Financial inclusion

financial inclusion simply means

• Give every poor man a bank account. And help him get a loan from banks.

Financial inclusion involves

1. Give formal banking services to poor people in urban & rural areas.
2. Promote habit of money-savings, insurance, pension-investment among poor-people.
3. Help them get loans at reasonable rates from normal banks. So they don’t become victims in the hands of local moneylender cum thugs.

Three important initiatives taken by RBI for financial inclusion:

1969	Lead banking scheme (LBS). RBI asked every bank to choose a particular district. That Bank will be responsible for promoting banking services and financial literacy, in that district.(=financial inclusion).
2005	No frills account. Poor people can open bank accounts with very low balance e.g. Rs.5 only. We’ve already discussed that in earlier articles:CLICK HERE on 10th august 2012 no frills replaced by basic saving bank account CLICK HERE
2006	Business Correspondents (BC) system. Discussed in this article

Now so far only 55% indians have banking relationship in any form.
if financial inclusion is all about opening bank accounts in rural areas then whats the problem, just open the damn branches in every area......  but that is not possible... why?????

• Administrative costs will be high= Building rent, telephone, electricity, staff salary, security guards.
• On the other hand volume of business is very “low” in village areas=amount of money deposited, loans taken.
• Means there is No profit. Actually it’ll lead to heavy losses.

on the other hand villagers cant afford to travel  20 kms to deposit Rs. 500 in his account by wasting his full day as the branches are in semi urban areas......

therefore to counter these problem BUSINESS CORRESPONDENT were introduced...

BUSINESS CORRESPONDENT

• Business correspondents are bank representatives. they personally goes to the area allotted to them and carry out banking.
• They help villagers to open bank accounts.
• They help villagers in banking transactions. (deposit money, take money out of savings account, loans etc.)
• The Business Correspondent carries a mobile device.
• The villager gives his thumb impression or electronic signature, and get the money.
• Business Correspondents get commission from bank for every new account opened, every transection made via them, every loan-application processed etc.

Functions of BC-----

1. Create awareness about savings.
2. Give advice to villagers, about how to save/invest money and how to arrange/manage loans.
3. Collect loan applications, forward them to bank.
4. Preliminary processing of loan applications for example: verification of person’s identity, home-address etc.
5. Help the Self Help Groups (SHG), to get loans.
6. Help the bank to collect EMIs and recover loan money.

 SWABHIMAN

• Initiative by the Finance Ministry + Indian Banks’ Association
• launched in 2011
• To bridge economic gap between rural and urban India.

Objectives

• Make banking facilities available to every habitat with a population >2000 (by March 2012.)

• Banks will provide basic services like deposits, withdrawal, Kisan Credit Card (KCCs) etc via Business Correspondents (BCs) also known as Bank Saathi.
• Banks will also working together with the Unique Identification Authority of India (UIDAI) for opening new bank accounts.
• Government will send subsidies and social security benefits (pension etc.) directly to beneficiary’s account.
• Beneficiary can withdraw the money from the Business Correspondents (BCs) in their village itself.
• Government has provided 500 million rupees to banks for taking these initiatives.(e.g. paying Commissions to Bank Saathi, their training cost, doing paperwork with UID.) 

  

KISAN CREDIT CARD

 KCC is a credit facility given to the farmers based on the total yield capacity of their agriculture land.
the money withdrawn is to be paid back in 1 year attracting 7% interest rate. but if the individual pays the credit in time then 3% of interest is paid back to his amount. but this facility is available only for those KCC which has a annual limit of less than or upto 3 lakh.


 general purpose credit card is given to marginal farmers and poor with a limit of Rs. 15000.


for article archive click here

BASIC SAVING BANK ACCOUNT

Basic saving bank account has taken place of no frills account... but why?
reasons .......
1. social stigma- person having no frill a/c were consider as poor and no one wants to have any relationship.
2. no cheque book and atm card.

benefits of basic saving bank account( bsba)

1. No limit on the number of deposits that can be made in a month
2. Maximum 4 withdrawals in a month , including through ATM's
3. No minimum balance requirement 
4. cheque book and atm card is provided.

 restriction of bsba
1. deposited money in 1 year should not be more than 1 lakh. ( eg. if u deposited Rs. 10000 and withdraw Rs. 5000 and next day again u deposit Rs. 10000. then ur deposited money will be Rs. 20000 and not 15000).
2. maximum withdraw limit for whole month is 10000.
3. balance in account should not exceed Rs. 50000 at any time.  

for article archines click here 

NABARD

National bank for agriculture and rural development.
it is an apex development bank with a mandate for providing credit flow for promotion and development of agriculture, small scale industries and all other allied economic activities in rural area.

inn simple words- NABARD is the mother and father of all agriculture and development activities in the rural area.....

main function is to provide refinance to lending institutions in rural area.
now what this REFINANCE means?

it means NABARD does not provide loans directly to the individual and business. loans needed by individual and business for agriculture and rural development projects is provided by commercial banks, rrb, co operative banks, nbfc working in rural area.
NABARD in turns sanction some percentage of the total loan ( 50% to 95%).

