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Team Member Tushar Arora 9176633879 Sushant Midha 9176610426Siddhant Gupta 8939922215
Vikram Choudhary 9381766572College : Great Lakes Institute of Management
The Rural Banking Turnaround Model
Team INVICTUS
13/04/2023 2
The Rural India- A Snapshot
Consists of 61.35% of the Indian Population (740 Million People)
Around 638000 Villages and 135 million households
In 2010, Rural GDP stands out to be around US $ 460.08 Billion
Contribute 43% of the National Income
http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx
13/04/2023 3
The Rural Banking Sector
Present State of Rural Banking Sector in India.
Number of Rural Branches – 31277 ( only 39.7% of the total Number)
Only 54 saving account for every 100 person in rural Areas
Only 26% of the people with income less than Rs 50000 have a bank account
Only 13% of the farmers availed bank loans while 54% have used non-institutional and other forms of lending
http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx
Huge potential Advanced Technology
TurnAroundPossible
Rural Banking - Challenges
Bank’s Perspective
Rural people are considered un-
bankable
Small loan Amount
Long Distance for services/ Branches
High Transaction CostLack of collateral
Information Asymmetry
Human Resource Constraints
13/04/2023 http://tejas-iimb.org/articles/74.php 4
13/04/2023 5
Rural Banking - Challenges
Customer’s perspective
High Transaction Cost for client for E.g.
Travel
Documentation
Lack of Awareness
Lack of social capitalNon- Availability of special products
Convenience of informal lending
Prior rejection by formal banking
system
http://tejas-iimb.org/articles/74.php
13/04/2023 6
Existing Solutions for Rural Banking
LOCAL AREA BANKS (LABS)
http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=5817
Local area banks are set up in private sector to cater to the credit needs of the local people and to provide efficient and competitive financial intermediation services in their area of operation.
RBI Guidelines to set up LABs can be Accessed at this link:RBI Guidelines to set up LABs
13/04/2023 7
Existing Solutions for Rural Banking
Funds placed at disposable of NGOs or MFIs for lending to SHGs or individuals.
Hindering factor-Banks exposed to two levels of risk
Low capitalization and inability to undertake role of financial intermediation by NGOs and MFIs.
http://tejas-iimb.org/articles/74.php
NGO/MFI BULK-LENDING
13/04/2023 8
Existing Solutions for Rural Banking
SHG –Bank-Linkage Programme in 2009-10
A ”Savings-first” model in which a group of people collude and take loan from the bank.
Major features include- credit discipline as a norm, joint liability and social collateral.
Collaboration with the help of a NGO, however absence of NGOs in some states has been hurting the growth of this model
http://tejas-iimb.org/articles/74.php
SELF HELP GROUPS(SHGS)
13/04/2023 9
Existing Solutions for Rural Banking
Enable farmers to get loan over a 3 to 5 year period as a revolving credit entitlement thus, providing them control over their cash flows and reduced transaction costs for both the banks and the farmers.
Creation of point of sale kiosks is the biggest constraint.
http://tejas-iimb.org/articles/74.php
KISAN CREDIT CARD (KCC)
13/04/2023 10
Existing Solutions for Rural Banking
Business facilitator are the Institutions or persons, who interface between the rural poor and banks, and are leveraged to provide support services under well-defined terms and conditions by way of contractual arrangements.
Provides basic support services such as customer identification, collection of information/applications, credit appraisal, marketing etc.
While BCs are specific agencies e.g. MFIs, NBFCs etc. which also provide disbursal of small value credit as “pass through” agents for the parent bank.
http://tejas-iimb.org/articles/74.php
BUSINESS FACILITATOR OR CORRESPONDENT MODEL (BCS)
13/04/2023 11
TurnAround Solutions for Rural Banking
As per this model, we propose to set up new branches of the banks, say-one for every 100 villages acting as a Hub for all transactions
Around this branch will be a network of MFIs/ NGOs and business correspondents which will act as spokes and will be in direct contact with the Banks.
To increase the spread to even larger levels, MFIs/NGOs can further become 2nd level hubs.
The final leg of this model would be the local agents who would be the direct point of contact with the villagers at grass-root level.
HUB AND SPOKE MODEL FOR RURAL BANKING
BANKBANK
BANK
BC
BC
BC
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
LocalAgents
Bank
TurnAround Solutions for Rural Banking
Proposed Model works on the same approach as Mobile recharge model. Correspondents would help rural customers in opening their saving bank accounts just as they currently work
in opening mobile accounts. This bank account would be linked to the Mobile phone number account. Correspondent will have a credit limit defined by the bank based on their credit ratings, to credit the cash in
the bank accounts of the rural customer just like a recharge transaction through mobile phone. Correspondents will credit the account of the rural customer on cash payment and this money will then
follow back to the banks through the local agents. In case of those customers who don’t have access to mobile connection, Local agents would act as their point
of contact for money collection and disbursement.
13/04/2023 http://www.tsi.in/Rural_Banking.html 12
PRODUCT 1 : BANKING TRANSACTIONS - VIA BCS , LOCAL AGENTS AND MOBILE
13/04/2023
TurnAround Solutions for Rural Banking
For transaction of money, SMS based system will be introduced where the rural consumer would be able to have cash less transaction via secured text messages.
