits are 150 Rs/day hospitalisation expenses,
• consultant fee up to Rs 4500/hospitalisation,
• diagnostic expenses up to Rs 4500/hospitalisation,
• transportation expenses Rs 350 per hospitalisation.
• One overall limit for hospitalisation may be defined as Rs
15,000 and overall sum Insured for one year defined as Rs
30,000. Group products with discounts offered to the
members/clients of MFIs and NGOs and to specific sections of
the population (such as all the BPL families in a state).
• Condition:
Entire family needs to be covered under one Sum Assured,
any number of times.
 Yeshashvini
• Yeshasvini cooperative farmers health care scheme
• 1.6 million people enrolled
• There are around 572 network hospitals under the
Yeshasvini Co-operative Farmers Health Care Scheme.
• To provide quality health care within the reach of rural
co-operator based on the collective power of masses to
provide for themselves, expensive Health Care through
‘Self Funded’ scheme in Karnataka
• FY2017-18, Rs.300 is the member contribution for
Rural Yeshasvini, and for Urban Yeshasvini, it is Rs.710.
• The scheme is open to all rural co-operative society members,
members of self help group/Sthree Shakti Group having financial
transaction with the Cooperative Society/Banks, members of
Weavers, Beedi Workers and Fisherman Cooperative Societies.
• In the beginning of scheme plan was open to all members, spouse,
dependent children and married daughters were eligible to avail
benefit in their husband’s family only.
• Now the benefit has been extended to all members in a joint family
including married children, daughter in law, grand children and etc.
• A person (he/she) is defined as : a member of cooperative society
at least for period of six months prior to the date of
commencement of the Scheme every year .
• Scheme period : Starts on August 1st and ends on July 31st
• He/She can enroll all members of their family (Joint Family
members including parents, Children and Grand Children) even
though they are not members of the cooperative society.
The Yeshasvini Health Insurance Scheme implementation
process is as follows:
• The Yeshasvini beneficiary visits a network hospital that
the trust recognises and approves of.
• A coordinating officer of the network hospital will
examine the beneficiary’ UHID card.
• Then the patient has to undergo initial diagnosis and few
basic medical tests.
• Depending on the initial diagnosis, the network hospital
will send a pre-authorisation request online with
supporting documents to the MSP (Management
Support Service Provider).
• Doctors appointed by the MSP will examine the request
and approval will be given within a day.
• Making note of the limits specified under the scheme,
cashless treatment will be provided to the beneficiary by
the network hospital.
• After discharge, the network hospital will submit the
original bills, discharge summary, and other medical
documents to the MSP for settling the claim.
• The trust will settle the claim to the network hospital
through the MSP within 45 days of receipt of the
documents.
 Pradhan Mantri JeevanJyoti Bima
Yojna(PMJJBY)
• The scheme is a one year cover Term Life Insurance
Scheme, renewable from year to year, offering life
insurance cover for death due to any cause.
• Pradhan Mantri Jeevan Jyoti Bima Yojana is available to
people between 18 and 50 years of age with bank accounts
.
• Life Insurance Cover of Rs. 200,000 provided
• Policy is administered by LIC or any other life insurance
provider
• Premium of Rs. 330 per person per annum is deducted by
auto debit instructions given by the insured
• Age limit of getting into the scheme 18 years to 50 years
• Coverage up to age of 55 years
Parameters As on. 01.02.2017 As on 23.04.2018 % Change

Gross enrolment reported

by Banks subject to 3.08 5.34 73%
verification of eligibility,
etc. (in Crores)
Total No. of claims recd. 55,371 100,881 82%
Total No. of claims
51,601 92,089 78%
disbursed
 Pradhan Mantri Suraksha Bima
Yojna(PMSBY)
• Eligibility: Available to people in age group 18 to 70 years with bank account.
• Premium: Rs.12 per annum.
• Payment Mode: The premium will be directly auto-debited by the bank from the
subscribers account on or before 1 st June of each annual coverage period under
the scheme.
• Risk Coverage: Govt backed accident insurance scheme.
• Death - Rs 2 Lakh
• Total and irrecoverable loss of both eyes or loss of use of both hands or feet or loss
of sight of one eye and loss of use of hand or foot - Rs 2 Lakh
• Total and irrecoverable loss of sight of one eye or loss of use of one hand or foot –
Rs.1 Lakh.
• Eligibility : Any person having a bank account and Aadhaar number linked to the
bank account can give a simple form to the bank every year before 1st of June in
order to join the scheme. Name of nominee to be given in the form.
• Terms of Risk Coverage : A person has to opt for the scheme every year. S/He can
also prefer to give a long-term option of continuing in which case his/her account
will be auto-debited every year by the bank
 Rural Postal Life Insurance (RPLI)
• RPLI offers following types of plans:

• Whole Life Assurance ( GRAMA SURAKSHA)

• Convertible Whole Life Assurance (GRAMA SUVIDHA)
• Endowment Assurance ( GRAMA SANTOSH)
• Anticipated Endowment Assurance (GRAMA
SUMANGAL)
• Children Policy (BAL JEEVAN BIMA)

• All the schemes have compulsory medical examination

 Whole Life Assurance (GRAM
SURAKSHA)
• assured amount with accrued bonus is payable- after death or
at maturity ( 80 years)
• Minimum Age at entry is 19 years and the maximum Age at
entry is 55 years.
• The minimum Sum Assured is Rs 10,000 and the maximum
Sum Assured is Rs 10 lacs.
• can be converted into an Endowment Assurance Policy after
one year and before 57 years of age of the insurant.
 Convertible Whole Life Assurance
(GRAM SUVIDHA)
• can be converted into Endowment Assurance
after five years. Age on the date of conversion
must not exceed 55 years.
• Other features like Gram Suraksha
• If not converted within 6 years - will be
treated as Whole Life Assurance.
• Loan facility avialable
 Endowment Assurance (GRAM
SANTOSH)
• the proponent is given an assurance to the extent of the Sum
Assured and accrued bonus till he/she attains the pre-
determined age of maturity.
• On death full sum assured with accrued bonus
• The minimum age at entry is 19 years and the maximum Age
at entry is 55 years.
• The minimum Sum Assured is Rs 10,000 and the maximum
Sum Assured is Rs 10 lacs.
• Loan facility available
 Children Policy(BAL JEEVAN BIMA)
• introduced 20th Jan 2006
• The Scheme is envisaged to provide Insurance cover to the children
of PLI/RPLI policy holders.
• Maximum two children in family will be eligible to take children
policy.
• Children between the age of 5 and 20 years are eligible and
maximum sum assured is Rs 3 lakh or equivalent to the sum
assured of the main policy holder which ever is less.
• The main policy holder should not have attained the age of 45
years.
• No premium is required to be paid on the children policy on the
death of the main policy holder and full sum assured with the
accrued bonus shall be paid to the child after the completion of the
term of the children policy.
• On the death of the child/children, full sum assured with the
accrued bonus shall be payable to the main policy holder.
Pension Schemes
 National Pension Scheme
• Pension Fund Regulatory and Development Authority (PFRDA)-
Established by GoI on 10th October 2003
• develop and regulate pension sector in the country
• The National Pension System (NPS) was launched on 1st January,
2004 with the objective of providing retirement income to all the
citizens
• Initially, NPS was introduced for the new government recruits
(except armed forces)
• With effect from 1st May, 2009, NPS has been provided for all
citizens of the country including the unorganized sector workers on
voluntary basis.
• All citizens of India between the age of 18 and 60 years as on the
date of submission of his / her application to Point of Presence
(POP) / Point of Presence-Service Provider (POP-SP) can join NPS.
• The subscriber will be allotted a unique Permanent
Retirement Account Number (PRAN). This unique account
number will remain the same for the rest of subscriber's life.
This unique PRAN can be used from any location in India.
• PRAN will provide access to two personal accounts:
• Tier I Account: This is a non-withdrawable account meant for
savings for retirement.
• Tier II Account: This is simply a voluntary savings facility. The
subscriber is free to withdraw savings from this account
whenever subscriber wishes. No tax benefit is available on
this account.
• For the Central Government employees
contribution through their nodal office to
National Pension System (NPS) is mandatory.
Every month 10% of his/ her salary (basic +
DA) and equivalent government's contribution
will be invested in NPS.
 Atal Pension Yojna(APY)

• Open to all bank account holders

• Focuses on the unorganized sector
• Monthly contributions to be made
• Central Govt co-contributes 50% of the of the total
contribution or Rs 1000 which ever is lower for eligible
subscribers
• upto first 5 years( FY 15-16 to FY – 19-20, whoever
applies for APY before 31st dec 2015) and who are not
members of any statutory social security scheme and
who are not income tax payers
• Under the APY, the subscribers would receive the fixed
minimum pension of Rs. 1000 per month, Rs. 2000 per
month, Rs. 3000 per month, Rs. 4000 per month, Rs.
5000 per month,
• at the age of 60 years, depending on their contributions,
which itself would be based on the age of joining the APY
• Minimum pension guaranteed by the government
• However, if higher investment returns are received on
the contributions of subscribers of APY, higher pension
would be paid to the subscribers.
• The minimum age of joining APY is 18 years and
maximum age is 40 years. Therefore, minimum period of
contribution by any subscriber under APY would be 20
years or more.
 15 year Public Provident Fund Account (PPF)
• From 1.01.2018, interest rates are as follows:-
• 7.6% per annum (compounded yearly).
• Minimum INR. 500/- Maximum INR. 1,50,000/- in a financial
year.
Deposits can be made in lump-sum or in 12 installments.
• An individual can open account with INR 100/- but has to
deposit minimum of INR 500/- in a financial year and
maximum INR 1,50,000/-
• Joint account cannot be opened.
• Account can be opened by cash / Cheque and In case of
Cheque, the date of realization of Cheque in Govt. account
shall be date of opening of account.
• Nomination facility is available at the time of opening and also
after opening of account. Account can be transferred from
one post office to another.
• The subscriber can open another account in the name of minors but
subject to maximum investment limit by adding balance in all
accounts.
• Maturity period is 15 years but the same can be extended within
one year of maturity for further 5 years and so on.
• Maturity value can be retained without extension and without
further deposits also.
• Premature closure is not allowed before 15 years.
• Deposits qualify for deduction from income under Sec. 80C of IT
Act.
• Interest is completely tax-free.
• Withdrawal is permissible every year from 7th financial year from
the year of opening account.
• Loan facility available from 3rd financial year.
• No attachment under court decree order.
• The PPF account can be opened in a Post Office which is Double
handed and above.
Remittances
 Electronic Money Order

• A money order is an order issued by the Post

Office for the payment of a sum of money to the
person whose name the money order is sent
through the agency of the Post Office.
• A ‘Payee’ is the person named in money order as
the person to whom the money is to be paid
• A remitter is the person who send money order
• The amount for which a single money order may
be issued must not exceed Rs 5000/-
 Instant Money Order (iMO)

• Instant Money Order (iMO), the instant on-line

money transfer service that is instant,
convenient,reliable and affordable.
• iMO is an instant web based money transfer
service through Post Offices (iMO Centre) in India
between two resident individuals in Indian
territory.
• transfer money from INR 1,000/- to INR 50,000/-
from designated iMO Post Offices.
• It is simple to send and receive money.
 IFS Money Order
• Interna onal Financial System (IFS) is so ware
developed to coordinate international remittance
services among the partner countries. At present the
service is operational with La Poste Group, France and
UAE.
• Features
• This service is India Post’s own service. The remittances
received under this service are being paid through our
eMO service.
• Remittances can be received at any of the 17,500 post
offices on eMO network.
• The Payee receives the full amount in Indian Rupees.
• Remittances up to INR 50,000 can be received in cash.
•
• Amount exceeding INR 50,000 to be paid through
Cheque subject to a maximum limit of USD 2500.
• Maximum of 30 transactions per person per year.
• Beneficiary has to furnish Unique MO Number (9
digits in case of UAE and 26 digits in case of
France) along with valid identification documents
like Voter ID Card, Driving License, PAN Card,
Ration Card, Aadhar Card, Passport etc.
• A copy of such document has to be handed over
to Post Office staff for their record (KYC
Documents).

• Same day payment for remittances booked

before cut-off time.
• Payments subject to RBI Guidelines from time to
time.
• Payment can be collected from identified Post
offices.
 Interna onal Money Transfer

• Money Transfer Service Scheme is a quick and

easy way of transferring personal remittances
from abroad to beneficiaries in India.
• Only inward personal remittances into India
such as remittances towards family
maintenance and remittances favoring foreign
tourists visiting India are permissible.
• No outward remittance from India is
permissible under MTSS.
 references
• https://www.india.gov.in/spotlight/national-pension-system-retirement-plan-all
• https://www.hdfcbank.com/
• https://www.uiic.co.in/product/micro-insurance/Cattle-and-Livestock-Insurance
• http://www.policyholder.gov.in/Micro_Insurance.aspx
• http://www.jansuraksha.gov.in/
• https://en.wikipedia.org/wiki/Main_Page
• https://www.indiapost.gov.in/vas/Pages/IndiaPostHome.aspx
• http://yeshasvini.kar.nic.in/
Session 3-4
• Tendulkar committee(2009):
• that households with per capita consumption of
• more than Rs 33 per day in urban areas and
• more than Rs 27 per day in rural areas would not be treated as
poor.