Criteria for refinance
1.	Technical feasibility of the project and adequate response from prospective beneficiaries
2.	Financial viability and adequate incremental income to ultimate borrower to repay the loan within a reasonable period
3.	Organisational capability to ensure close supervision.

other function of nabard

	Prepares, on annual basis, rural credit plans for all the districts in the country. These plans form the base for annual credit plans of all rural financial institutions
•	Undertakes monitoring and evaluation of projects refinanced by it
•	Promotes research in the fields of rural banking, agriculture and rural development
•	Functions as a regulatory authority, supervising, monitoring and guiding cooperative banks and regional rural banks for article archives click here

WHAT IS BANK?

bank is a lawful organisation whose basic function is to accept deposit and lends money to individual and business that need it.

TYPES OF BANK
1. scheduled bank -  are those which are registered in SCHEDULE 2(E) of RBI act 1934 with minimum paid up capital of Rs.200 crore.
2. non schedule- bank =s which are not listed in rbi schedule.


1. Central bank ( RBI ). CLICK ON LINK TO LEARN ABOUT RBI

2. commercial bank - banking institutions which accepts deposit and grant loans and advances to customer.
                                  it may be public sector bank, private sector or foreign bank.

3. development bank- business require medium and long term capital for purchase of machinery and equipment, for latest technology or for expansion, which in turn provided by the development banks like INDUSTRIAL FINANCE CORPORATION OF INDIA.

4. COOPERATIVE BANKS
5. SPECIALISED BANK- for providing support and over all requirements for setting up business in specific area or activity. eg. EXIM, SIDBI AND NABARD

for article archives click here 

BANKING TOPICS COVERED SO FAR....

MATH TRICKS

NO FRILLS ACCOUNT
 
NBFC AND CTS

RESERVE BANK OF INDIA

CRR AND SLR

SARFAESI ACT

BANKING REGULATION ACT

BANK AND TYPES

NABARD  

BASIC SAVING BANK ACCOUNT


FINANCIAL INCLUSION 


FII and QFI 


difference between fii and fdi 

Bonds vs Shares, Debt vs Equity,Gilt Edged securities: Meaning, Explained  

bonds and debentures 

BASEL NORMS.... 

SHARE AND STOCKS 

INTERVIEW TIPS 

BANKING TERMINPLOGY part 1 

SARFAESI ACT 2002

Securitisation and reconstruction of financial asset and enforcement of security interest act 2002
it enables banks and other financial institution to auction the the properties against loans of the borrowers, if they fail to repay the loan. it helps in reducing NPA.

1. bank can buy the property if one else buys it in the auction.
2. difficult for borrowers to get stay order on sale of property.
3. bank can sell the property to asset reconstruction company ( ARC).

NOW IF BANKS CAN BUY THE PROPERTY IN AUCTION THEN WHAT IS THE NEED OF ARC?
If the land was in good urban area, SBI could open a new branch office there (or housing for its employees).
But if plot/factory/house is in some remote area= useless for SBI’s personal business. 
Under the Banking regulation Act, a bank cannot keep such immovable property beyond 7 years, (max 12 years with RBI’s permission). 



ARC buy bad loans from the banks and convert them in profit. they must be registered with RBI.
eg. ARCIL (India’s first and largest asset reconstruction company (ARC))
     Reliance Asset Reconstruction Company Limited by Anil Ambani


 arc arranges money from qualified institutional buyers.
 
now how ARC can convert bad loans into a profitable one?

1. Auction the assets fully or partially. (sell the machinary now, rent the building and wait for land prices to go up for two years and then sell it.)
2. Sell the property in combination with other NPA properties of other defaulter giving discount.
3. Change the Management of that asset, appoint its own directors/officers.
4. outsource or lease the business to a another company.
5.  ARC can convert the debt into equity.

for article archives click here

Banking amendment bill

Powers to RBI..
1. can remove entire board of bank. currently have the power to remove CEO or 1-2 directors.
2. connected lending prevention. Rbi can check the the record and a/c book of all mother companies associated with the bank.
3. money in the unclaimed a/c which has not been operated for 10 years to be deposited in a fund DEPOSITOR EDUCATION AND AWARENESS FUND. if a/c holders comes back the money will be returned to him with interest.
4. prior permission of RBI is required to buy more than 5% share of any bank.
5. if primary cooperative society wants to continue their banking business, they need a license from RBI.
6. penality on banks if they fail to maintain CRR for even one day.

points forwarded by sbi and other PSB......
1. consolidation of bank in india as to have few world class banks through SIMPLIFYING BANKING COMPANY ACQUSITION AND TRANSFER OF UNDERTAKING ACT.
2. banking merger should be approved only by RBI. ( it was not accepted. Copetition commission of india have the final word in case of merger)
3. increase in voting rights from 1% to 10% in PSB and from 10% to 26% in foreign banks.


