New Delhi, 29th November, 2012

International WorkshopEnhancing Delivery of G2P Payments

for Rural Areas

The number of bank branches multiplied ten-fold - from 8,000+ in 1969 when the first set of banks were nationalized to 80,000+ today.

But clearly, these are not enough.

Major barriers to providing banking services include:Lack of reachHigher cost of transactions and time taken in providing those services. The existing business model does not pass the test of convenience, reliability, flexibility and continuity.

BASIC INFRASTRUCTURE FOR DELIVERY – PRESENCE OF BANK OUTLETBASIC INFRASTRUCTURE FOR DELIVERY – PRESENCE OF BANK OUTLET

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ACCESS TO BANKING FACILITIESACCESS TO BANKING FACILITIES

Source: World Bank Financial Access Survey 2010

Country Number per 1 lakh population

Branches ATMs

USA 35.74 173.75

France 43.11 110.07

UK 25.51 64.58

Austria 11.81 48.16

Brazil 13.76 120.62

Mexico 15.22 47.28

Philippines 7.69 14.88

India 10.91 5.44

Afghanistan 2.25 0.50

ALLIANCES (or Partnerships) help the Banks in reaching the last mile in a reliable and cost effective manner.

These are:

Self Help Groups (SHGs)

Micro Finance Institutions

Business Correspondents

SO, WHAT ARE THE ALTERNATIVES?SO, WHAT ARE THE ALTERNATIVES?

BUSINESS CORRESPONDENT (BC) CHANNELBUSINESS CORRESPONDENT (BC) CHANNEL

BCs are agents employed by Banks to deliver services in unbanked/under-banked areas.Positives:Low cost vis-à-vis branch channel

Capital investment about Rs. 30,000Revenue expenditure Rs. 5-6,000 per month

Easier to scale up (~75,000 BC outlets set up by banks in the last 2 years.

Limitations: Not all products can be offered.KYC, Credit decision, etc. cannot be outsourced.Risks of outsourcing.

In a nutshell,BC channel is useful for rapid scale up of banking outfits in areas with low business potential.Even in other locations, can be used for decongestion of branches from low value – high volume customers.

GeographyBranches

Outlets of BCs31-03-10 30-09-12

Growth (in last 2.5 years)

Rural 4,857(37.3)

5,448(38.3)

591 25,216

Semi Urban 3,797(27.2)

4,027(28.3)

230 2,176

Urban 2,303(17.7)

2.523(17.7)

220 2,141

Metro 2,059(15.8)

2,232(15.7)

173 2,017

Total 13,016 14,230 1,114 31,550

Figures in brackets indicate percentage share in total branches

OUTREACH THROUGH BRANCHESOUTREACH THROUGH BRANCHES

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More than 53% of new branches are in rural areasAll BC outlets set up in the last 5 years.

Features of Business Correspondent ChannelFeatures of Business Correspondent Channel

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Products available:i.SB-cum-Overdraft/GCCii.(Flexi) Recurring Depositiii.Micro Chanel Finance (Overdraft for small shop keepers)iv.Remittances.v.Credits to branch based accountsvi.SHG Savings Bank accounts

Technology:All products are technology enabled.Accounts on CBS platform.Both ‘on line’ and ‘off line’ transactions allowed. ‘On line’ is the preferred mode.Central authentication.Ease of operation and cost effectiveness are the parameters for choice of technology.

Basic Bank AccountsBasic Bank Accounts

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Number – in Lakh

Mar '10 Mar '11 Mar '12 Oct '12

BC

Branch

37

39 56

41

95

41

127

41

BC channel outpaced branch channel

7697

168

136 Strategy:

Account opening campaigns involving students andlocal Panchayats.•Special monetary incentives to BCs for meeting stretched targets.

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Proof of Pudding is in eating Proof of Pudding is in eating

Mar '10 Mar '11 Mar '12 Oct '12

Total Balance

Average Balance

24

438

248

57

Total Balance Rs. CroresAverage balance per account Rupees

345

267

9862

Rs. 438 crore low cost deposits mobilized through BC channel.5 fold rise in ‘Average balance per account’

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Utility of Basic Bank Accounts in BC channel Utility of Basic Bank Accounts in BC channel

Number Lakh; Amount Rs. Crores

2009-10 2010-11 2011-12 Apr-Oct12

No. of Transactions

2009-10 2010-11 2011-12 Apr-Oct12

Amount of Transactions

203

217203

140

100

7,026

5,392

2,107

About 50% CAGR growth in No. of transactions

MEETING REMITTANCES NEEDS OF MIGRANTS (P2P) MEETING REMITTANCES NEEDS OF MIGRANTS (P2P)

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3,9193,888

1,360

908826

G2P – SERVING THE RURAL POOR G2P – SERVING THE RURAL POOR

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123

293

138

32

98

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ISSUES AND CHALLENGES (1) ISSUES AND CHALLENGES (1)

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Internal: Winning over staff: Staff sensitization – to the BC channel in general and to G2P projects in general. Training on Monitoring and Mentoring the Channel.Mitigation of risks associated with outsourcing.

Technology:Technologies are multiple and is still evolving. Many of the current Technical Service Providers are start-up Companies.

Banks need to procure their own technology/technologies to De-link BCs from TSPsGive uniform experience for Customers across BCsEnable inter-operability.

ISSUES AND CHALLENGES (2) ISSUES AND CHALLENGES (2)

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Infrastructure: Roads, Power, Telecommunications, Law & Order, etc. which affect other sectors of economy affect Financial Inclusion projects also.

Business Case:Standalone G2P projects can not be viable.They need to be dovetailed into overall FI efforts.

Manage stake holders’ (remitting Governments, BCs and Customers) expectations

Viability of BC (short run) and Bank (long term)Increase number of Products (RD, TDR, Micro Loans, etc.)

Introduce customer charging (and share these with BC)

Run special campaigns periodically to keep the BCs enthused.

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All Banks Data from RBI

16

17

6,658

28

1,513

1,569

1,600

2,219

903

3,027

1,882

827

2,362

1,186

459

326

205

98

2,133

1,000

623

72

12

25

42

Outreach through BC ChannelOutreach through BC Channel

3315

67

25

Outlets Spread across

all geographies

25,794 villages covered through BC channel

4,550 link branches & 113 FICs supervise the outlets

All CSP operators are trained

A Grievance Redressal Mechanism for complaints is in place.

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Innovative advertisement/customer campaigns through comic books, ‘Nukkad Natak’, etc. Financial Literacy programs in Factories.

Customer awareness and financial literacy go hand in hand.

INNOVATIONS – AWARENESS CAMPAIGNSINNOVATIONS – AWARENESS CAMPAIGNS

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