• Rangarajan committee (2014):

•
• more than Rs 47 per day in urban areas and
• more than Rs 32 per day in rural areas would not be treated as
poor.
• Under this methodology, the population below the poverty line in
2009-2010 was 454 million (38.2% of the population)
• and that in 2011-2012 was 363 million (29.5% of the population).
• World bank definition:
• Earlier $1.25 a day .
• The usual poverty line used in narratives is
1.90 international dollars a day, but the World
Bank has two others—$3.20 per day for
middle-income countries and $5.50 per day
for rich countries.
• Role of credit in Poverty Alleviation
• Debt Trap
• State Intervention in Rural Credit
– IRDP
– SGSY
• Emergence of Microfinance
Parameter Moneylender Commercial Government Microfinance
Banks Sponsored Institutions
Programmes
Ease of access
Cost of access
and transaction
Lead time for
loans
Repayment
terms
Interest rates
Incentives
Repeat
borrowing
Loan access
procedures
Loan application
procedures
Collateral and DP
Note
Parameter Moneylender Commercial Government Microfinance
Banks Sponsored Institutions
Programmes
Ease of access high low low high
Cost of access low Very high Very high Low-medium
and transaction
Lead time for Very short Extremely long Extremely long short
loans
Repayment Fixed and rigid Fixed and easy Fixed and easy flexible
terms
Interest rates Exorbitantly high Low and Low affordable Medium to high
affordable and subsidized and flexible
Incentives none none Interest rebates
Repeat possible Possible but cannot be assured
Possible but not Stream of credit
borrowing likely
Loan access Very quick Time consuming/
complicated
Time consuming/
complicated
Simple and
procedures informal
Loan application Informal but Exhaustive and Exhaustive and Simple and
procedures exploitative complex complex informal
Collateral and DP mandatory Hypothecation of Not required but automatic
charge on asset
Not required: social collateral

Note assets
• Financial needs of the poor
– Life Cycle needs
– Emergency Needs
– Investment Needs

• Why Microfinance
 Genesis of Microfinance
• SHGs
• JLGs
• Grameen Bank Model
 Self Help Group
• Self-Help Group (SHG) is a small voluntary association of poor
people, preferably from the same socio-economic background.
• They come together for the purpose of solving their common
problems through self-help and mutual help.
• The SHG promotes small savings among its members.
• Objectives:
– To sensitize people of target area for the need of SHG and its relevance in
their empowerment process.
– To create group feeling among members.
– To enhance the confidence and capabilities of members.
– To develop collective decision making among members.
– To encourage habit of saving among members and facilitate the
accumulation of their own capital resource base.
– To motivate members taking up social responsibilities particularly related
to development.
• SHGs may or may NOT be registered.
• Number of members is between 10-20.
• The SHG may discuss and finalise a set of
byelaws, indicating rules and regulations for the
SHG's functioning and also roles and
responsibilities of members.
• It is better to have a written set of byelaws.
• The Self Help Promoting Institution (SHPI) and
bank may guide the SHGs in this.
• There are regular weekly or fortnightly meetings.
 SHGs
• 1980- The SHG movement was spearheaded by a few
pioneering NGOs and supported by the banking
system
• Failure of IRDP and its allied programs forced govt to
introduce SGSY-
• 1996- RBI included financing SHGs as the mainstream
activity under priority sector lending
• 2000- state governments started emerging as major
SHG Promoting Institutions(SHPIs)
• 2005- by this time Sate Govt of most states had several
schemes designed for the welfare of the poor that
were delivered through SHGs
• Today SHG federations are being used primarily as
channels for delivering most development and welfare
schemes
• The following criteria would broadly be adopted
by NABARD for selecting SHGs:
• a) The Group should be in existence for at least
six months.
b) The Group should have actively promoted the
savings habit.
c) Groups could be formal (registered) or informal
(unregistered).
d) Membership of the group could be between 10
to 25 persons
 SHG Bank Linkage
• Types of SHGs:
– Groups promoted by NGOs
– Groups promoted by Banks
– Groups promoted by govt department/ agencies
– Groups promoted by SHG Federations

• SHG formation:
• Helping form SHGs
• Preliminary visit
 How are groups formed
• Homogeneity
 How are groups formed
• Homogeneity
• Similar experience of poverty
• Similar living conditions
• Same kind of livelihood
• Same community or caste
• Same place of origin
 What questions to ask
1. Does the family have only one earning member?
2. Does the family bring drinking water from far away
places?
3. Are women compelled to go for open defecation in
absence of toilets?
4. Are there old and illiterate members in the family?
5. Are there permanently ill members in the family?
6. Are there children in the family who do not go to
school?
 What questions to ask
7. Is there a drug addict or drunkard in the family?
8. Is their house made of kuccha material?
9. Do they regularly borrow from moneylenders?
10. Do they eat less than 2 meals a day?
11. Do they belong to scheduled castes or scheduled
tribes?
3-4
 Formation continued
• Organising group meetings
• Membership:
– Some member leave
– Some new members will come in
– The members slowly learn to decide subjects for the
meeting
– They learn to conduct the meetings
– They learn to understand the value of records and
documents
– They want to remain together and help each other
 Formation continued
• Leadership
• Organising meetings
• How do SHGs function?
• Rules
• Common agreement on when to meet
• Decision on time and place of meeting
• Agreed penalties on non attendance
• Agreement on amount of saving
• Giving small loans to each other
• Taking loans from banks, repayment habits
 Book keeping

• Basic mathematics
• Keeping of books
– Minutes book
– Savings and loan register
– Weekly register
– Member’s pass book
• Scheduling meetings
• Social aspects like women empowerment
• Basics of lending money, borrowing and repaying
 Characteristics of an SHG
• 10- 20 members
• Registered/ Unregistered
• One Family One member
• Only men or only women groups
• Same social and financial background
• Group should meet regularly
• Compulsory Attendance
 Functions of SHG
• Savings and Thrift
• Internal Lending
• Discussing problems
•
 Linking SHG to Bank
• Step 1: Opening of S/B account for the SHG
• Resolution
• Authorisation
• Copy of rules and regulations
• S/B Passbook
• Step 2: Conduct of internal lending by the SHG
• Min saving period
• Purpose, T&C , ROI
• Books of accounts
• Case Study: ANARDE Foundation
Step 3: Assessment of SHG
• Annexure I I
Assessing Self
Help Groups for
credit linkage

• *9-2o & *#5-8 for

NE in hilly
tracts/districts of
North Eastern
Region and
HimalayanR
egion(Jammu&Kas
hmir,HimachalPra
desh,Uttaralchand
,&parts
of west Bengal)
•
Score of 12 marks
and above: SHG
may be
considered for
credit linkage
• Annexure I I
Assessing Self
Help Groups for
credit linkage

• *9-2o & *#5-8 for

NE in hilly
tracts/districts of
North Eastern
Region and
HimalayanR
egion(Jammu&Kas
hmir,HimachalPra
desh,Uttaralchand
,&parts
of west Bengal)
•
Score of 12 marks
and above: SHG
may be
considered for
credit linkage
• @A matured SHG
assumed as one
that has availed
at least two
cycles of credit
from a bank and
repaid it .
•
Score of 12 marks
and above:
Higher quantum
of credit (more
than four times
of the group
corpus) may be
considered for
sanction to
mature SHGs
• Step 4: Sanction of credit facility to the SHG
• Whose name is the loan issued?
• What is the quantum of the loan?
• What constitutes savings of the group?
• Purpose of loan
• Repayment
• Collateral
• ROI
• Default
Allahabad Bank Guidelines
 Micro Finance Progress Report
Part 'A' – SHG Bank Linkage Program (All amounts in Rs.
'000)
1. SHGs maintaining Savings A/c in the Bank

No. of No. of Savings

SHGs Members Amount

Name of the State

bank
a. Total no. of SHGs
As at the end of March/
b. Of which under SGSY & otherSept.
Govt.
sponsored schemes
c. Exclusive Women SHGs [Out of (a)
above]
d. Of which under SGSY & other Govt.
sponsored schemes
 Part 'A' – SHG Bank Linkage Program
2. SHGs financed directly by Banks

During the year Loan outstanding Gross NPAs** Percentage

Loan No. of SHGs No. of Amount No. of Amount No.of of Recovery
Amount Members SHGs SHGs to Demand
Disbursed with NPAs
Total no. of
SHGs

(b) Of which
under SGSY &
other Govt.
sponsored
Programs (All amounts in Rs. '000)
Exclusive
Women SHGs
(b) Of which
under SGSY &
other Govt.
sponsored
Programs
Session 6
 Joint Liability Groups
• Informal groups of 4-10 members
• Engaged in similar economic activities
• Willing to jointly undertake to repay the loan
taken by the group from the Bank/MFI
• JLGs are basically credit groups unlike SHGs
• Financing JLGs was introduced as a pilot
project in 2004
• Group and centre concept
Area
information
 Promotion
• Sales Pitch
 Formation of JLG-Step 1: Sales pitch
• Door to door sales pitch
• Ask women to form a group and a center
• Once center is formed hold another meeting
 Ujjivan Group Loan
•
1. Group Loans
• These are purpose based loans given at moderate rates
under Joint Liability Group (JLG) model. It includes
following products:
– Business Loan
– Family Loan
– Agriculture and Allied Loan
– Education Core Loan
– Business Top-up Loan
– Emergency Loan
– Education Loan (Top up)
– Loyalty Loan
 Ujjivan Group Loan
• Loan Amount: `2,000 – `60,000
• Rate of Interest: 22% p.a on a reducing balance
method method (governed by the MCLR based
pricing policy of the bank)
• Processing Fee: 1% of loan amount (excluding
applicable GST) (applicable for loans above `25,000)
• Credit Bureau Charges: `10 (including applicable GST)
(applicable for loans above `25,000)
• Tenure: 1 year/1.5 years/2 years
 Step 2: Continuous Group Training 1
• Introduce MFI/Bank
• Product detail and sales pitch
• Member number check/ else redo
• Age limit and KYC
• Reason for taking loan and loan requirement
• Document Verification( client and spouse)
• Processing fees, insurance, reducing balance
• Credit bureau
• Selection of group leader
• Roles and responsibilities
• Arrangement
• Collection date time
• EMI details
• Second meeting to be scheduled
 GRT or CGT 2
• Form filling: Borrower and spouse
• Home verification
 Home Visit and Verification

Customers Customer
Customers family details and Customers
Name of the customer approx surplus/ Remarks
occupation Income
expenditure saving
 Things to check
• Is there a consent given by the family members of
the applicant for taking loan?
• Has the applicant taken loan from other MFI?
• What are the other economic activities
undertaken by the family members?
• How much does she earn per month?
• Who has promoted the group?
• Is the customer is in a position to repay/ Has the
customer defaulted before on a loan?
 Brach Operations Tele calling
• Each member called
• Asks random questions based on
questionnaire
• Categorises : ok, More verification, Not
recommended
• Branch manager to take final call
• Publishes report
 Branch Manager/Product Manager
GRT
• Conducted after successful telly calling
• Introduce himself
• Cross check information filled by loan officer
• Check attendance register
• Conducts home visits
• Checks forms filled
• Recommends loan
S No Question Name of the Answer given Whether Branch
member by the member answers is manager cross
correct ( ) or check
Incorrect ( )
1. How many people in
………..’s family ? (
including the client)
2. What work does
…………do?
3. How long has
……………..lived at the
current address?
4. What work does
…………’s husband/
father / family member
do?
5. Is ……………..’s house
own or rented?
6. How long have you
known
……………………….?
7. What is the center
leaders occupation?
8. Name 4 members of
this group?( BM or LO
to point out a member
and applicant to name
9. How many children
does ……………..have?
10. Does ……………….own
this asset? ( TV, fridge
etc)
 Loan sanctioning
• KYC rechecked
• Equifax/ credit bureau report check
• Disbursement kit sent to branch
 Loan disbursement
• Details cross checked
• KYC recheck
• Pre disbursement speech
• Group photograph
• Fees deducted from amount
• Loan card filling
• Amount to be counted before Branch Officer
 Loan Utilization Check
• By Loan officer
• By Branch manager
• Surprise check by PSM or any other senior
Collection
 Grameen Bank Model
• 5 member homogenous affinity groups
• Field worker from Grameen bank facilitates group
formation
• 7 day compulsory training given by Grameen bank( 1-2 hrs
per day)
• GRT
• After passing GRT women become member of Grameen
Bank. Have to pay a small fee
• 8 JLGs form a Centre
• Centre meets every week. Meetings are attended by Bank
assistant
• No group guranttee
 Key Areas of Measurement
• Profitability/Sustainability
– Returns on Capital and assets employed
• Asset/Liability Management
– Meeting financial obligations when it is due
– Optimal utilization of assets for profitable purpose
• Portfolio Quality
– Health of loan outstanding
• Efficiency and Productivity
– Cost of MFI vis-à-vis outputs
 OSSR