DEMANDS OF FOREIGN BANKS.............
1. stamp duty to be called off when a foreign bank transfer its business from main company to its subsidiary.
2. want to invest in commodity market.( this was denied)



BANKING CONSOLIDATION.......
PNB ( DENA + VIJAYA)
BOI( OBC + ANDHARA BANK)
BOB (  IDBI + UCO)
UBI ( UNITED BANK + PUNJAB SINDH)
CBI ( INDIAN BANK + ALLAHABAD BANK + BANK OF MAHARASTRA)
CANARA ( IOB + SYNIDICATE+ CORP. BANK)


for article archives click here

NON BANKING FINANCE COMPANIES AND CTS

Company engaged in business of loans and advances, accusition of share bonds, g secs, stocks but does not include institution whose primary business is of agriculture, industrial activity and sale and purchase or construction of immovable properties.

1. can not accept demand deposit ( saving and current a/c can't be open with NBFC)
2. can't issue check drawn on itself.
3. deposit insurance credit guarantee corporation is not available.
4. maximum interest rate of 12.5% for minimum 12 months and maximum 60 months.
5. have to maintain SLR.

CTS

started in delhi ( 2006) , bengalore ( 2010), chennai ( 2009).

to be implemented from 1st april 2013.

improvements........

1. watermark CTS INDIA can be seen only under light.

2. pantograph with hidden void not visible in scanned image at resolution set by cts but visible in scanned 

      images at any other resolution.

3. bank logo visible in UV light


for article archives click here 

RESERVED RATIO

CRR-  Under section 42(1) of rbi act 1934, every SCB in india has to keep a part of their NET DEMAND AND TIME LIABILITY with rbi in the form of ONLY CASH.
It is maintained by only schedule commercial bank and comes under rbi act 1934.



SLR- According to section 24(2A) of BANKING REGULATION ACT 1949, all financial institution ( NBFC, SCB, RRB etc.) has to maintain some percentage of their NET DEMAND AND TIME LIABILITY with themselves at all time.
Slr is maintain in the form of CASH, GOLD, G SEC, CURRENT A/C WITH OTHER BANKS AND LISTED DEPOSIT WITH RBI.

objective of SLR
1. to restrict the expansion of bank credit.
2. to enhance the investment in g sec
3. to ensure solvency of banks.
MAX SLR CAN BE 40%
MINIMUM IS whatever the percentage..


NOTE- if any bank have Rs. 100 as their net demand and time liability then how much of this is always secured?
ans -   CRR + SLR ( as they are called as reserve ratio.  they can not be lent by bank.)


for article archives click here

RESERVE BANK OF INDIA

RBI established on april 1935 under RBI ACT 1934.
nationalised in 1949
basic function is to regulate the issue of bank notes and keeping the reserves to maintain the monetary stability in india.

RBI formulates implements and monitors the monetary policy..... why?
1. to maintain price stability
2. to ensure adequate flow of credit to productive sector.
3. maintain financial stability.

RBI prescribed parameters of banking operation to....
1. maintain public confidence in system.
2. protects depositor interest.
3. provide cost effective banking facility.

RBI maintains foreign exchange under FEMA 1999.

RBI is called as government banks... why?
Ans. Under rbi act 1934 only rbi can provide money to the central government and no other bank can do the same. however RBI has other banks as his agent to provide loan the government.
NOTE- the money RBI gives to the government is called as WAYS AND MEANS ADVANCES.

Why RBI is called as banker's bank?
Ans- RBI maintain deposit a/c of all other banks and advances money to them when needed. it also provides guidance to banks whenever they face any problems.

 why RS.1 is not printed or signed by RBI governor?
ans- rupee is the currency of india therefore it can only be printed by the central government and rest all money is BEARER NOTES therefore they are printed by RBI.
you will never see following written on RS.1 " i promise to pay the BEARER a sum of" while the same is written on every other note...... 

for article archives click here 

NO FRILLS ACCOUNT

No frill account is a type of bank account, with low / Zero balance requirement with extra-features removed.

In simple words it: If a company makes its service/product cheaper by removing the extra features, that is no frill.
eg. Dish TV package without 100 sports channels.

RBI came up with this No-frill concept, because poor people cannot open regular bank accounting having requirements like Rs.5000/- minimum balance etc.

So there are no frill accounts for them. So that poor people can open bank accounts and take loans, that’ll save them from the 36% interest rate charged by the evil money lenders.

1. - Account can be opened with a minimum initial deposits of Rs.5/- and maintained at the minimum balance of Rs 5, no penalty charges will be deducted in case the minimum balance reaches zero.
2. - The Account holders will not be eligible for Cheque Book and ATM card facilities
3. - Maximum numbers of withdrawals are restricted to 30 every 6 months.
4. - Duplicate passbook may be issued to the account holder with a charge of Rs.10/-

As you can see above, it doesn’t have the extra-features like Cheque book and ATM etc. So it is no-frill (because extra-features removed).

Advantages

·  Rural women can put their hard earned money in it, less chances of theft or husband spending it on Desi liquor.

·  Can get easy loans, saved from the clutches of moneylenders.

·  Some banks even offer free of charge DD (demand drafts) like 2 per month.

·  No frill account holder can convert his/her account to regular saving account later.

now no frill accounts have been replaced by BASIC SAVING BANK ACCOUNT CLICK  HERE


fo article archives click here