A

PROJECT REPORT

ON

“An Empirical Study to Find Reason for Dormancy in No-Frills

Saving Account in Unorganised Sector’s Labour in Surat City”

MBA SEMESTER – 2(B)

RESEARCH PROJECT

2013 - 2014

SUBMITTED BY

Mr. Praful Poriya 17

Ms. Vidhi Sarvaiya 26

Ms. Tejal Thakor 40

Mr. Hitesh Vekariya 49

Mr. Shailesh Vekariya 50

PROJECT GUIDE

Dr. Manisha Panwala

Department Of Business and Industrial Management

Veer Narmad South Gujarat UniversitySurat

1

DECLARATION

We, the undersigned, Mr.Praful Poriya, Ms. Vidhi Sarvaiya, Ms. Tejal Thakor, Mr.

Hitesh Vekariya & Mr. Shailesh Vekariya here by, declare that this thesis titled “An

Empirical Study to Find Reason for Dormancy in No-Frills Saving Account in Unorganised

Sector’s Labour in Surat City” and the work carried out under the guidance of Dr. Manisha

Panwala, Professor at Department of Business and Industrial Management, VNSGU, Surat.

The empirical findings in this report are based on the data collected and have not been taken

from any other reports.

This dissertation does not form any basis for other degree or diploma.

Signature of Researchers:

Mr. Praful Poriya

Ms. Vidhi Sarvaiya

Ms. Tejal Thakor

Mr. Hitesh Vekariya

Mr. Shailesh Vekariya

Date: 10th April 2014Place: Surat

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ACKNOWLEDGEMENT

The satisfaction and excitement that accompany the successful completion of any task

would be incomplete without the mention of the Leaders, whose constant guidance and

encouragement crown all the efforts with success.

We are highly obliged to the Veer Narmad South Gujarat University for arranging the

programme of practical training in Master of Business Administration in such a manner.

It is our privilege to express our deep sense of gratitude to Dr. Manisha Panwala for her

efforts, guidance, valuable comments and suggestions for making this project report. She

helped us to complete our report on the practical study and gave contribution to improve and

expand our practical knowledge.

We would like to extend our gratitude to all the staff and especially to Dr. Namarata Khatri

and Dr. Dhaval Mehta, Assistant professor of DBIM, who provided us useful information

and data regarding the subject with their cent percent participation and supported in making

this project report a successful task. It was a memorable experience to work with them.

Finally, we express our intense gratitude to our parents whose blessings has helped us to translate our efforts into fruitful achievement.

EXECUTIVE SUMMARY

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Financial inclusion will result in expansion of banking services rather than on any

improvement in the quality with the result that facilities uses rate declined even though new

account opened ratio rose. Some factors or hurdles make account holders for no use/ limited

use of their bank account.

An estimated 2.5 billion working-age adults globally have no access to the types of formal

financial services delivered by regulated financial institutions. About 90% of the 180

million poor households in the region still lack access to institutional financial services.

The externality of asymmetric information between the financial institutions and the

disadvantaged section of the population may be the main cause of this exclusion. Besides,

the geographical distance from bank, diffident, financial illiteracy, gender-inequality,

paucity of income and collateral assets, lack of proof of identity of the disadvantaged people

are the plausible causes of financial exclusion. On the other hand shortage of staff, high

transaction cost, economic viability of the extension of branch etc. are the common

problems of the financial institutions in extending financial services to the disadvantaged

section.

Researchers have taken the 150 respondents from unorganised sectors’ labour. The study is

descriptive in nature and sample drawn by convenient judgemental sampling. From which

35% NFA account is “DORMANT”. Females’ account dormancy rate (23%) is relatively

higher then to males’ account dormancy (16%). The main reason for widespread dormancy

is price paid by account holder in terms of transportation cost, leave in work place and

processing time. Respondents hesitate to work with banks due to the difficulties involved in

signatures and filling out lengthy forms. Respondent`s lack of awareness about how to

operate account, basic rules and norms becomes obstacle for Financial Inclusion.