• A higher OSSR is better

FSSR
RoA
RoE
Yield on Portfolio
Portfolio to Assets Ratio
 Cost of Funds

• Decreasing ratio is better

Debt-Equity Ratio
Liquid Ratio
 PAR

• Decreasing PAR is good for MFI

 Write-off Ratio

• Decreasing rate is better

Risk Coverage
• Decreasing rate is desirable
Cost per Client
Borrower per LO
Active Clients per Staff member
Client Turnover Ratio
Average Outstanding Loan
Average Loan Disbursed
Acceptable Ranges
Individual Loans Microfinance
 Credit
Product Type
•Working Evaluation:
Capital Loan ( Secured
Priority Sector Lending
Inventory, Short Term financing
• MSME Loans
/Unsecured) requirements
Unsecured Loan Business development, expansion, debt
consolidation
Asset Financing Loan Loans against immovable assets like
equipment/ machineries
Secured Loans For business development, business
expansion, debt consolidation etc.
 Loan Purposes
1. To finance working capital and other business needs
2. For the purpose of business related repairs &
maintenance, renovation and/or capital improvements,
extensions etc
3. To purchase machinery and equipment
4. Consolidation of existing debt taken for business
purposes
 Prohibited Loan Uses
1.Gambling and / or gaming businesses
2.Places of worship
3.Amusement parks
4.Liquor outlets, parlors or bars
5.Businesses which are highly seasonal
6.Transport contractors / operators
7.Production or trade of pharmaceutical products under international
phase outs or bans
8.Any other illegal activities prohibited by laws of the Government of
India
 Eligibility criteria
• Age of Applicant and Co-applicant
• Experience in the Business
• Number of years in current location
• Business status
• KYC, Income proof, security Document
requirements
• Loan purpose
• Loan amount requirements
• Agreement to Bank’s terms and conditions
• Eg. A grocery store owner wants a business
loan of 75,000.
• Eg. A grocery store owner wants a business
loan of 75,000.
• business eligibility
• How much loan can be given
• Loan duration
• What is the purpose
• Collateral or not
 Process
• Step 1: Cold Call by Loan officer- pitch product as per
requirement
• Step 2: First client meeting- check documents as per CAM
to do self credit evaluation
• Step 3: case logged in system
• Step 4: Credit manager prepares CAM( as per Bank /MFI
credit policy) and does client visit
• Step 5: Loan approval made and sent for approval
• Step 6: Customer documentation at Branch
• Step 7 : Disbursement
• Step 9: LUC-Re-payment- Recovery
 Eligibility Criteria – age and experience
Generally followed rules, credit policy varies from bank to bank
Age: Applicant should be 25 years – 65 years; Co-applicant should be 21 years – 65
years
• Minimum Experience:
– At least 2-3 years in the current residence. ( depending upon the credit policy of
the bank/ MFI)
– At least 2-3 years in the current place of business. Proof of business continuity to
be checked against ITRs or financial statements or old bills/purchase receipts(
depending upon the credit policy of the bank/ MFI)
– At least 1-3 years business experience (YIB)- Can be waived off*
• Co-applicant:
– A co-applicant is required in all cases. A co-applicant is a person who signs loan
documents along with the applicant. S/he bears the same responsibility as
applicant for repaying the loan.
– The co-applicant should preferably be the spouse. Other family members can
also be the co-applicant.
Eligibility Criteria – Business Status and
Location
• For unsecured years at least three(1-3)* years in current
business location
• Business-owned premises to be in name of applicant or
co-applicant
• For rented business premises: applicant and / or co-
applicant must own property within …..km radius of
business location
• Assets of the business should be visible at time of visit
• Traders should have a physical point of sales
• The business should be operational during evaluation
• The business may or may not be registered
• The business should operate at or from a fixed location.
Businesses that are home based may also be included
• Ownership of the business place or current residence
either by the borrower or by the co-applicant. In case of
both rented, owned property has to be within ….kms radius
from bank branch
 Eligibility Criteria
For self-employed professionals
• Only self-employed individuals (professional and non-professionals),
proprietorship and partnership firms are eligible
• Private/Public Limited Companies & Societies/Trusts are NOT eligible
• Should own a business or running an established practice for
minimum three years
For home-based businesses
• Must have own house/family owned house
• Assets of business should be easily visible and separate from
household assets
 KYC and Documents
ID Proof •Driving license
•Passport
•Voter’s Card
•Aadhaar Card
•PAN Card
•ID card issued by Govt., scheduled commercial bank

Address •Driving license

proof •Passport
•Voter’s Card
•Aadhaar Card
•Utility bill (electricity/telephone/ mobile/gas/water; <2 mos
old)
Signature •Passport
proof •PAN Card
•Banker’s Signature Verification (BSV)
•Notarized affidavit
 KYC and Documents
Income Proof •ITR/VAT
•Bank statements
•Kaccha/Pakka bills
•Sales register, diary
Business Address proof •PAN Card
•Utility bill (electricity/telephone/mobile/gas/water; <2
mos old)

•RC
Years in business proof (YIB) •Bank statement
•ITR/VAT
•Registration certificate
•Property or Municipal tax receipt
Business ownership proof •Registration certificate
•Property or Municipal tax receipt
•ITR/VAT
•Bank statement
Collateral documents •Property documents
•Purchase receipt
•Performa invoice
•Valuation certificate
 Primary Securities
•Liquid securities including:
– Assignment of life insurance policies with adequate surrender values
– Pledge of bank fixed deposits
– Kisan Vikas Patras
– National Savings Certificates
•Immoveable assets including:
– Hypothecation of plant, new and old machinery and equipment. LTV
calculated based on valuation
– Land and buildings – purchase deed and mutation details
– Open plots
 Collateral Guidelines for Mortgage of
Property
When a property is to be mortgaged as security:
•Minimum ownership of the property varies from Bank to Bank( 1 year
usually)
• in the name of the Applicant or Co-Applicant or blood relative. Property
age criteria (varies from Bank to Bank)
•The property should be approved by development authority (urban location)
or Gram Panchayat (rural location)
•Charge to be created by an Equitable / Registered mortgage of the property
•Mortgage is subject to legal opinion and a compliance process followed by
lawyers on an approved panel
 Caution to be exercised

• Usually banks avoid such collatorals

– Educational Institutes- like schools, colleges, coaching classes,
computer training institutes
– Plots belonging to -hospitals and nursing homes
– Religious, political, communal plots
– Hostels
 Credit Score Criteria
• A minimum score of 650-700( varies from Bank to Bank) is required for the
main borrower
• Deviation may be given as per bank policy
• Otherwise, deviations are to be approved as per the deviation grid only for
cases with proper justifications and mitigants
• If it is a no hit case (-1) in CIBIL, application may be processed without any
deviation approval( varies from bank to bank)
• Equifax report of all applicants needs to be generated and checked for
microfinance loans
 CIBIL Credit Score
• The CIBIL TransUnion Score ranges from 300 to 900.
• The closer the Score is to 900, the better the score.
• Major factors that reduce the score:

– Late payments or defaults in the recent past

– High utilization of credit limits e.g. high balance outstanding on credit

cards

– High percentage of credit cards or personal loans (unsecured loans)

– Credit hungry behavior e.g. many loan applications recently

 Criteria for Reference Checks

• Minimum reference checks done by banks( numbers vary from bank

to bank)
• eg
• Minimum 3 reference checks to be done
– One reference check form the business partner/supplier (trade
reference)
– One reference check from the business location (preferably from
the neighboring shop/ business unit)
– One reference check from the neighbor at the residential place
 Debt Service Ratio (DSR)
• DSR is a measure of repayment capacity and
relates income to payment obligations
• DSR requirement: ( varies from bank to bank)

Income Document Type DSR

Verified Income by personal visit 50-60%
Kachha Bills/Registers/Notebooks/ Handwritten 55-65%
Delivery Challan
Pucca Bills (with TIN and VAT)/ Printed Master Weaver 60-70%
Statement
ITR/VAT/Bank Statements 75%
 Loan to Value (LTV)( Varies from bank to bank- an example could be
like given below)
The loan-to-value ratio is a financial term used by lenders to express the ratio of a loan
to the value of an asset purchased.
Type of Security Max LTV %
Residential Property – self occupied 70%
Residential Property – rented 60%
Commercial Property – self occupied 50%
Commercial Property – rented 45%
Village Panchayat approved residential property – self occupied 70%
Village Panchayat approved residential property – rented 60%
Farm House – Self occupied 55%
Moveable assets (plant & machinery) – new 70%
Moveable assets (plant & machinery) – 2nd hand 45%
Open Non Agricultural Plot 50%
Cash & other liquid securities 100%
 Final Loan Eligibility( varies from bank
to bank)
• Example of policy could be

• The final EMI eligibility is the minimum of the following:

1. Based on customer stated comfortable EMI
2. Cash flow analysis EMI
•
• The loan amount has to be decided as the minimum of the following:
1. Loan amount as per the EMI eligibility
2. Loan amount applied for
3. Programme/Policy cap
4. Loan amount as per LTV cap
 Net Cash in Hand
Calculation of ability to pay loan is done based on

•Business Profit
•Other Income
•Expenses of the house hold
•Existing loan EMIs of the customer
•Net surplus
 Loan Process Overview

Loan Evaluation Credit Approval Loan Documentation Disbursement

• Review application • File check • Legal & Valuation • Check files

• Personal discussion • Security check • Fulfill pre • Create loan acct
• Cash Flow Analysis • Loan disbursement • Disburse to
• Ratios Approval/rejec conditions customer –
• Recommendation tion • Documentation NEFT/RTGS
• Mortgage creation
• Send file for
disbursement
Session
 Domestic scheduled commercial banks and Foreign banks with less than
Categories Foreign banks with 20 branches and above 20 branches

40 percent of Adjusted Net

Bank Credit or Credit
40 percent of Adjusted Net Bank or Credit Equivalent Amount of Off-
Equivalent Amount of Off-Balance Sheet Balance Sheet Exposure,
Total Priority Sector Exposure, whichever is higher. whichever is higher;

Foreign banks with 20 branches and above

have to achieve the Total Priority Sector
Target within a maximum period of five years
starting from April 1, 2013 and ending on
March 31, 2018.
 Computation of Adjusted Net Bank
Credit (ANBC)
Bank Credit in India I

Bills Rediscounted with RBI and other approved Financial Institutions II

Net Bank Credit (NBC)* III (I-II)

IV
Bonds/debentures in Non-SLR categories under HTM category+ other
investments eligible to be treated as priority sector +Outstanding Deposits
under RIDF and other eligible funds with NABARD, NHB, SIDBI and MUDRA
Ltd. on account of priority sector shortfall + outstanding PSLCs

V
Eligible amount for exemptions on issuance of long-term bonds for
infrastructure and affordable housing ( as per RBI Master Circular)

Eligible advances extended in India against the incremental FCNR (B)/NRE VI

deposits, qualifying for exemption from CRR/SLR requirements.
Adjusted Net Bank Credit (ANBC) III+IV-V-VI
* For the purpose of priority sector computation only. Banks should not deduct / net any amount like
provisions, accrued interest, etc. from NBC
 Domestic scheduled commercial banks and Foreign banks Foreign banks with less
Categories with 20 branches and above than 20 branches

18 percent of ANBC or Credit Equivalent Amount of Off-

Balance Sheet Exposure, whichever is higher.

Within the 18 percent target for agriculture, a target of 8

percent of ANBC or Credit Equivalent Amount of Off-
Agriculture Balance Sheet Exposure, whichever is higher is prescribed Not applicable
for Small and Marginal Farmers,

Foreign banks with 20 branches and above have to achieve

the Agriculture Target within a maximum period of five
years starting from April 1, 2013 and ending on March 31,
2018 as per the action plans submitted by them and
approved by RBI. The sub-target for Small and Marginal
farmers would be made applicable post 2018 after a
review in 2017.##
 Agriculture
• Finance to individuals farmers(including SHGs
and JLGs, ie groups of individual farmers) for
agriculture and allied activities
• Short term loans- crop loans( includes
traditional/ non traditional plantation and
horticulture)
• Advances upto 10 lacs( against pledge/
hypothecation of produce) for upto 12 months
 Agriculture(contd.)
• Working capital and term loans for agri and allied
activities
• for purchase of land for agri purpose-Loans to
small and marginal farmers
• Loans to distressed farmers indebted to non-
institutional lenders( against collateral or group
security)
• Loans for pre harvest and post harvest activities-
spraying, weeding, harvesting, grading, sorting,
processing and transporting- semi urban, rural
households and co-operatives/ groups
 Agriculture(contd.)
• Loans to entities covered above and excess of
20 lacs in aggregate per borrower for agri and
allied activities
• Loans to food and agro based units with
investment in plant and machinery upto 10
crore undertaken by other than rural and
semi-urban households
 Agriculture(contd.)
• Loans to NBFCs for on lending to individual
farmers:
– Purchase of fertilizers, pesticides and seeds
– Loans upto 40 lacs for purchase and distribution of
inputs- poultry feed and cattle feed

• Finance for setting up of Agriclinics and

agribusiness centres
• Finance for hire-purchase of agri machinery and
implements
 Agriculture(contd.)
• Loans to farmers through PACS, LAMPS and FSS
• Loans to cooperative societies of farmers for
disposing the produce of members
• Financing the farmers indirectly through co-
operative system( other than by subscription to
bonds and debentures issue)
• Loans for construction and running of storage
facilities( warehouse market yards godowns and
silos)
 Agriculture(contd.)
• Advances to Customs Service Units managed by
individuals, institutions or organisations who
maintain a fleet of tractors, bulldozers, well-
boring equipment, threshers and combines and
undertake work of farmers on contract basis
• Finance dealers in drip irrigation/ sprinkler
irrigation/ agriculture machinery ( subject to
conditions) and ceiling limit of 30 lacs per dealer
 Agriculture(contd.)
• Loan to Arathias : for supply of inputs and
buying outputs from individual
farmers/SHGs/JLGs
• 50% of the credit outstanding under general
purposes under GCC
 Kisan Credit Card (KCC)
• The Kisan Credit Card scheme aims at providing adequate
and timely credit support from the banking system under a
single window with flexible and simplified procedure to the
farmers for their cultivation and other needs as indicated
below:
• To meet the short term credit requirements for cultivation
of crops;
• Post-harvest expenses;
• Produce marketing loan;
• Consumption requirements of farmer household;
• Working capital for maintenance of farm assets and
activities allied to agriculture;
• Investment credit requirement for agriculture and allied
activities.
• 4 Eligibility
• i. Farmers - individual/joint borrowers who are
owner cultivators;
• ii. Tenant farmers, oral lessees & share
croppers;
• iii. Self Help Groups (SHGs) or Joint Liability
Groups (JLGs) of farmers including tenant
farmers, share croppers etc.
 Credit Limit
All farmers other than marginal farmers
• The short term limit to be arrived for the first year (For cultivating
single crop in a year):
• Scale of finance for the crop (as decided by District Level
Technical Committee) x Extent of area cultivated + 10% of
limit towards post-harvest/household/ consumption
requirements + 20% of limit towards repairs and maintenance
expenses of farm assets + crop insurance and/or accident
insurance , health insurance & asset insurance.
• Limit for subsequent year: first year limit +10% ( upto 5th year)
• For Marginal farmers: flexible limit of 10,000-50,000(Flexi
KCC)
 Domestic scheduled commercial banks and Foreign banks with less than
Categories Foreign banks with 20 branches and above 20 branches