Sender or payee will be able to text the amount and the phone number (which is linked to the bank account of the receiver) and cash transaction would take place automatically like an online transaction.
Transaction could also be taken place between a registered user and a non register user , pay bills, and purchase mobile, airtime credit
Catching the Technology Wave: Mobile Phone Banking and Text-A-Payment in the Philippines 13
CASHLESS BANKING- MOBILE TRANSACTIONS
13/04/2023 14
TurnAround Solutions for Rural Banking
Collaboration with one of the biggest mobile service providers. No charges for the transaction messages received. Charges are applied only for transactions initiated by the user in lieu of saved time and additional benefits
and convenience enjoyed. Charges are uniform all over the country and would be fixed rather than depending upon the transaction size. Transaction charges are subtracted from the account of the initiator directly. Vendor/ Business Correspondents/Mobile service providers can collect their commission for all the
transactions done through them directly from the Bank.
PRICING MODEL FOR PRODUCT 1
Transaction Type Transaction Range Charges( Paise)
Minimum Amount
Maximum Amount
Deposit Cash 100 50000 0Send money to other registered user 100 10000 30 10001 25000 40 25001 50000 50Withdraw of Cash from Outlet 100 250 30 251 500 40 501 1000 30 1000 10000 20 10001 50000 10Pay Bill Transaction RS 10
13/04/2023 15
TurnAround Solutions for Rural Banking
Small Amount Loans Each Business Correspondent will be given a
separate Loan Credit Limit i.e. the amount up to which he can disburse the loan amount directly.
This credit limit will be set by the bank on the basis of the credit rating of the correspondent and the amount of collaterals reserved by him with bank.
The local agents stand responsible to do a complete customer profiling at the time of opening the bank account itself so as to foresee what kind of products/loans the customer may require.
Large Amount Loans MFI/NGOs will evaluate, recommend, originate the
loans, help in disbursal and subsequently track and collect the loans.
Loans will sit on the books of the Bank and MFI/NGOs are not exposed to the risk.
PRODUCT 2 : LOAN / CREDIT PROCESS
Bank
BCLocal Agent
Local Agent
BCLocal Agent
Local Agent
Disburse a fixed amount of loan to a BC Distributes loans
to local agents based on expected business, etc.
Direct POC for villagers to apply and collect loans
13/04/2023 16
REVENUE MODEL
13/04/2023 17
Distribution Channels
‘Aadhaar' the unique identification number, will be a support to banks in many ways.
It would reduce the customer acquisition cost (estimated at Rs. 150 an account)
It would reduce customer distribution costs and provide banks credible information for credit risk analysis in the years to come.
With this, 1.2 billion credit histories will be available which will be a good KYC (know your customer) for bankers.
http://www.thehindubusinessline.com/todays-paper/tp-others/tp-editorial-feature/article2601894.ece
AADHAR
13/04/2023 18
Distribution Channels
Extensive distribution channels which have a reputation for running well oiled and deeply entrenched rural distribution networks.
According to a Crisil research report, released earlier this year, HUL, which works with around 4000 stockists has access to 6.3 million retail outlets and 166 million households in India.
Such distribution channels could be leveraged upon by business correspondents.
Crisil Report
FMCG
13/04/2023 19
Distribution Channels
http://bonelessresearch.blogspot.com/2011/03/indias-mobile-tele-density-to-reach-100.html
High growth in tele-density in India can be leveraged upon as one of the channels for rural banking.
Currently rural tele-density in India is 37% and is slated to reach over 60% by 2013.
http://www.business-standard.com/india/news/rural-tele-density-will-reach-over-60-in-next-3-4-years-telecom-experts/427298/
TELECOM
13/04/2023 20
Distribution Channels
Tying up with government schemes and initiatives could act like a catalyst for this “financial inclusion” model.
Here the money to be disbursed would be channelized through the suggested model hence motivating people to adopt it.
Imagine what big impact a Rs 22,000 cr NREGA scheme could do this model?
Moreover, as per Mr Rajesh Bansal, Assistant Director-General of Unique Identification Authority of India, post Aadhar, around Rs 3-lakh crore of subsidy transfer opportunity is waiting to be unlocked.
GOVERNMENT SCHEMES
13/04/2023 21
Marketing Channels
Banks can leverage the distribution channels of FMCG companies in rural areas for marketing.
Posters, pamphlets etc. in vernacular languages can be circulated through these networks.
FMCG
13/04/2023 22
Marketing Channels
Bank personnel can personally go to Panchayats and educate people about the rural banking process and also about the work of business correspondent.
This will build the trust among the people towards the mobile technology and the business correspondent.
Typing up with existing rural based NGOs , MFIs and self-help groups could be a good way to get word-of-mouth publicity
VILLAGE PANCHAYATS
13/04/2023 23
Marketing Channels
Bank’s mobile van will make frequent visits to the rural places and organizing camps in remote areas. The main objective of this initiative would be to understand the pain-points of the villagers and help them understand how banks could help them with their problems.
MOBILE VANS
13/04/2023 24
Rural Prosperity- Indian Prosperity!INDIA grows with a prospering rural sector…
“THANKYOU”