4

INDEX

Table of ContentsDECLARATION............................................................................................2

ACKNOWLEDGEMENT............................................................................3

EXECUTIVE SUMMARY..........................................................................4

CH 1 INTRODUCTION...............................................................................7

1.1 Approaches of Financial Inclusion...............................................................8

1.2 Dormancy......................................................................................................9

1.3 Conceptual framework..................................................................................9

CH 2 ENVIRONMENT RELEVANCE..................................................10

CH 3 REVIEW OF LITERATURE..........................................................11

CH 4 RESEARCH METHODOLOGY...................................................12

4.1 Need for study.............................................................................................12

4.2 Research problem statement.......................................................................12

4.2.1 Research objective.........................................................................................12

4.2.2 Research variable..........................................................................................12

4.3 Research Topic............................................................................................13

4.4 Sample Design............................................................................................13

4.4.1 Sample size..................................................................................................13

4.4.2 Sampling method...........................................................................................13

4.5 Research technique.....................................................................................134.5.1 Source of data................................................................................................................13

4.5.2 Research design.............................................................................................................13

4.5.3 Data analysis.................................................................................................................13

4.6 Hypothesis...................................................................................................13

4.7 Limitation....................................................................................................13

4.8 Benefits of study.........................................................................................14

CH 5 DATA ANALYSIS.................................................................14

5

CH 6 FINDING & CONCLUSION..................................................20

BIBLIOGRAPHY.............................................................................22

ANNEXURE.....................................................................................23

List of Tables and FigureTable: 5.1...........................................................................................................................................15Table: 5.2...........................................................................................................................................15Table: 5.3...........................................................................................................................................16Table: 5.4...........................................................................................................................................16Table: 5.5...........................................................................................................................................17Table: 5.6...........................................................................................................................................17Table: 5.7...........................................................................................................................................18Table: 5.8...........................................................................................................................................18Table: 5.9...........................................................................................................................................18Table: 5.10.........................................................................................................................................20

Figure 1..............................................................................................................................................19

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CHAPTER-1 INTRODUCTION

After more than sixty years after planned development in India, the rural transects are still

facing poverty; a consequence of failure of drop down of development efforts to the grass

roots. In spite of planner’s motivation to achieve development with equality popularly

known as ‘inclusive growth’, the country has been facing wide regional disparities both

between urban and rural and between regions.

The externality of asymmetric information between the financial institutions and the

disadvantaged section of the population may be the main cause of this exclusion. Besides,

the geographical distance from bank, diffident, financial illiteracy, gender-inequality,

paucity of income and collateral assets, lack of proof of identity of the disadvantaged people

are the plausible causes of financial exclusion. On the other hand shortage of staff, high

transaction cost, economic viability of the extension of branch etc. are the common

problems of the financial institutions in extending financial services to the disadvantaged

section.

Financial inclusion is important because it is considered as an important condition for

sustaining growth (Subbarao, 2009). Such access is especially powerful for the poor as it

provides opportunity to build savings, make investments and avail credit to them. Access to

financial services also helps the poor to insure themselves against income shocks and equips

them to meet emergencies such as illness, death in the family or loss of employment. It

helps them to get away from the charges of usurious money lenders. Financial inclusion also

permits governments to make payments such as social security transfers and National Rural

Employment Guarantee Programme (NREGA) wages into bank accounts of beneficiaries.

The RBI's circular is entitled “Financial Inclusion,” and covers “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”

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1.1 Approaches of Financial Inclusion

1. No Frills Accounts

In 2005, the Reserve Bank of India (RBI) encouraged banks to make No Frills

Accounts ‘accessible to vast sections of the population.’ No Frills Accounts (NFAs)

are basic, low-cost bank accounts for transacting and saving money. They require no

or a very low minimum balance and in most cases, they charge no fees.

2. Relaxation on know-your-customer (KYC) norms:The banks were also permitted to take any evidence as to the identity and address of

the customer to their satisfaction. It has now been further relaxed to include the

letters issued by the Unique Identification Authority of India containing details of

name, address and Aadhaar number.