MSME 7.5 percent of ANBC or Credit Equivalent

Amount of Off-Balance Sheet Exposure,
whichever is higher to be achieved in a
phased manner i.e. 7 per cent by March
2016 and 7.5 per cent by March 2017. Not applicable
 MSME
• Direct finance to MSME
• SSI – units engaged in manufacture,
processing or preservation of goods
• All advances granted to units in KVI sector
irrespective of size of operations, locations
and amount of original investment in p&m
•
 MSME (contd.)
• Indirect finance:
• Person involved in assisting in supply of inputs
to and marketing of outputs of artisans, village
and cottage industries
• Advances to cooperatives of producers
• Subscription to bonds issues by NABARD with
objective of financing the Non farm sector
• Loans granted by banks to NBFC for lending to
SSI
 MSME ( contd.)
• Loans granted to small businesses,
professional and self employed persons,
whose investment in equipment is less than 2
crore
• Advances to retail traders dealing in essential
commodities, consumer co-operative stores
and private retail traders with credit limit not
exceeding 20 lacs
 MSME ( contd.)
• Micro Credit: loans not exceeding 50,000
• Provided to individuals or through group
mechanism
• To poor in rural, urban and semi urban areas
• To enable them to improve their standard of
living
• Loans to distressed to prepay debts in
informal sector
 Domestic scheduled commercial banks and Foreign banks with less than 20
Categories Foreign banks with 20 branches and above branches

Advances to
weaker sections
10 percent of ANBC or Credit Equivalent
Amount of Off-Balance Sheet Exposure,
whichever is higher.

. Not applicable
 Weaker Section
• Weaker sections under priority sector includes:
• Small and Marginal farmer with land holding of 5 acres or less
• Landless labourers, tenant farmers and share croppers
• Artisans, village and cottage industries where individual credit limit
does not exceed 50,000
• Beneficiaries of SGSY
• Scheduled castes and scheduled tribes
• Beneficiaries of SJSRY
• Beneficiaries under Scheme for Liberalization and rehabilitation of
scavengers
• Advances to SHGs
• Loans to distressed urban/rural poor to prepay debt from non
institutional lenders
 Education and housing
• Educational loans only upto 10 lacs in India
and 20 lacs abroad
• Housing: upto 20 lacs for individuals excluding
loans granted by banks to employees
• Damaged repairs: 1 lakh rural and semi urban,
2 lacs urban
 Penalties
• Domestic scheduled commercial banks having
a shortfall in lending to priority sector target
are allocated amounts for contribution to
Rural Infrastructure Development Fund (RIDF )
of NABARD
• The corpus of RIFD is decided by Government
of India every year
• The interest rate on Banks’ contribution are
fixed by RBI
• (ii) The Total Priority Sector target of 40
percent for foreign banks with less than 20
branches has to be achieved in a phased
manner as under

Financial Year The Total Priority Sector as percentage of ANBC

or Credit Equivalent Amount of Off-Balance Sheet
Exposure, whichever is higher
2015-16 32
2016-17 34
2017-18 36
2018-19 38
2019-20 40
NBFC MFI
• An NBFC-MFI is defined as a non-deposit
taking NBFC that fulfills the following
conditions:
• i. Minimum Net Owned Funds of Rs.5 crore.
(For NBFC-MFIs registered in the North
Eastern Region of the country, the minimum
NOF requirement shall stand at Rs. 2 crore).
• Net Owned Funds in respect of NBFCs : Net
owned Fund will consist of
• paid up equity capital
• free reserves
• balance in share premium account
• capital reserves representing surplus arising
out of sale proceeds of assets but not reserves
created by revaluation of assets
• ii. Not less than 85% of its net assets are in the
nature of “qualifying assets.”
• “Net assets” are defined as total assets other
than cash and bank balances and money
market instruments.
• “Qualifying asset” shall mean a loan which
satisfies the following criteria:-
• a. loan disbursed by an NBFC-MFI to a
borrower with a rural household annual
income not exceeding Rs. 1,00,000 or urban
and semi-urban household income not
exceeding Rs. 1,60,000 ;
• b. loan amount does not exceed Rs. 60,000 in
the first cycle and Rs. 1,00,000 in subsequent
cycles;
• c. total indebtedness of the borrower does not
exceed Rs.1,00,000
• Provided that loan, if any availed towards
meeting education and medical expenses shall
be excluded while arriving at the total
indebtedness of a borrower
• d. tenure of the loan not to be less than 24
months for loan amount in excess of Rs.
30,000 with prepayment without penalty;
• e. loan to be extended without collateral;
• f. aggregate amount of loans, given for income
generation, is not less than 50 per cent of the
total loans given by the MFIs
• g. loan is repayable on weekly, fortnightly or
monthly installments at the choice of the
borrower
• iii. Further the income an NBFC-MFI derives
from the remaining 15 percent of assets shall
be in accordance with the regulations
specified in that behalf.
• iv. An NBFC which does not qualify as an
NBFC-MFI shall not extend loans to micro
finance sector, which in aggregate exceed 10%
of its total assets.
• B. Prudential Norms
 i. Capital Adequacy
• All new NBFC-MFIs shall maintain a capital
adequacy ratio consisting of Tier I and Tier II
Capital which shall not be less than 15 percent
of its aggregate risk weighted assets.
• The total of Tier II Capital at any point of time,
shall not exceed 100 percent of Tier I Capital.
• Among the existing NBFCs to be classified as
NBFC-MFIs, those with asset size less than Rs.
100 crore were required to comply with this
norm w.e.f April 01, 2012. Those with asset
size of Rs. 100 crore and above were already
required to maintain minimum CRAR of 15%.
• b. The CRAR for NBFC-MFIs which have more
than 25% loan portfolio in the state of Andhra
Pradesh will be at 12% for the year 2011-2012
only. Thereafter they have to maintain CRAR
at 15%.
• For the calculation of CRAR, the provisioning
made towards AP portfolio shall be notionally
reckoned as part of NOF and there shall be
progressive reduction in such recognition of
the provisions for AP portfolio equally over a
period of 5 years.
 Comparison between Malegaon Committee and RBI
guidelines
Particulars Malegaon Committee RBI guidelines
Qualifying Assets Loan to borrower who is a member of Loan to borrower who is a
HH whose income <= 50,000 member of HH whose income
<= 60,000, Rural and <=
120,000 in Semi Urban and
Urban areas

Loan amount Loan amount <= 25,000 Loan amount <= 35,000 1st
Total Indebtedness <= 25,000 cycle, <= 50,000 in
subsequent cycles
Total Indebtedness <= 50,000

Pricing of interest 10% margin cap , O/S loan portfolio Margin cap of 12% and
>100 at BoY interest rate cap of 26%
12% margin cap , O/S loan portfolio
<100 at BoY
24% cap on individual loans
 Eligibilty
• (i) No non-banking institution other than a
company shall undertake the business of Peer
to Peer Lending Platform.
• (ii) No NBFC-P2P shall commence or carry on
the business of a Peer to Peer Lending
Platform without obtaining a Certificate of
Registration (hereinafter referred to as “CoR”)
from the Bank.
• (iii) Every company seeking registration with
the Bank as an NBFC-P2P shall have a net
owned fund of not less than rupees twenty
million or such higher amount as the Bank
may specify.
• In case of prospective NBFC-P2Ps
• RBI will check and approve as per conditions
mentioned
• (iv) The validity of the in-principle approval -twelve
months from the date of granting such in-principle
approval.
• (v) Within the period of twelve months, the company
shall put in place the technology platform, enter into
all other legal documentations required and report
position of compliance with the terms of grant of in-
principle approval to the Bank.
• (vi) after being satisfied CoR can be granted.
 6. Scope of Activities

• (1) An NBFC-P2P shall-

• act as an intermediary providing an online
marketplace or platform to the participants
involved in Peer to Peer lending;
• not raise deposits
• not lend on its own;
• not provide or arrange any credit
enhancement or credit guarantee;
• not facilitate or permit any secured lending
linked to its platform; i.e. only clean loans will
be permitted
• not hold, on its own balance sheet, funds
received from lenders for lending, or funds
received from borrowers for servicing loans;
not cross sell any product except for loan
specific insurance products;
• not permit international flow of funds;
• ensure adherence to legal requirements
applicable to the participants as prescribed
under relevant laws.
• store and process all data relating to its
activities and participants on hardware
located within India.
• 2) Further, NBFC-P2P shall-
• undertake due diligence on the participants;
• undertake credit assessment and risk profiling
of the borrowers and disclose the same to
their prospective lenders;
• require prior and explicit consent of the
participant to access its credit information;
• undertake documentation of loan agreements
and other related documents;
• provide assistance in disbursement and
repayments of loan amount;
• render services for recovery of loans
originated on the platform.
• 7. Prudential Norms
• (1) NBFC-P2P shall maintain a Leverage Ratio not
exceeding 2.(“Leverage Ratio” means the Total Outside Liabilities
divided by Owned Funds, of the NBFC-P2P)
• (2) The aggregate exposure of a lender to all
borrowers at any point of time, across all P2Ps,
shall be subject to a cap of ₹ 10,00,000/-.
• (3) The aggregate loans taken by a borrower at
any point of time, across all P2Ps, shall be subject
to a cap of ₹ 10,00,000/-.
• (4) The exposure of a single lender to the
same borrower, across all P2Ps, shall not
exceed ₹ 50,000/-.
• (5) The maturity of the loans shall not exceed
36 months.
• (6) P2Ps shall obtain a certificate from the
borrower or lender, as applicable, that the
limits prescribed above are being adhered to.
• 8. Operational Guidelines
• (1) NBFC-P2P shall have a Board approved policy
in place -
• Setting out the eligibility criteria for participants
on it.
• Determining the pricing of services provided by it.
• Setting out the rules for matching lenders with
borrowers in an equitable and non-discriminatory
manner.
• (2) The outsourcing of any activity by NBFC-P2P
does not diminish its obligations and it shall be
responsible for the actions of its service providers
including recovery agents and the confidentiality
of information pertaining to the participant that
is available with the service providers.
• (3) No loan shall be disbursed unless the
individual lender/s have approved the individual
recipient/s of the loan and all concerned
participants have signed the loan contract.
 9. Fund Transfer Mechanism

• Fund transfer between the participants on the Peer to

Peer Lending Platform shall be through escrow account
mechanisms which will be operated by a trustee.
• At least two escrow accounts, one for funds received
from lenders and pending disbursal, and the other for
collections from borrowers, shall be maintained.
• The trustee shall mandatorily be promoted by the bank
maintaining the escrow accounts. All fund transfers
shall be through and from bank accounts and cash
transaction is strictly prohibited.
 10. Submission of data to Credit
Information Companies (CICs)
• (1) An NBFC-P2P shall become member of all CICs
and submit data (including historical data) to
them.
• (2) NBFC-P2P shall:
• (i) keep the credit information (relating to
borrower transactions on the platform)
maintained by it, updated regularly on a monthly
basis or at such shorter intervals as may be
mutually agreed upon between the NBFC-P2P
and the CICs;
• (ii) take all such steps which may be necessary
to ensure that the credit information
furnished by it is up to date, accurate and
complete;
• (iii) include necessary consents in the
agreement with the participants for providing
the required credit information;
 13. Participant Grievance Redressal

• (1) An NBFC-P2P shall put in place a Board

approved policy to address participant
grievances/complaints.
• Complaints shall be handled/ disposed of by
NBFC-P2P within a period of one month from
the date of receipt.
• (2) At the operational level, NBFC-P2P shall
display the following information prominently,
for the benefit of participants, on the website:
• (i) the name and contact details (Telephone /
Mobile Nos. as also email address) of the
Grievance Redressal Officer who can be
approached for resolution of complaints
against the NBFC-P2P.
• (ii) that if the complaint / dispute is not
redressed within a period of one month, the
participant may appeal to the Customer
Education and Protection Department RBI.
 14. Information Technology Framework, Data Security and
Business Continuity Plan

• (1) Business of an NBFC-P2P shall be primarily Information

Technology (IT) driven. The technology should be scalable
to handle growth in business.
• (2) There should be adequate safeguards built in its IT
systems to ensure that it is protected against unauthorized
access, alteration, destruction, disclosure or dissemination
of records and data. The Bank may from time to time,
prescribe technical specifications, as deemed fit.
• (3) NBFC-P2P should have a Board approved Business
Continuity Plan in place for safekeeping of information and
documents and servicing of loans for full tenure in case of
closure of platform.
• (4) Information System Audit of the internal
systems and processes shall be in place and
shall be conducted at least once in two years
by CISA certified external auditors.
• Report of the external auditor shall be
submitted to the Regional Office of the
Department of Non-Banking Supervision of
the RBI
• (5) There shall be reasonable arrangements in
place to ensure that loan agreements
facilitated on the platform will continue to be
managed and administered by a third party in
accordance with the contract terms, if the
NBFC-P2P ceases to carry on the P2P activity.
 Lessons for P2P lending in India

• Peer-to-peer (P2P) lending platforms in China

are shutting shop at a rapid pace.
• A Bloomberg report from July states that
4,500 P2P lending platforms in China have
closed shop since 2013.
• The crisis in China’s P2P lending market was a
fallout of
• regulatory attempts to clean up the lending
space of problems like high interest rates,
misuse of funds and exaggerated return
figures.
• A part of the problem in China’s P2P lending
businesses was high default rates.
• Not everyone who registers as a borrower gets
a loan. Of the 26,000 borrowers registered on
LenDenClub, only about 3,500 got loans, Patel
said.
• “At least one out of 10 people applying are
defaulters on a bank’s loan.
Securitization
 What is Securitization?

