The Rural Banking Turnaround Model

1. Team Member
Tushar Arora 9176633879
Sushant Midha 9176610426
Siddhant Gupta 8939922215
Vikram Choudhary 9381766572
College : Great Lakes Institute of Management

2. 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
4/8/2012 2
http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx

3. Number of Rural Branches – 31277 ( only 39.7% of the total
Present Number)
State of Only 54 saving account for every 100 person in rural Areas
Rural
Banking Only 26% of the people with income less than Rs 50000 have
a bank account
Sector
Only 13% of the farmers availed bank loans while 54% have
in India. used non-institutional and other forms of lending
Huge Advanced TurnAround
potential Technology
Possible
4/8/2012 http://www.infosys.com/finacle/solutions/pages/regional-rural-banks.aspx 3

4. Rural people
are
considered
un-bankable
Human
Small loan
Resource
Amount
Constraints
Bank’s
Perspective
Long Distance
Information
for services/
Asymmetry
Branches
High
Lack of
Transaction
collateral
Cost
4/8/2012 http://tejas-iimb.org/articles/74.php 4

5. High
Transaction
Cost for client
for E.g. Travel
Prior rejection
by formal Documentation
banking system
Customer’s
perspective
Convenience of
Lack of
informal
Awareness
lending
Non-
Availability of Lack of social
special capital
products
4/8/2012 http://tejas-iimb.org/articles/74.php 5

6. 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
4/8/2012 http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=5817 6

7. NGO/MFI BULK-LENDING
 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.
4/8/2012 http://tejas-iimb.org/articles/74.php 7

8. SELF HELP GROUPS(SHGS)
 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
4/8/2012 http://tejas-iimb.org/articles/74.php 8

9. KISAN CREDIT CARD (KCC)
 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.
4/8/2012 http://tejas-iimb.org/articles/74.php 9

10. BUSINESS FACILITATOR OR CORRESPONDENT MODEL (BCS)
 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.
4/8/2012 http://tejas-iimb.org/articles/74.php 10

11. HUB AND SPOKE MODEL FOR RURAL BANKING
Local
 As per this model, we propose to set up new Agents
branches of the banks, say-one for every 100
villages acting as a Hub for all transactions Bank BANK Local
Agents
 Around this branch will be a network of MFIs/ BC
NGOs and business correspondents which will
act as spokes and will be in direct contact with Local
the Banks. Local Agents
Agents Local
 To increase the spread to even larger levels, Local Agents
MFIs/NGOs can further become 2nd level hubs. Agents Local
 The final leg of this model would be the local Local
BANK
BC BANK Agents
agents who would be the direct point of Agents Local
Local Agents Local
contact with the villagers at grass-root level. Agents Agents
Local Local
Agents Agents
BC
4/8/2012 11

12. PRODUCT 1 : BANKING TRANSACTIONS - VIA BCS , LOCAL AGENTS AND MOBILE
 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.
4/8/2012 http://www.tsi.in/Rural_Banking.html 12

13. CASHLESS BANKING- MOBILE TRANSACTIONS
 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
4/8/2012 Catching the Technology Wave: Mobile Phone Banking and Text-A-Payment in the Philippines 13

14. PRICING MODEL FOR PRODUCT 1
 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.
Transaction Type Transaction Range Charges( Paise)
Minimum Maximum
Amount Amount
Deposit Cash 100 50000 0
Send money to other registered user 100 10000 30
10001 25000 40
25001 50000 50
Withdraw of Cash from Outlet 100 250 30
251 500 40
501 1000 30
1000 10000 20
10001 50000 10
Pay Bill Transaction RS 10
4/8/2012 14

15. PRODUCT 2 : LOAN / CREDIT PROCESS
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 Local Agent
of the credit rating of the correspondent and the BC
amount of collaterals reserved by him with bank. Local Agent
 The local agents stand responsible to do a
complete customer profiling at the time of opening Bank
the bank account itself so as to foresee what kind Disburse a
Local Agent
of products/loans the customer may require. fixed BC
Large Amount Loans amount of
loan to a BC Local Agent
 MFI/NGOs will evaluate, recommend, originate the Distributes loans
to local agents
loans, help in disbursal and subsequently track and based on Direct POC for
collect the loans. expected villagers to
apply and
 Loans will sit on the books of the Bank and business, etc.
collect loans
MFI/NGOs are not exposed to the risk.
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16. 4/8/2012 16

17. AADHAR
 ‘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.
4/8/2012 http://www.thehindubusinessline.com/todays-paper/tp-others/tp-editorial-feature/article2601894.ece 17

18. FMCG
 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.
4/8/2012 Crisil Report 18

19. TELECOM
 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/
4/8/2012 http://bonelessresearch.blogspot.com/2011/03/indias-mobile-tele-density-to-reach-100.html 19

20. GOVERNMENT SCHEMES
 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.
4/8/2012 20

21. FMCG
 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.
4/8/2012 21

22. VILLAGE PANCHAYATS
 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
4/8/2012 22

23. MOBILE VANS
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.
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