3. Engaging business correspondents (BCs):In January 2006, RBI permitted banks to engage business facilitators (BFs) and BCs

as intermediaries for providing financial and banking services. The BC model allows

banks to provide doorstep delivery of services, especially cash in-cash out

transactions, thus addressing the last-mile problem.

4. Adoption of EBT:Banks have been advised to implement EBT by leveraging ICT-based banking

through BCs to transfer social benefits electronically to the bank account of the

beneficiary and deliver government benefits to the doorstep of the beneficiary, thus

reducing dependence on cash and lowering transaction costs.

5. Opening of branches in unbanked rural centres: To further step up the opening of branches in rural areas so as to improve banking

penetration and financial inclusion rapidly, the need for the opening of more

branches, besides the use of BCs, was felt. Accordingly, banks have been mandated

in the April monetary policy statement to allocate at least 25% of the total number of

branches to be opened during a year to unbanked rural centres.

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1.2 Dormancy

The goals outlined above have limited meaning, however, if NFA customers open accounts

and then don’t use them, or use them in limited, infrequent ways. This question of

“dormancy” troubles service providers in many other parts of the world as well, but India

reports unusually high levels. Minimal account activity and dormancy raise questions for

financial inclusion longer term. Will the business correspondent model and mobile banking

interfaces encourage more customers to actively use these accounts? Are No Frills Accounts

the wrong offering? Or, is dormancy merely an initial and unavoidable aspect of customer

adoption that will disappear in time?

As per RBI circular number RBI/2009-10/202 DBOD. Leg. Number BC. 55 /09.07.005

/2009-1017, savings and current accounts should be treated as inoperative / dormant if there

are no transactions in the account for a period over two years. Further the purpose of

classifying an account as inoperative, both types of transactions i.e., debit as well as credit

transactions, induced at the instance of customers as well as by third parties should be

considered.

Bank of India accounts that are not operated upon for more than one year would be

automatically tagged as ”inoperative”/”dormant”; and such can be reactivated only by the

depositor himself operating on the account.

According to RBI, there are 10 Million dormant accounts in the banking system. These

dormant accounts have unclaimed deposit of around Rs. 1700 crores. (ET, July 17, 2011)*

1.2 Conceptual framework

Author Dimension number Dimension attributeParazuraman,

Zeithaml and Berry

(1986, 1988)

5 dimensions and 22

items

Tangibility; Reliability;

Responsiveness;

Assurance; Empathy

Grönroos (1984) 2 dimensions Technical quality ;

Functional quality

Rust and Oliver (1994) 3 dimensions Technical quality ;

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Functional quality;

Environment

CHAPTER-2 ENVIRONMENT RELEVANCE

An estimated 2.5 billion working-age adults globally have no access to the types of formal

financial services delivered by regulated financial institutions. About 90% of the 180

million poor households in the region still lack access to institutional financial services.

Financial inclusion remains a distant dream for a majority of Indians. Even after 20 years of

banking sector privatization, today only 35% of the Indian population has formal bank

accounts as compare to an average of 41% in developing economies. In a country where

nearly 70% of the population lives in villages, a significant segment of about 6, 50,000

villages do not have a single branch.

At a banking conclave organised by Assocham, Union Finance Minister Pranab Mukherjee

said: “Financial inclusion is a necessity for economic growth. Out of the six lakh habitats,

only about 30,000 have commercial banks branches. Only around 10% of the population

have life insurance covers while 0.6% buys general insurance policies. Merely 13% have

debit cards and 2% carry credit cards.

No Frills Accounts are intended mainly for customers without bank accounts who need

greater security and reliability for payments and savings As a result, the number of bank

branches rose from 54,000 to 147,000 in the two years to 31 March 2012, and the number of

branches being operated by banking correspondents increased from 32,000 to 120,000. The

number of no-frill accounts rose from 49 to 103 million. RBI advised bank to provide

overdrafts in such accounts, only about 1.5 million accounts or less than 1.5% of the total,

had been provided this facility. This is clearly shows the entire exercise was driven by a

desire to meet targets rather than look at the quality or depth of financial inclusion.