• Securitization is a process, where in a pool of loans are

mixed together and will be given a credit rating and then
sold to investors/institutions on a fixed coupon rate.

• Basically the name derives from the fact that it converts the
illiquid assets (mostly loans) into tradable securities.

• The underlying assets are mainly secured loans like

housing loans, auto loans, commercial vehicle loans,
construction equipment loans etc. and unsecured loans like
personal loans, consumer durable loans.
 example
• Consider a small bank XYZ has a Rs 1500 Cr housing loan
book. Now the bank wants raise Rs 200 Cr by monetizing
its existing assets.
• The XYZ bank will pool together 200 Cr worth of loans
which might includes thousands of loans.
• Then based on the future cash flow to be generated and
the quality of pool account, an independent rating
agency gives a credit rating. Likelihood of default and
other factors play a role here.
• Assume the actual returns on the total loan book
is 12% over a period of next three years, because
of the risk factor involved, the pool product is
sold at 9.5%.

• Margin 2.5% goes to the XYZ bank as

maintenance charges, as they will be responsible
for collecting the cash flow and disbursing to the
investors.
• Certificates are created worth Rs 200 Cr and are open for
investment, and the book is sold for Rs. 200 cr.

• XYZ bank generates Rs 200 Cr, once fully subscribed and will
be collecting the cash flows from the borrower and
distributing to investors on a periodic basis for next three
years.

• For 200 cr., assuming no defaults, the 12% = Rs. 24 cr. But
XYZ Bank has to pay out only 9.5% = Rs. 19 cr. So they keep
the profit of Rs. 5 cr. (which allows them to service the
loans, and also to provide for some loss protection in case
of defaults)
 Pass Through Certificates

• Pass Through Certificates are like bonds, but the difference

being (PTCs) are backed by assets or mortgages and the
periodic payment also includes the principal.

• In the above instance the 200 Cr pool can be issued

certificates of face value Rs 1,00,000 in 20,000 quantity.

• Every PTC holder will be paid periodic interest payments

along with a part of principal.

• The PTCs are more standardized and can be traded in

secondary markets. For PTCs special purpose vehicle (a
trust) is created which is settles the payments and is
independently managed by a trustee.
 Direct Assignment

• Direct assignment is more of a buying a loan book

at a fixed interest rate.

• For the same case above, another big bank which

wants to have a exposure to housing loan will go
and directly buy the pool.

• Here the terms and conditions are more of

negotiable in nature and can be customized
according to the needs of both the parties.
 PAR Structure:
• In this structure, investors are paid from the
pool receivables, but the extra cash flow will
be set aside for any future shortfalls in cash
flows or defaults.
 Premium structure:
• In premium structure the investors will have the same
PTC yield as of pool yield. But will be paying higher
value for certificates at the beginning itself.

• In the above instance, 200 Cr is at pool yield of 12% for

a period of three years. So the investors will be
subscribing for Rs 212 Cr issue which are backed by
assets of Rs 200 Cr.
• The yield of 12% will also be the on Rs 200 Crs. The
extra 12 Cr goes to the originator (which is the present
value of future cash flows the originator will be earning
in terms of 2.5%).
India Stack

Presented by:
Abhishek Kumar Das

CONFIDENTIAL AND PROPRIETARY 292

Any use of this material without specific permission of MicroSave is strictly prohibited
 Index
 India Stack- brief introduction
 Aadhaar Act
 UNCITRAL Model Law
 Essentials of an electronic contract
 Information technology Act 2000
 Digital Signatures
 eSign
 eKYC
 Indian Evidence Act
 ESIGN and UETA ( USA and UK)

293

293
 Index
 Open API Act
 National Data Sharing and accessability Policy
 Privacy Protection Bill
 National Cyber Security Policy
 Payment and Settlement Act
 Consumer Protection Laws
 India Stack Impact – on Savings Bank Account opening
 India Stack Impact – on Remittances
 India Stack Impact – on Retail Foreign Exchange Transactions
 Digilocker
 UPI
 Telecom Sector
294

294
 Introduction

 What is India Stack?

 It is a series of new-age digital infrastructure which, when
used together, makes it easier for digital pioneers to run
faster, reach more people.
 The JAM trinity — a basic account like Jan Dhan, Aadhaar and
mobile phones — makes it possible for digital services to
reach every Indian- Presence less, Paperless and Cashless
Services.
 Ability to make payments online, open accounts, take credit
using a cellphone and payback, Rentral agreements etc
 Building Blocks:UPI, eKYC, eSign, Aadhaar, Digital Locker

295
296
297
Regulatory
Environment

298
 Executive Summary

 Assignment background :To understand if the current regulations permit India

Stack functioning

 Key findings –
 Contract Act, IT Act 2000, Aadhaar Act and Indian Evidence Act have necessary
provisions for the existence and operation of India Stack
 eKYC and eSign already in place which are fundamentally essential for India Stack

 Key recommendations
 Awareness at the end of the end user
 Checking of logs and information generated while eSign at third party end

299
 Aadhaar Act
• Under Sec 29 of the Act Biometric Information can be used for Authentication but cannot be
shared.
• The identity information collected (comprising name, age, gender, and photograph of the
individual , address) can be used and shared post consent of the individual.
• Aadhaar data details cannot be displayed or posted publicly except for the purposes as may
be specified by regulations.
• Aadhaar Based payments-NPCI- Possible to make payment to an Aadhaar Number-Aadhaar
Payment Bridge
• Note : “Consent for sharing Data with agencies welfare services” already given by the
individual as a declaration on the Aadhaar form while filling it up

300
 UNCITRAL Model Law on Electronic Commerce

• UNCITRAL -United Nations Commission on International Trade Law

• India became a member of UNCITRAL in 2016
• IT Act 2000 of India is based on the United Nations Model Law on Electronic Commerce 1996 (UNCITRAL
Model) recommended by the General Assembly of United Nations by a resolution dated 30 January 1997
• As per UNCITRAL Model Law, the following functions are traditionally performed by handwritten
signatures:
i) to identify a person;
ii) to provide certainty as to the personal involvement of that person in the act of signing
iii) to associate that person with the content of a document.
• A signature might attest to :
i) the intent of a party to be bound by the content of a signed contract
ii) the intent of a person to endorse authorship of a text
iii)the intent of a person to associate itself with the content of a document written by someone else

301
 Essentials of an electronic contract( UNCITRAL Model Law)
• An offer needs to be made : goods displayed on a merchant website is not an offer to sell. It is
simply an invitation to offer.
• The offer needs to be accepted
• Procedures available for forming electronic contracts include:
• 1. E-mail: Offers and acceptances can be exchanged entirely by e-mail, or can be combined with
paper documents, faxes, telephonic discussions etc.
• 2. Web Site Forms: The seller can offer goods or services (e.g. air tickets, software etc) through his
website. The customer places an order by completing and transmitting the order form provided on
the website.
• 3. Online Agreements: Users may need to accept an online agreement in order to be able to avail
of the services e.g. clicking on “I accept” while installing software or clicking on “I agree” while
signing up for an email account.

302
 Are Electronic contracts and Digital signatures valid?
• Under Setion10A of the IT Act 2000, An electronic contract is as legal as a paper contract
• Validity of contracts formed through electronic means (Inserted by ITAA 2008) Where in a contract
formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and
acceptances, as the case may be, are expressed in electronic form or by means of an electronic record,
such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or
means was used for that purpose.
• A digital signature( as prescribed by the Central Government) is as good as a wet signature
• As per the IT Act : Legal recognition of digital signatures- “Where any law provides that information or any
other matter shall be authenticated by affixing the signature or any document should be signed or bear
the signature of any person then, notwithstanding anything contained in such law, such requirement shall
be deemed to have been satisfied, if such information or matter is authenticated by means of digital
signature affixed in such manner as may be prescribed by the Central Government. ”
• E-Governance policy of the Indian Governments supports electronic commerce and electronic contracts

303
 Information Technology Act 2000 Vs UNCITRAL

• Sec 10 of the Indian IT act is based on Article 11 of the UNCITRAL Model Law.
• “Article 11. Formation and validity of contracts
• (1) In the context of contract formation, unless otherwise agreed by the parties, an offer and
the acceptance of an offer may be expressed by means of data messages. Where a data
message is used in the formation of a contract, that contract shall not be denied validity or
enforceability on the sole ground that a data message was used for that purpose.
• (2) The provisions of this article do not apply to the following: […]. ”
• provisions of the Article 11(2) is a balancing act to balance the need of the Model Law with
the requirement of the prevailing national laws on Contract.
• the Indian Contract Act provides for no such restriction.

304
 Overview of how Digital Signatures work(old system)
• Section 5 of the IT Act gives legal recognition
to digital signatures based on asymmetric
cryptosystems.
• PKI is the acronym for Public Key
Infrastructure. The technology is called Public
Key cryptography because it works with a pair
of keys(Key Pair) one of which is made public
and the other is kept secret- “Private key”
• Private key is kept confidential with user on a
secure media like crypto smart card or crypto
token
• The public key is shared with everyone.- thus
the data is already in public domain
• Information encrypted by a private key can
only be decrypted using the corresponding
public key

305
 Overview of how Digital Signatures work(contd.)

 Controller of Certifying Authorities( established under IT Act 2000) –

CCA-Root Certifying Authority of India-Root Authority,
Licenses CAs
 Certifying Authorities (CAs)-issues digital signature certificate
to end users
 Registration Authority(RA)-verifier for a CA
 Sub CAs- meets business branding requirement of a CA
 End User
 Limitations:
 Revocation of certificate
 Validity of only two years
 Renewal on expiry
 Fee involved

306
 eSign

 Electronic Signature or Electronic Authentication Technique and Procedure Rules, 2015

(http://www.cca.gov.in/cca/sites/default/files/files/eSign_gazette_notification.pdf)
 eSign service will operate under the provisions of the Second Schedule of Information Technology Act, 2000
 The cost of verification individual’s identity and address and also the secure storage of private keys are the
stumbling block in the widespread usage of Digital Signature in the electronic environment.
 Application Service Provider (ASP) :An organization or an entity using eSign service as part of their application to
digitally sign the content
 End-User: An Individual using the application of ASP and represents himself/herself for signing the document
under the legal framework.
 Certifying Authority (CA)
 UIDAI: An authority established by Government of India to provide unique identity to all Indian residents. It also
runs the eKYC authentication service for the registered KYC User Agency (KUA).

307
eSign Service at a glance

A hardware security module (HSM) is a physical

computing device that safeguards and
manages digital keys for strong authentication and
provides cryptoprocessing. These modules
traditionally come in the form of a plug-in card or
an external device that attaches directly to
a computer or network server.

308
API sequence diagram: eSign
Key features:
•HSM hosted by Third party Service
provider
•Private key created will be destroyed post
30 minutes of creation, one time use
•New certificate generation everytime a
user initiates the process
•Aadhaar Response to be preserved for 6
months
•DCS application to be programatically filled
with digitally signed information received
from eKYC
•Filled in application form to be preserved
•Following to be recorded: - Response code (e-
KYC) - Authentication logs - Communication with CAs
for Certificate issuance - Activation mechanism for
Digital Signature

309
 Benefits of eSign

 Flexible and easy to implement- The authentication options for eKYC include biometric (fingerprint or
iris scan) or OTP (through the registered mobile in the Aadhaar database). eSign enables millions of
Aadhaar holders easy access to legally valid Digital Signature service.
 Respecting privacy – eSign ensures the privacy of the signer by requiring that only the thumbprint
(hash) of the document be submitted for signature function instead of the whole document.
 Secure online service –To enhance security and prevent misuse, Aadhaar holders private keys are
created on Hardware Security Module (HSM) and destroyed.
 Easy and secure way to digitally sign information anywhere, anytime
 Facilitates legally valid signatures – eSign process involves consumer consent, Digital Signature
Certificate generation, Digital Signature creation & affixing and Digital Signature Certificate acceptance
in accordance with the provisions of the Information Technology (IT) Act, 2000. It enforces compliance,
through API specification and licensing model of APIs. Comprehensive digital audit trail – in-built to
confirm the validity of transactions is also preserved.

310
 Indian Evidence Act: are electronic records admissible?

 Electronic records (whether or not they bear a signature) are admissible as

evidence under Section 65B of the Indian Evidence Act, 1872, to support the
existence, authenticity, and valid acceptance of a contract.

311
 eKYC

 The eKYC service offered by UIDAI will enable individuals to authorise service providers to receive electronic
copy of their proof of identity and address. The service makes KYC instantaneous, totally secure and paperless.
 eKYC service can be deployed by different agencies to verify a resident's identity and address. Only Demographic
information (Name, Address, Date of Birth, Gender, Photograph & Mobile Number) that is collected during
Aadhaar enrolment will be shared, at the request of, and/or with the consent of the Aadhaar holder.
 RBI has issued guidelines for accepting e KYC for opening Savings Bank Accounts
 to accept e-KYC service as a valid process for KYC verification under Prevention of Money Laundering
(Maintenance of Records) Rules, 2005
 Further, the information containing demographic details and photographs made available from UIDAI as a result
of e-KYC process (“which is in an electronic form and accessible so as to be usable for a subsequent reference”)
may be treated as an ‘Officially Valid Document’ under PML Rules
 Source RBI notification - http://rbidocs.rbi.org.in/rdocs/notification/PDFs/CKUI0209013E.pdf

312
 In other countries: sanctity of digital signature

• There are two Acts that establish the legality of electronic signatures in the United
States –
• the Electronic Signatures in Global and National Commerce Act (ESIGN, 2000) and
• the Uniform Electronic Transactions Act (UETA, 1999).
• Both ESIGN and UETA establish that electronic records and signatures carry the
same weight and legal effect as traditional paper documents and handwritten
signatures stating: A document or signature cannot be denied legal effect or
enforceability solely because it is in electronic form.
• In the UK, the equivalent legislation to the ESIGN Act in the USA was also
established in 2000, and is called the UK Electronic Communication Act. DocuSign
is the only company that warrants its eSignature solution to be compliant with this
act.

313
Objective of open API policy of
GOI.

314
 Policy Statement
 Government of India shall adopt Open APIs to enable quick and transparent integration with other e-Governance applications and
systems implemented by various Government Organizations and to make information and data available to the public, thereby
providing access to data and services to all stakeholders and promoting citizen participation
 The relevant information being provided by all Government Organisations through their respective e-Governance applications shall
be open and machine readable.
 All the relevant information and data of a Government Organisation shall be made available through Open APIs to other e-
governance applications and systems and public, as per the classification given in the National Data Sharing and Accessibility Policy
(NDSAP) 2012.
 All the relevant information, data and functionalities within an e-Governance application or system of a Government Organisation
shall be made available to other e-Governance applications and systems through Open APIs.
 Information handling, authentication, authorisation and auditing through a process as defined by the API publishing Organisation.
 If possible, API of a Government Organization shall be accessible free of charge to other Government Organizations and public
 properly documented with sample code and sufficient information for developers to make use of the API.
 compatible with earlier 2 versions.
 All open API should adhere to national cyber security policy.
 Government organization will make sure APIs are stable and scalable
 API should be language and platform independent

315
 Payment and Settlement Act, 2007

 Reserve Bank of India (Reserve Bank) as the authority for that purpose and all related matters
 legal basis for “netting” and “settlement finality”. In India, other than the (RTGS) system all other
payment systems function on a net settlement basis.
 In terms of Section 4 of the PSS Act, 2007 no person other than the Reserve Bank can operate or
commence a payment system unless authorized by the Reserve Bank
 Dishonor of an electronic fund transfer instruction due to insufficiency of funds in the account etc.,
is an offence punishable with imprisonment or with fine or both, similar to the dishonor of a
cheque under the Negotiable Instruments Act

316
2 India Stack
Impact

317
India Stack impact: on opening Savings bank account

 Current issue at cashless layer

for opening an account. If
payment is possible through a
cashcard/ Mobile Money ( eg.
iCASH or ItzCash) then this can
be done. However Basic Savings
Deposit Account can be opened
by the India Stack Model

318
India Stack impact: on opening Savings bank account

 Type: Basic Savings Bank Deposit Account

 Simplified KYC:(as per RBI Press Release : 2014-
2015/410)
 Single document for proof of identity and proof of
address:
 Officially valid documents (OVDs) for KYC purpose
include: Passport, driving licence, voters’ ID card,
PAN card, Aadhaar letter issued by UIDAI and Job
Card issued by NREGA signed by a State Government
official. eKYC document received (like name, address,
age, gender, etc., and photographs made available
from UIDAI can also be treated as an ‘Officially Valid
Document’.
 No separate proof of address is required for current
address if it is different from permanent address
 a simple declaration by her/him about her/his
current address would be sufficient

319
India Stack impact: on opening Savings bank account

 For Joint Account :The details of the

second and the third holder
required. This would mean consent
,Aaadhar seeding and
authentication for second and third
party
 Nominee details: to be Aadhaar
related or not
 Senior Citizen benefit: Age
proof(Driving License, Passport,
Ration Card,

320
India Stack impact: on opening Savings bank account
• Witnesses are a neutral third party, who have the responsibility of
witnessing each signatory’s signature. The witness does not have to be
familiar with the terms of the agreement, but their role is important for
proving a contract’s legality in the court of law. Some contracts require a
minimum of two witnesses.
• (v) It is clarified that the various nomination forms (DA1, DA2, and DA3
for Bank Deposits, Forms SC1, SC2 and SC3 for articles in safe custody
and Forms SL1, SL1A, SL2, SL3 and SL3A for Safety Lockers) prescribed
under the Co-operative Banks (Nomination) Rules, 1985, only Thumb-
impression(s) shall be attested by two witnesses. The signatures of the
account holders need not be attested by witnesses. (Master Circular on
Maintenance of Deposit Accounts – Primary (Urban) Co-operative Banks RBI/2013-
14/28UBD.BPD.(PCB). MC.No:13 /13.01.000/)

321
Existing product

Features
•Online Order
•Door Step delivery
•Document Collection by
agent/BC
•Required Passport details also
to be part of the Digi-locker

322
Foreign Exchange
Customer Bank portal Customer fills Customer fills Forex is
uses Aadhaar pings Indian the purpose the date of delivered at
for eKYC Stack for of buying travel and the customers
Passport Foreign linked bank doorstep in
details and exchange, account 24 hours
checks if the agrees at the details. The
Passport is mode of site then
valid. Digital Forex( takes the
signature for Card,Currency customer to a
A2 form , TC etc) and payment
proceeds gateway and
payment is
made

323
 Remittances
ICICI Bank Money2World
Bank takes
One Time 24 hours for
Add bank Initiate request of Remitter can
Registration verification
accounts of self money transfer at track status and
uploading of and beneficiary the confirmed rate on completion
PAN and of the chosen confirmation is
Aadhaar currency sent

India Stack simplified process

Customer gives 2-3 minutes
Initiate request of Remitter can
consent to eKYC for Add bank
verification money transfer at track status and
using Aadhar accounts of self
the confirmed rate on completion
Number and OTP and beneficiary
of the chosen confirmation is
authentication currency sent

324
Digi locker-

325
 Unified Payment Interface

 Unified Payments Interface (UPI) is an instant real-time payment

system developed by National Payments Corporation of India facilitating inter-
bank transactions
 UPI withdraws and deposits funds directly from the bank account whenever a
transaction is requested.
 It uses Virtual Payment Address (a unique ID provided by the bank), Account
Number with IFS Code, Mobile Number with MMID (Mobile Money
Identifier), Aadhaar Number, or a one-time use Virtual ID.
 An MPIN (Mobile banking Personal Identification number) is required to
confirm each payment.

326
 Unified Payment Interface

 Apart from a bank account, all that you need is a smartphone. Once you register for UPI with your bank, a unique
‘virtual address’ will be created. This is mapped with your mobile phone.
 To initiate the payment, UPI invokes this virtual identity of the beneficiary and transfers money in real-time. It
works on single-click 2-factor authentication.
 UPI will allow a customer to have multiple virtual addresses for multiple accounts in various banks. In order to
ensure privacy of customer’s data, there is no account number mapper anywhere other than the customer's own
bank. This allows the customer to freely share the financial address with others.
 A customer can also decide to use the mobile number or Aadhaar number as the name instead of the short
name for the virtual address.
 UPI can potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ is not limited only
to individuals. This is a significant step towards moving into a cashless economy.

327
Architecture

328
 AADHAAR Enabled Payment System (AEPS) allows online interoperable
financial inclusion transaction at PoS (MicroATM) through the Business
correspondent of any bank using the AADHAAR authentication.
 What is Aadhaar Payment Bridge (APB) System? It is a unique payment system
implemented by National Payments Corporation of India (NPCI), which uses
Aadhaar number as a central key for electronically channelizing the
Government subsidies and benefits in the Aadhaar Enabled Bank Accounts
(AEBA) of the intended beneficiaries.

329
M-Pesa
 M-Pesa
• M-Pesa - Money transfer service to
deposit/withdraw/send funds using mobile
text message

• No need for bank account

• Transaction at Saraficom agent location

• First in Kenya (from 2007)

 M-Pesa
• Major Objective – “To send money home”

• M-Pesa – Least expensive way - “To send money

home”

• When M-Pesa launched, Safaricom - 73% market share

• Safaricom – Leveraged market share to cross-sell M-

Pesa money service

• Simultaneously Safaricom increased commissions to

encourage its N/W of airtime sellers to become M-Pesa
agents
 M-Pesa
• Safaricom – Close working relationship with CBK(Central Bank
of Kenya)

• Customer registrations – Free & Convenient (Details - Name,

Kenyan National ID, DOB, Occupation & Mobile No.)

• M-Pesa application – Loaded into SIM

• Deposits – Free, No minimum balance

• Money can be sent to non-M-Pesa & non-Safaricom

customers
 M-Pesa
• Safaricom (not bank) & hence cannot take
deposit (so funds parked in trusts which will not
benefit Safaricom)

• Sending money - Via text message

• To withdraw money - M-Pesa recipient goes to

qualifying ATM/Agent

• Fee for Transferring - Higher for non-Safaricom

recipients (encouraged people to register for M-
Pesa)
 M-Pesa
• M-Pesa Fees – Fixed Amount (easy to
understand)

• Fees - Subtracted from User accounts (agents

cannot charge extra)

• For M-Pesa success - Agent profitability has to be

protected

• So, Safaricom expanded M-Pesa agent N/W

cautiously to maintain high ratio of
Customers/Agent
 M-Pesa
• Two-tiered management structure at store
level

• “Sub-Agents” (at individual outlets) depended

on “Master Agents” (called Head Offices) for
commission distribution

• Safaricom – Pays commission to Agents for

Registrations & Deposits (which is free for
customers)
 M-Pesa
• Revenue from M-Pesa commission - 4 times that
from airtime

• Co-Branding with Safaricom – Positive for

Retailers

• Retail agents - Need to manage their liquidity by

swapping Cash for E-Float or vice versa

• Cash float problem in rural areas (sometimes

agents lack funds)
 M-Pesa
• M-Pesa – Highly profitable, Awarded

• M-Pesa – Other financial services through

partnerships

• Eg. Pay bills, Receive Wages, Conduct

Business, International Money Transfer, Agri.
Insurance, Charitable initiative
 M-Pesa - M-Shwari
• M-Pesa launched M-Shwari in 2012 (Shwari - "All
is well")

• M-Shwari - Savings & Credit product for poor

• All M-Pesa subscribers - Opt for M-Shwari W/O

any formalities

• M-Shwari – Creates Savings Accnt. (Commercial

Bank of Africa)

• M-Shwari – Financial Inclusion

 M-Pesa - M-Shwari
• KSh 200 billion - Outside banking system in
Kenya

• Safaricom – Helps unbanked to access Credit,

do Savings & Create Wealth

• M-Shwari Interest Rate > Banks

• Shifting between M-Pesa & M-Shwari

Accounts – Free
 M-Pesa - M-Shwari
• M-Shwari Users (& M-Pesa customers for 6
months) - Access Loans

• Loan limit - Based on M-Shwari Savings &

Payment history + M-Pesa Account Usage

• Each Loan repayment – Increases Loan limit

• M-Shwari - 1st Month - Savings - KSh 976

million
 M-Pesa - Conclusion
• Kenya has potential to become "Silicon
Savannah“

• Safaricom - More account holders than all banks

in Kenya combined

• M-Pesa - Changed banking from “Somewhere

that you go" to “Something that you do"

• But 95% of all financial transactions in Kenya -

Still cash based !
 Chit Funds
• Governed under the Chit Fund Act 1982
• Can be registered or unregistered
• Participants come together and contribute an
amount monthly.
• Number of participants should be equal to
number of months
• Every month one participant can get the
amount based on bidding or reverse bidding
• Post getting the amount , the participant
cannot bid in the future
 India Post
• Post Office Savings Account
• 4.0% per annum on individual / joint accounts
• Minimum INR 20/- for opening
• Account can be opened by cash only
• Minimum balance to be maintained in a non-Cheque
facility account is INR 50/-
• Cheque facility available if an account is opened with INR
500/- and for this purpose minimum balance of INR 500/-
in an account is to be maintained
• Cheque facility can be taken in an existing account also
• Interest earned is Tax Free up to INR 10,000/- per year
from financial year 2012-13
• Nomination facility is available at the time of opening
and also after opening of account
• Account can be transferred from one post
office to another
• One account can be opened in one post office
• can be done through any electronic mode in
CBS Post offices.
• ATM facility is available
 India Post
• 5-Year Post Office Recurring Deposit Account (RD)
From 1.01.2018, interest rates are as follows:-6.9% per annum
(quarterly compounded)
• On maturity INR 10/- account fetches INR 717.43. Can be con nued
for another 5 years on year to year basis
• Minimum INR 10/- per month or any amount in multiples of INR 5/-
. No maximum limit.
• Account can be opened by cash / Cheque and in case of Cheque the
date of deposit shall be date of presentation of Cheque
• Nomination facility is available at the time of opening and also after
opening of account
• Account can be transferred from one post office to another
• Any number of accounts can be opened in any post office
• Account can be opened in the name of minor and a minor of 10
years and above age can open and operate the account
• Joint account can be opened by two adults
 India Post
• Post Office Time Deposit Account (TD)
Interest payable annually but calculated quarterly.
Minimum INR 200/- and in multiple thereof. No maximum limit.
• Account may be opened by individual
• Account can be opened by cash /Cheque and in case of Cheque the date of
realiza on of Cheque in Govt. account shall be date of opening of account
• Nomination facility is available at the time of opening and also after opening of
account
• Account can be transferred from one post office to another
• Any number of accounts can be opened in any post office