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CHAPTER-3 REVIEW OF LITERATURE

Micro Save conducted the Tamil Nadu portion of NFA dormancy research in October 2010.

The study team, led by Akhilesh Singh, included Alphina Jos, Denny George, Shivshankar

V. and Stanley V Thomas. They find the majority of the respondents said that that they

opened an NFA because it is pre-requisite for taking work under NREGA. For 60% of the

respondents, NFA is their first personal account and their first bank experience, while the

rest had prior experience of banking. Most of them use the account only occasionally, or

once in a month, whenever the wages are credited to the account. Respondents appreciate

the overall safety and security of a bank account, especially to protect their savings; the low

cost and relative ease of opening an NFA.

Another survey conducted by MicroSave India (May 2011).This research aims to

understand the reasons for widespread dormancy in No Frills Accounts opened through

various service providers like public and private sector banks, RRBs and business

correspondents. The research was conducted in the states of Uttar Pradesh, Rajasthan and

Tamil Nadu and involved focus group discussions and individual interviews with NFA

customers and bank staff.

Some of the key findings are:

1. Despite an impressive number of NFA account openings, many are only used for

withdrawing government benefits and wages under NREGA;

2. The majority are often inactive or dormant;

3. In most areas, only 20% or fewer use their accounts for small savings, the NFA's

original intention. Banks lose money on these accounts (estimated costs are Rs.13.4

per transaction and Rs.50.45 for account opening, or Rs.250 total to open and

maintain accounts);

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4. Not surprisingly, bank service is often unsatisfactory - and less encouraging for

customers and extending NFA use.

CHAPTER-4 RESEARCH METHODOLOGY

4.1 Need for study

Raghuram Rajan Committee on Financial Sector Reforms in 2009 had hoped that

90% of Indian households have a deposit account by December 2011. The target

remains out of reach. The committee’s focus on an entitlement driven approach to

financial inclusion will result in expansion of banking services rather than on any

improvement in the quality with the result that facilities uses rate declined even

though new account opened ratio rose. What factors or hurdles make account holders

for no use/ limited use of their bank account?

4.2 Research problem statement

The reasons for widespread dormancy or limited use (withdrawals only) in NFAs

opened through public and private sector banks.

4.2.1 Research objective

1. To understand the objective of account opening

2. To know the awareness of NFA

3. To understand the service given by bank to NFA holders

4.2.2 Research variable

1. Purpose

2. Frequency

3. Accessibility

4. Availability

5. Information

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6. Independence

7. Price

8. Flexibility

9. Assurance

4.3Research Topic“An Empirical Study to Find Reason for Dormancy in No-Frills Saving Account in

Unorganised Sector’s Labour In Surat City”

4.4 Sample Design Sample design refers to the technique as the procedure that a researcher would adopt

in selective item for the sample.

4.4.1 Sample size

150 respondents from unorganised sector labour

4.4.2 Sampling method

Researchers adopt non-probability convenient judgmental sampling because non

availability of population frame.

4.5 Research technique 4.5.1 Source of data

Primary data collect through structured questionnaire by survey method and

secondary data collect from Journal, Newspaper and web.

4.5.2 Research design consist descriptive study about various demographic factors.

4.5.3 Data analysis with the help of SPSS Software. I.e. average, mean, hypothesis

testing etc.

4.6 HypothesisH0: There is no significant relationship between awareness about services and

consumption of services

H0: There is no significant different between literacy level and use of banking facility

H0: There is no association between awareness of NFA and literacy level

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4.7 Limitations

1. This study exclusively examined responses in a single/limited geographic location.

2. Proper frame of population is not available so researcher used convenience

judgmental, non-parametric sampling method.

3. As per RBI rule banks does not disclose or provide data base regarding dormant

account.

4. Limited sample size itself becomes a limitation and researcher cannot apply such

statistic tools to prove hypothesis.

5. Respondent hesitate to response accurate answer due to illiterate.

6. The limited funds are available with the researchers.

4.8 Benefit of study1. Result of study helps to banking industry for improvement of service quality and get

clues about unbanked segment according they can make policy and various

promotional activities.

2. From the result Reserve Bank of India apex body can made necessary changes in

banking rules and norms regarding KYC, procedure and attractive schemes to attract

vulnerable group.

3. It is also help full in the measurement of “financial Inclusion” effectiveness.

4. It also enhances the knowledge about various demographic factors and how they

affect in banking sectors.

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CHAPTER-5 DATA ANALYSIS

H0: There is no significant relationship between awareness about services and

consumption of services

H1: There is significant relationship between awareness about services and consumption

of services.

Table: 5.1 frequency of Awareness and possess NFA

Count Do you have NFA account?

Total

yes noare you aware about NFA account

yes 101 9 110no 9 31 40

Total 110 40 150Table: 5 1

Table: 5.2 Chi-Square Tests of Awareness and possess NFA

Value df Asymp. Sig. (2-sided)

Exact Sig. (2-sided)

Exact Sig. (1-sided)

Pearson Chi-Square 72.075a 1 .000Continuity Co-rrectionb 68.574 1 .000Likelihood Ratio 69.020 1 .000Fisher's Exact Test .000 .000Linear-by-Linear Association

71.595 1 .000

N of Valid Cases 150Table: 5 2

INTERPRETATION:

15

Calculated value is less than the table value at 5% significant level. Hence we fail to accept

Null Hypothesis. So researcher interpret that there is significant relationship between

awareness about services and consumption of services.

H0: There is no significant different between literature level and use of banking facility.

H1: There is significant different between literature level and use of banking facility

Table: 5.3 frequency of Education and Have NFA Account

Cross tabulationCount

Do you have NFA account?

Total Percentage

yes no

Education

Illiterate 44 15 59 39.33Up to SSC 55 22 77 51.33Up to HSC 11 3 14 8.00

Total 110 40 150Percentage 73.33 26.67

Table: 5 3

Table: 5.4 Chi-Square Tests Education and Have NFA Account

INTERPRETATION:

Calculated value is less than the table value at 5% significant level. Hence we fail to accept

Null Hypothesis. So researcher interprets that there is significant different between literacy

level and use of banking facility.

16

Table: 5 4

Do you have NFA

account?

education

Chi-Square 32.667a 42.120b

df 1 2Asymp. Sig.

.000 .000

From the cross tabulation researcher interpret that only 60% respondent are literate and have

no-frill account and 25% respondent does not have no-frill account and which are illiterate.

H0: there is no association between awareness of NFA and literacy level

H1: there is no association between awareness of NFA and literacy level

Table: 5.5 Frequency of Literacy and awareness about NFA

are you aware about NFA account * education leveleducation Total

illiterate up to SSC

are you aware about NFA account

yes Count 42 68 110no Count 17 23 40

Total 59.0 91.0 150.0Table: 5 5

Table: 5.6 Chi-Square Tests of Literacy and awareness about NFA

Value df Asymp. Sig. (2-sided)

Exact Sig. (2-sided)

Exact Sig. (1-sided)

Pearson Chi-Square .229a 1 .632Continuity Correctionb .084 1 .772Likelihood Ratio .228 1 .633Fisher's Exact Test .706 .384Linear-by-Linear Association

.228 1 .633

N of Valid Cases 150Table: 5 6

INTERPRETATION:

Calculated value is more than the table value at 5% significant level. Hence we fail to reject

Null Hypothesis. So researcher interpret that there is no significant different between

awareness and education.

Table: 5.7 frequency of Occupation and have NFA account

17

occupations Totalconstruction

workerDiamond worker

other own business

Do you have NFA account?

yes 45 43 20 2 110no 13 14 13 0 40

Total 58 57 33 2 150Table: 5 7

INTERPRETATION:

From the cross tabulation researcher there is merely 77% construction and Diamond

workers have No-frills account and 23% still out of reach.