Period Rate
1yr.A/c 6.6%

2yr.A/c 6.7%

3yr.A/c 6.9%

5yr.A/c 7.4%
• The investment under 5 Years TD qualifies for
the benefit of Section 80C of the Income Tax
Act, 1961 from 1.4.2007.
 Post Office Monthly Income Scheme Account (MIS)

• From 1.01.2018, interest rates are as follows:-7.3% per annum

payable monthly.
• Minimum Amount for opening of account and maximum
balance that can be retained
• In multiples of INR 1500/-
• Maximum investment limit is INR 4.5 lakh in single account and
INR 9 lakh in joint account
• An individual can invest maximum INR 4.5 lakh in MIS (including
his share in joint accounts)
 Cooperative Banking
- Came into existence with the enactment of
the Cooperative Credit Societies Act of 1904
- Supplements commercial banks
- Comprises urban cooperative banks and rural
cooperative credit institutions
COOPERATIVE CREDIT SRUCTURE
 PACS
• They provide short term and medium term
loan to rural people to meet their financial
requirements
• may be stated with 10 or more persons,
normally belonging to a village
• The value of each share is generally nominal
• It is the basic unit which deals with rural
(agricultural) borrowers
• gives loans and collects repayments of loans
given
• Serves as a link between ultimate borrower
and higher financial agencies
• The working capital of the PACS derived
mainly from:
– borrowings from Central Co-operative Banks
(CCBs)
– small proportion from owned funds and deposits
 Objectives of PACs
1. For the membership of co-operatives credit
society members should belong to located at
village of co-operative societies.
2. The work of PACS should limited to its village
only.
3. The liability of PACS should be unlimited.
4. PACS is liable for to the deposits and loans on
its account.
5. PACS provides loans to its members only.
6. Loans repayment schedule can be decided by
the co-operative society as per the
significance purpose of the loans.
7. PACS provide the loan only for medium and
short term purpose.
 Functions of PACs
1. It promotes economic interest of members in
accordance with the co-operative principle.
2. It provides short term and medium term loans.
3. It promotes savings habits among members.
4. It supplies agricultural inputs like fertilizers,
seeds, insecticides, and implements.
5. It provides marketing facilities for the sale of
agricultural products and
6. It supplies domestic products requirements such
as sugar, kerosene etc.
Management, Membership And Share
Capital of PACs
• The general body elects a managing committee
which consists of 5 to 9 members
• General Body elects :
• 1- President
• 1- Secretary
• 1- Treasurer
• All agriculturists, agricultural labourers, artisans
and small traders in the village can become
member of the society
• PACS issue ordinary shares of small value
depending upon the particular society
• Rs.10 and Rs .50 each to their members.
• The ownership of shares decides the right and
obligations of the holder to the society.
• Members borrowing capacities were
determined by the number of shares held by
them.
• Limited liability
 UCBs
- Mobilise savings from middle and low income urban groups
-Cater to small borrowers in non agricultural sector and rural areas
- Mostly engaged in retail banking
- Grew in 70s and 80s
- Supervised by RBI while rural cooperative credit societies by NABARD
- UCBs with Rs. 50 crore net owned funds or above can extend their area of
operation
- Required to maintain CRR and extend loans to priority sector
- 1555 Non- scheduled UCBs and 51 scheduled UCBs
- Deteriorating financial health
 Problems of Cooperative Banks
• Poor Governance
• Absence of prudent interest rate policies
• Lack of HR policies and professionalism
• Poor recovery performance
• Inadequate control and audit
• Lack of member participation
• Not keeping pace with changes
• Equality of control
• Need for revival of the cooperative credit
institutions
 Regional Rural Banks
• Conceptualized by the Narasimham Working Group 1975
• A new set of regionally oriented rural banks which combine
local feel and familiarity of rural problems and
professionalism and large resource base of commercial
banks
• for the purpose of development of agriculture, trade,
commerce, industry and other productive activities in the
rural areas, credit and other facilities, particularly to small
and marginal farmers, agricultural labourers, artisans and
small entrepreneurs.
• Established under RRB act 1976
• Authorised capital of 5 crores
 Structure
• The organizational structure for RRB's varies from branch to branch
and depends upon the nature and size of business done by the
branch. The Head Office of an RRB normally had three to seven
departments.
• The following is the decision making hierarchy of officials in a
Regional Rural Bank.
• Board of Directors
• Chairman & Managing Director
• General Manager
• Chief Manager/Regional Managers
• Senior Manager
• Manager
• Officer / Assist
• On 31 March 2016, there were 56 RRBs (post-merger)
covering 525 districts with a network of 14,494 branches
• The RRBs were owned by the Central Govt, state Govt and
Sponsor bank( any commercial Bank)
• Share Holding:
• Central Govt : 50%
• State Govt: 15%
• Sponsor Bank : 35%
• Central Bank has managerial and operational supervision of
RRBs
• Performance monitoring and regulatory supervision is done
by NABARD
 Reforms in RRBs
• Phase 1 : 1993- 2000
• Recapitalisation
• Rationalisation of Branch Network
• Non Fund business
• Expanding avenues of investment and
advances
• Upgrading technology
 Reforms in RRBs
• Phase 2: 2004-2010
• Amalgamation of RRBs of same sponsor bank within the
state
• Capital support of 1796 crore was provided
• Oct 2004 – RRBs were allowed to undertake insurance
business without risk participation
• Dec 2005 – RRBs were given credit line from sponsor bank
• Also permitted to access term loan money market and
Repo/ CBLO markets
• March 2006 – RRBs were permitted to apply for AD II
license
• Capital Adequacy standards were introduced in December
2007 –RRBs were required to disclose CRAR
 Reforms in RRBs
• Phase III: 2010 onwards
• Sustain a CRAR of 9%
• Nov 2010: RRBs to open branches in Tier 3 to
Tier 6 cities without prior approval from RBI
• Further liberalized to include Tier 2
• Second phase of amalgamation across
sponsor banks within a state
 NABARD
• Established in 12th July 1982
• Apex body for agricultural and rural development
• Set up with an initial Capital of 100 crores
• Paid up capital stood at 5000 crores in 2016
• Refinance
• Direct Credit: Loans to State Governments, RIDF,
Co-financing Hi tech export oriented agri projects,
Bulk lending, revolving fund assistance to NGO
and SHG federations which undertake financial
intermediation
 Refinancing Function
• Short-term refinance for production credit activities contributing to
food security
• Medium–term and long-term refinance for investment credit activities
for giving a boost to private capital formation in agriculture
• DOR also acts as a subsidy channelizing agency for various Government
of India schemes
• A. Short-term Refinance
•
• NABARD provides by way of refinance, loans and advances repayable
on demand or on the expiry of fixed periods not exceeding 18 months,
to Cooperative Banks and Regional Rural Banks for production,
marketing and procurement activities. The basic objective of short-
term refinance provision is to supplement the resources of banks and
to improve credit flow at the ground level. These activities include:
•
• Short-term refinance to State Cooperative Banks and
Regional Rural Banks for seasonal agricultural operations
• Short-term refinance to State Co-operative Banks and
Regional Rural Banks for purposes other than seasonal
agricultural operations such as rural marketing, fisheries
sector, working capital for MSME, social infrastructure
projects, etc. Refinance is also extended StCBs in respect of
advances made to State and Apex Level Agencies engaged
in wholesale procurement, stocking and distribution of
fertilizers/ agricultural inputs, financing Bonafide
Commercial or Trade transactions.
• Short-term refinance to Scheduled Commercial Banks,
State Co-operative Banks and Regional Rural Banks for
lending to weavers
 B. Long-term/Medium-Term Refinance
• NABARD provides long-term and medium-term refinance to the following
institutions to supplement their resources for providing adequate credit
for supporting investment activities of farmers and rural artisans, etc.
•
• Scheduled Commercial Banks
• Regional Rural Banks
• State Cooperative Banks
• District Central Cooperative Banks
• State Cooperative Agriculture and Rural Development Banks
• Primary Urban Cooperative Banks
• NABARD Subsidiaries
• North Eastern Development Finance Corporation Ltd. (NEDFI)
• Non-Banking Financial Companies (NBFCs)
• Small Finance Banks (SFBs)
•
• The activities cover both farm sector as well as off-farm sector activities.
The tenure of refinance is in the range of 18 months to 5 years.
•
• C. Medium-term Conversion
•
• NABARD provides medium term credit limits for conversion of
short-term crop loans advanced for financing seasonal agricultural
operations (SAO) to State Co-operative Banks and Regional Rural
Banks for providing relief to the farmers whose crops have been
damaged due to natural calamities.
•
• D. Long-term loans to State Government
•
• NABARD provides long-term (LT) loans to State Governments to
contribute to the share capital of cooperative credit institutions.
This reimbursement-based support is intended to encourage larger
lending programmes by these cooperatives to meet the agricultural
credit requirements.
 Payment Bank
1. Registration, licensing and regulations
• The payments bank will be registered as a public limited
company under the Companies Act, 2013
• licensed under Section 22 of the Banking Regulation Act,
1949,
• with specific licensing conditions restricting its activities
mainly to acceptance of demand deposits and provision of
payments and remittance services.
• The payments bank will be given scheduled bank status once
it commences operations, and is found suitable as per Section
42 (6) (a) of the Reserve Bank of India Act, 1934.
 Objectives
• Need for transactions and savings accounts for
the underserved population
• Remittances have Macro-economic benefits
for the region receiving them
• Remittances have Micro-economic benefits for
recipients
• Higher transaction costs of making
remittances diminish these benefits.
 Primary Objectives
• the primary objective of setting up of payments
banks will be to further financial inclusion by
providing
• (i) small savings accounts and
• (ii) payments / remittance services to migrant
labour workforce, low income households, small
businesses, other unorganised sector entities and
other users,
• by enabling high volume-low value transactions
in deposits and payments / remittance services in
a secured technology-driven environment.
 Scope of activities
• a differentiated bank
• and shall confine its activities to further the
objectives for which it is set up
• would be permitted to set up its own outlets
such as branches, Automated Teller Machines
(ATMs), Business Correspondents (BCs), etc.
• to undertake only certain restricted activities
permitted
 Scope of activities
• i. Acceptance of demand deposits, i.e., current
deposits, and savings bank deposits from individuals,
small businesses and other entities
• The eligible deposits would be covered under the
deposit insurance scheme of the Deposit Insurance and
Credit Guarantee Corporation of India (DICGC)
• will initially be restricted to holding a maximum
balance of Rs. 100,000 per individual customer.
• After the performance of the payments bank is gauged,
RBI may consider raising the maximum balance limit.
 Scope of activities
• If the transactions in the accounts conform to the
“small accounts” transactions, simplified KYC/AML
norms will be applicable
• Issuance of ATM / Debit Cards.
• cannot issue credit cards
• Payments and remittance services through various
channels including
– Branches
– Automated Teller Machines (ATMs)
– Business Correspondents (BCs)
– mobile banking.
 Scope of activities
• The payments / remittance services would include
• acceptance of funds at one end through various channels
including branches and BCs
• and payments of cash at the other end, through branches,
BCs, and ATMs.
• Cash-out can also be permitted at Point-of-Sale terminal
locations as per extant instructions issued under the PSS
Act.(Payment and Settlement Systems Act, 2007)
• Payments banks can be part of any card payment network
(other than credit cards) that is authorised under the PSS
Act.
• In the case of walk-in customers, the bank should follow
the extant KYC guidelines issued by the RBI.
 Scope of activities
• Issuance of PPIs
• Internet banking - The RBI is also open to
payments bank offering Internet banking
services
• Leverage technology and offer low cost
solutions
 Scope of activities
• Such a bank should ensure that it has all
enabling systems in place including business
partners, third party service providers and risk
management systems and controls to enable
offering transactional services on the internet.
• RBI does not envisage payments banks to be
“virtual” banks or branchless banks
• Can function as Business Correspondent (BC)
of another bank
 Scope of activities
• As a channel, the payments bank can accept
remittances to be sent to or receive remittances from
multiple banks under a payment mechanism approved
by RBI, such as RTGS / NEFT / IMPS.
• Payments banks will be permitted to handle cross
border remittance transactions in the nature of
• personal payments / remittances on the current
account.
• All facilities / approvals incidental to undertaking such
transactions in foreign exchange will be enabled by RBI
on an application made to it.
 Scope of activities
• Payments banks can undertake other non-risk sharing
simple financial services activities, not requiring any
commitment of their own funds, such as
– distribution of mutual fund units
– insurance products
– pension products
• with the prior approval of the RBI and after complying
with the requirements of the sectoral regulator
• may undertake utility bill payments etc. on behalf of its
customers and general public.
 Scope of activities
• The payments bank cannot set up subsidiaries
to undertake non-banking financial services
activities
• Other financial and non financial activities of
the promoter to be kept separate. Not to be
co mingled with payment with transactions
• required to use the words “Payments Bank” in
its name in order to differentiate it from other
banks
 Deployment of funds
• cannot undertake lending activities
• Has to maintain CRR with RBI on the demand and time
deposits
• required to invest minimum 75 per cent of its "demand
deposit balances" in Government securities/Treasury
Bills with maturity up to one year that are recognized
by RBI as eligible securities for maintenance of
Statutory Liquidity Ratio (SLR)
• hold maximum 25 per cent in current and time / fixed
deposits with other scheduled commercial banks for
operational purposes and liquidity management
• The "balances outstanding under the PPIs issued" by the
payments bank should be flexibly invested / deployed
between SLR eligible Government securities/Treasury Bills and
bank deposits (both demand and time)
• The payments bank will participate in the payment and
settlement system and will have access to the inter-bank
uncollateralised call money market and the collateralized repo
and CBLO market for purposes of temporary liquidity
management.
 Capital requirement
• The payments bank will not have significant credit and market
risks
• will be exposed to operational risk.
• bank will also be required to invest in technological
infrastructure for its operations.
• the minimum paid-up equity capital of the payments bank
shall be Rs. 100 crore
• The payments bank shall be required to maintain a minimum
capital adequacy ratio of 15 per cent of its risk weighted
assets (RWA) on a continuous basis- subject to change
• Tier I capital should be at least 7.5 per cent of RWAs.
• Tier II capital should be limited to a maximum of 100 per cent
of total Tier I capital.
• the capital adequacy ratio will be computed under Basel
Committee’s standardised approaches.
• As the payments bank will not have significant risk weighted
assets, its compliance with a minimum capital adequacy ratio
of 15 per cent would not reflect the true risk
• backstop measure, the payments bank should have a leverage
ratio of not less than 3 per cent, i.e., its outside liabilities
should not exceed 33.33 times its net worth (paid-up capital
and reserves).
• TIER 1 CAPITAL = (paid up capital + statutory
reserves + disclosed free reserves) - (equity
investments in subsidiary + intangible assets +
current & brought-forward losses)
• TIER 2 CAPITAL = A) Undisclosed Reserves + B)
General Loss reserves + C) hybrid debt capital
instruments and subordinated debts
 Promoters’ contribution
• it is not mandatory for it to have a diversified
ownership structure
• no maximum shareholding limit for promoters is
prescribed
• the promoters of the payments bank should hold at
least 40 per cent of its paid-up equity capital for the
first five years from the commencement of its business.
• When the payments bank reaches the net worth of
Rs.500 crore, and therefore becomes systemically
important, diversified ownership and listing will be
mandatory within three years of reaching that net
worth
 Foreign shareholding
• as per the Foreign Direct Investment (FDI) policy
for private sector banks as amended from time to
time.
• Current Policy:
• the aggregate foreign investment in a private
sector bank from all sources will be allowed upto
a maximum of 74 per cent of the paid-up capital
of the bank
• automatic upto 49 per cent and approval route
beyond 49 per cent to 74 per cent
• At all times, at least 26 per cent of the paid-up
capital will have to be held by residents.
 Corporate governance