Table: 5.8 Gender wise willing to open account

willing to open NFA account

Total

yes no

gendermale 21 7 28female 7 5 12

Total 28 12 40Table: 5 8

INTERPRETATION:

From the above table researcher interpret that from 26% of unbanked respondent, 70%

respondent willing to open no-frill account which consist male and female ratio 3:1.

Table: 5.9 Gender and frequency of use

gender Totalmale female

How frequently you Operate NFA account?

once in a week 2 0 2once in a month 23 5 28Once in a year 33 8 41More than 2consecutive year

28 11 39

Total 86 24 110Table: 5 9

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INTERPRETATION:

As per RBI circular treated dormant account if there are no transactions in the account for a

period over two years. From above cross table researcher interpret that there is 35% NFA

account is “DORMANT”. Females (23%) account dormancy rate is relatively higher then

to male`s account 16%).

Chart: 5.1 Purpose of open NFA

Figure 1

INTERPRETATION:

19

From the above chart it is interpret that 23.62% respondent open account to realisation of

cheque payment and thereafter to earn interest on savings followed by NREGA pre-require,

avail loan and to avail government benefits.

Table: 5.10 weighted average mean

Attribute AVERAGE WAM Rank

Accessibility 3.06 4

Availability 3.04 3

Information 3.00 2

Independent 3.06 4

Price 2.74 1

Flexibility 3.20 6

Assurance 3.27 5Table: 5 10

INTERPRETATION:

From the above WAM table researcher interpret that the main reason for widespread

dormancy is price paid by account holder in terms of transportation cost, leave in work place

and processing time.

Secondly lack of awareness about how to operate account, basic rules and norms.

Third reason from customer service basically bank fail to meet the expectation of account

holder. Other factors followed by independent, availability, assurance and flexibility.

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CHAPTER-6 FINDING & CONCLUSION

1. 74% respondent have NFA account in unorganised sectors labour and still 26% out of

reach to get financial services from organised financial institute.

2. Only 60% respondent are literate and have no-frill account and 25% respondent does not

have no-frill account and which are illiterate.

3. 77% construction and Diamond workers have No-frills account and 23% still out of

reach.

4. 26% of unbanked respondent, 70% respondent willing to open no-frill account which

consist male and female ratio 3:1.

5. 35% NFA account is “DORMANT”. Females (23%) account dormancy rate is

relatively higher then to male`s account dormancy (16%).

6. 23.62% respondent open account to realisation of cheque payment and thereafter to earn

interest on savings followed by NREGA pre-require, avail loan and to avail government

benefits. (see chart 1.1)

7. The main reason for widespread dormancy is price paid by account holder in terms of

transportation cost, leave in work place and processing time.

8. Respondents hesitate to work with banks due to the difficulties involved in signatures

and filling out lengthy forms.

9. Respondent`s lack of awareness about how to operate account, basic rules and norms

becomes obstacle for Financial Inclusion.

21

BIBLIOGRAPHY

Journal & Newspaper

1. Dr. Supravat Bagli Assistant Professor in Economics (2012) ‘A STUDY OF

FINANCIAL INCLUSION IN INDIA’, Journal of Radix International Educational

and Research Consortium, Volume 1, Issue 8(Aug. 2012), ISSN: 2277 – 10.

Available at www.rierc.org2. M G George Muthoot, ‘A New Mode of Financial Inclusion’, Economics Times, 27 th

February 2014.

3. Ashok jha,’ statistical illusions do not Make a reality’, Economics of Times, 23 rd

January 2014.

4. RBI may rope in ‘for-profit’ firms for financial inclusion, 5 Jul 2010, ET Bureau.

Website Reference linkhttp://www.businessworld.in/news/opinion/bw-opinion/more-without-frills/480611/page-

1.html (Accessed on 2nd April 2014 1:45 AM)

http://www.microsave.net/resource/no_thrills_dormancy_in_nfa_accounts (Accessed on 3rd

April 2014)

http://www.adb.org/sectors/finance/microfinance(Accessed on 4thApril 2014)

http://www.microfinancegateway.org/p/site/m/home/ (Accessed on 4th April 2014)

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ANNEXURE

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