• i. The Board of the payments banks should

have a majority of independent Directors.
• ii. The bank should comply with the corporate
governance guidelines including ‘fit and
proper’ criteria for Directors as issued by RBI
from time to time.
 Other conditions
• the requirement of opening at least 25 per cent of
branches in unbanked rural centres (population up to
9,999 as per the latest census), is not stipulated for
them
• bank will be required to have at least 25 per cent of
physical access points including BCs in rural centres
• The bank should have a high powered Customer
Grievances Cell to handle customer complaints. The
payments banks will come under the purview of RBI’s
Banking Ombudsman Scheme, 2006.
 Opportunities
• Benefits:
• Enhance customer relationship beyond core
business
• Profitable sourcing and deployment of funds
• Launch pad for Universal banking business
 Challenges
• Limited customer ownership and managing
customer loyalty compared to universal bank
• Regulatory requirements
• Ensuring sustained profitability
• On 19 August 2015, the Reserve Bank of India gave "in-principle"
licenses to eleven entities to launch payments banks.
• Aditya Birla Nuvo
• Airtel M Commerce Services
• Cholamandalam Distribution Services
• India Post
• Fino PayTech
• National Securities Depository
• Reliance Industries
• Vodafone M-Pesa
• Paytm
• Tech Mahindra
• Sun Pharmaceuticals
Small Finance Banks
 Objectives
• to further financial inclusion by
– (i) provision of savings vehicles, and
– (ii) supply of credit to small business units; small
and marginal farmers; micro and small industries;
and other unorganised sector entities, through
high technology-low cost operations.
 Eligible Promoters
• Resident individuals/professionals with 10 years of
experience in banking and finance
• companies and societies owned and controlled by residents
will be eligible to set up small finance banks.
• Existing Non-Banking Finance Companies (NBFCs), Micro
Finance Institutions (MFIs), and Local Area Banks (LABs)
that are owned and controlled by residents can also opt for
conversion into small finance banks.
• Promoter/promoter groups should be ‘fit and proper’ with
a sound track record of professional experience or of
running their businesses for at least a period of five years in
order to be eligible to promote small finance banks.
 Scope of Activities
• basic banking activities
– of acceptance of deposits and lending
– to unserved and underserved sections
– including small business units, small and marginal farmers,
micro and small industries and unorganised sector entities.
• -- 75% of its Adjusted Net Bank Credit (ANBC) should be
advanced to the priority sector as categorized by RBI.
• -- Maximum loan size to a single person cannot exceed 10%
of total capital funds; cannot exceed 15% in the case of a
group.
• -- At least 50% of its loans should constitute loans and
advances of up to 25 lakh.
• Capital Requirements
– Rs. 100 crore of paid up capital
– Min 40% by promoter – to be brought down to
26% in 12 years
• Prudential norms
– CRR/SLR norms to be followed
– 75 per cent of its Adjusted Net Bank Credit (ANBC)
to the sectors eligible for classification as priority
sector lending (PSL) by the Reserve Bank.
 Conversion into full-fledged bank
• transit into a universal bank is possible
– such transition will not be automatic,
– subject to fulfilling minimum paid-up capital / net
worth requirement as applicable to universal
banks
– its satisfactory track record of performance as a
small finance bank and the outcome of the
Reserve Bank’s due diligence exercise.
 Business Facilitator Model
Eligible Entities
• Under the "Business Facilitator" model, banks may use
intermediaries, such as,
• NGOs/ Farmers' Clubs
• cooperatives,
• community based organisations,
• IT enabled rural outlets of corporate entities,
• Post Offices,
• insurance agents,
• well functioning Panchayats,
• Village Knowledge Centres,
• Agri Clinics/ Agri Business Centers,
• Krishi Vigyan Kendras and KVIC/ KVIB units,
 Scope of Activities
• Such services may include
• (i) identification of borrowers and fitment of activities
• (ii) collection and preliminary processing of loan
applications including verification of primary
information/data;
• (iii) creating awareness about savings and other
products and education and advice on managing
money and debt counselling
• (iv) processing and submission of applications to banks
• (v) promotion and nurturing Self Help Groups/ Joint
Liability Groups
• (vi) post-sanction monitoring
• (vii) monitoring and handholding of Self Help
Groups/ Joint Liability Groups/ Credit Groups/
others
• (viii) follow-up for recovery.
• As these services are not intended to involve the
conduct of banking business by Business
Facilitators, no approval is required from RBI for
using the above intermediaries for facilitation of
the services indicated above.
 Business Correspondent(BC) Model

• The RBI has allowed banks to appoint entities and

individuals as agents for providing basic banking
services in remote areas where they can’t practically
start a branch.
• These agents are called business correspondents
• While a Business Correspondent(BC) can be a BC for
more than one bank
• But at the point of customer interface, a retail outlet or
a sub-agent of a BC shall represent and provide
banking services of only one bank
• The banks will be fully responsible for the actions of
the BCs and their retail outlets / sub agents.
 2. Eligible individuals/entities
• The banks may engage the following individuals/entities as BC.
• i) Individuals like
• retired bank employees
• retired teachers
• retired government employees and ex-servicemen,
• individual owners of kirana / medical /Fair Price shops,
• individual Public Call Office (PCO) operators
• agents of Small Savings schemes of Government of India/Insurance
Companies,
• individuals who own Petrol Pumps,
• authorized functionaries of well run Self Help Groups (SHGs) which
are linked to banks,
• any other individual including those operating Common Service
Centres (CSCs);
• ii) NGOs/ MFIs set up under Societies/ Trust Acts and Section
25 Companies ;
• iii) Cooperative Societies registered under Mutually Aided
Cooperative Societies Acts/ Cooperative Societies Acts of
States/Multi State Cooperative Societies Act;
• iv) Post Offices; and
• v) Companies registered under the Indian Companies Act,
1956 with large and widespread retail outlets, excluding Non
Banking Financial Companies (NBFCs).
• banks will be permitted to engage non-deposit taking NBFCs
(NBFCs-ND) as BCs,(taking into account recommendations of
the Nachiket Mor Committee.)
 Scope of activities
• The scope of activities may include
• (i) identification of borrowers;
• (ii) collection and preliminary processing of loan
applications including verification of primary
information/data
• (iii) creating awareness about savings and other
products and education and advice on managing
money and debt counselling
• (iv) processing and submission of applications to banks
• (v) promoting, nurturing and monitoring of Self Help
Groups/ Joint Liability Groups/Credit Groups/others;
• (vi) post-sanction monitoring
• (vii) follow-up for recovery
• (viii) disbursal of small value credit
• (ix) recovery of principal / collection of interest
• (x) collection of small value deposits
• (xi) sale of micro insurance/ mutual fund
products/ pension products/ other third party
products and
• (xii) receipt and delivery of small value
remittances/ other payment instruments
KYC Norms
• KYC and AML procedures should be followed in all
cases. The banks may, if necessary, use the services of the
BC for preliminary work relating to account opening
formalities. However, ensuring compliance with KYC and
AML norms under the BC model continues to be the
responsibility of banks.
Customer confidentiality
• The banks should ensure the preservation and protection
of the security and confidentiality of customer information
in the custody or possession of BC.
Information Technology Standards
• The banks should ensure that equipment and technology
used by the BC are of high standards.
 Distance Criterion

• BC is required to be attached to and be under the

oversight of a specific bank branch designated as the
base branch.
• The distance between the place of business of a retail
outlet/sub-agent of BC and the base branch should
ordinarily not exceed 30 kms in rural, semi-urban and
urban areas and 5 kms in metropolitan centres.
• In case there is a need to relax the distance criterion,
the District Consultative Committee (DCC)/State level
Bankers Committee (SLBC) could consider and approve
relaxation on merits in respect of under-banked areas
etc
 Payment of commission/fee
• The agreement with the BC should specifically prohibit them
from charging any fee to the customers directly for services
rendered by them on behalf of the bank.
• mere increase in the number of clients served or the transaction
volume does not drive the commission.
• The remuneration should combine fixed and variable parts
dependent, inter-alia, on some indication or measure of
customer satisfaction.
• Some part of the variable remuneration could be deferred or
clawed back in case of deficiency of service.
• The banks (and not BCs) are permitted to collect reasonable
service charges from the customers in a transparent manner.
Transactions put through BC
• As engagement of intermediaries such as Business
Facilitators/ Correspondents involves significant
reputational, legal and operational risks, due
consideration should be given by banks to those risks.
• The banks should adopt technology-based solutions
for managing the risk, besides increasing the outreach
in a cost effective manner.
• The transactions should normally be put through ICT
devices (handheld device/mobile phone) that are
seamlessly integrated to the Core Banking Solution
(CBS) of the bank.
• The transactions should be accounted for on a real
time basis and the customers should receive
immediate verification of their transactions through
visuals (screen based) or other means (debit or credit
slip).
• The arrangements with the BC shall specify:
• i) suitable limits on cash holding by intermediaries as
also limits on individual customer payments and
receipts;
• ii) cash collected from the customer should be
acknowledged by issuing a receipt on behalf of the
bank;
• iii) that all off-line transactions are accounted for and
reflected in the books of the bank by the end of the
day; and
• iv) all agreements/ contracts with the customer shall
clearly specify that the bank is responsible to the
customer for acts of omission and commission of the
BC.
Stakeholder in Financial Inclusion: Their role and
issues

• Banks/ RRBs/ Co-op Banks/MFIs

• Business Correspondents
• Customers
 Banks/RRBs, Co-op Banks
• Tailor Made Services
• Innovative Products
• Technology Applications
• ATM-Network
• Rupay Network
• KCC/GCCs
• Mobile Banking
• Technology Service Providers (TSPs)
• BSBD Accounts
• Use of PACs and Primary Cooperatives as BCs
• Migrants are not Adequately Covered
• Post-offices:
• White Label ATMs:
• ATMs set up, owned and operated by non-banks are called WLAs.
Non-bank ATM operators are authorized under the Payment &
Settlement Systems Act, 2007 by the Reserve Bank of India (RBI).
The list of authorised WLA Operators is available on the RBI website
at the
link https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12043
• SHG-Bank Linkage - Penetration:
 Business Correspondents (BC):
• For effective functioning of BC model in reaching poor villagers, the
following need to be addressed:

• • BCs are not making enough income due to catering of services to

low-income customers with low volume transactions. For optimum
usage of BCs in reaching the poor villagers, BCs have to be
adequately compensated so that they are sufficiently incentivized
to promote financial inclusion as a viable business opportunity.
• • The usefulness of BC model is dependent on the kind of support
provided by the bank branches. For effective supervision of BC
operations and for addressing cash management issues as also to
take care of customer grievances, banks should open small brick
and mortar branches at a reasonable distance.
• • Further, banks should initiate suitable training and skill
development programes for effective functioning of BCs.
 references

https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9063

https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=4305

https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=2718

https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=11032

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6017&Mode=0

https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CPC28092010.pdf

https://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=8955
https://en.wikipedia.org/wiki/Chit_fund