Banking & Financial Institutions

Submitted by: GAURAV BHATI A-33 IMBA

Introduction

Financial Inclusion or Inclusive Financing may be defined as 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.

In simple words Financial Inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society.

The term "financial inclusion" has gained importance since the early 2000s, and is a result of findings about financial exclusion and its direct correlation to poverty. Financial inclusion is now a common objective for many central banks among the developing nations.

The financial services include the entire gamut - savings, loans, insurance, credit, payments etc. The financialsystem has to provide its function of transferring resources from surplus to deficit units but both deficit and surplusunits are those with low incomes, poor background etc. By providing these services, the aim is to help them comeout of poverty. So far, the focus has only been on delivering credit (it is called as microfinance but is microcredit) and has been quite successful.

Financial Inclusion in India

Financial Inclusion has become a buzzword now but in India it has been practiced for quite sometime now. RBI has made efforts to make commercial banks open branches in rural areas. Priority sector lending was instituted to provide loans to small and medium enterprises and agricultural sector. Further special banks were set up for rural areas like Rural Cooperative Banks, Regional

Rural Banks. The government also set up national level institutions like NABARD, SIDBI to empower credit to rural areas and small and medium enterprises. For Financial Inclusion RBI focused to work on few key developments: Opening of No-Frill accounts:Recently RBI asked banks to offer no-frills savings account which enables excluded people to open a savings account.

Usage of Regional language:The Banks were required to provide all the material related to opening accounts, disclosures etc in the regional languages.

Easier Credit facilities: Banks have been asked to consider introducing General purpose Credit Card (GCC) facility up to Rs.25,000/- at their rural and semi urban branches.

Other Rural Intermediaries: Banks were permitted in January 2006, to use other rural organisations like Nongovernmental organizations, selfhelp groups, micro-finance institutions etc for furthering the cause of financial inclusion.

use of technology: Recognizing that technology has the potential to address the issues of outreach and credit delivery in rural and remote areas in a viable manner, banks have been advised to make effective use of information and communications technology (ICT)

Link to mobile or hand held connectivity devices ensure that the transactions are recorded in the bank's books on real time basis.

 Financial Education: RBI has taken number of measures to increase financial literacy in the country. It has set up a multilingual website in 13 languages explaining about banking, money etc. It has started putting up comic strips to explain various difficult subjects like importance of saving, RBI's functions etc.

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.

Financial Inclusion by HDFC Bank: HDFC Bank: IT Enabled Initiatives to increase Financial Inclusion HDFC Bank has been continuously making efforts as well as exploring various opportunities for ensuring greater financial inclusion and increasing its outreach to The rural and under-banked areas of the country. The Bank has taken several initiatives which include: 1. Financing Self-Help Groups (SHGs) through the services of Non-Governmental Organisations (NGOs) as intermediaries to provide financial and banking services Reaching out to the weaker and underprivileged sections of the population. 2. Working with Microfinance institutions (MFIs) across India to provide credit support to deserving beneficiaries 3. Reaching out to the rural areas and distribution of retail asset products through co-operative banks and societies 4. Tied up with post offices in Punjab, Karnataka, and Andhra Pradesh using the Business Facilitator (BF) model with a view to increasing the distribution outreach to the rural and semi-urban customers mainly for retail loan products 5. Providing small ticket warehouse receipt based finance against warehouse receipts issued by the Central Warehousing Corporations and the State Ware Housing Corporation which has helped farmers to achieve better prices for their produce, reduce wastages and avoid distress sale

6. Opened branches at Mandi Locations like Ganganagar in Rajasthan and Unjha in Gujarat so as to ensure availability of credit to farmers 7. Providing finance to self-employed individuals, small entrepreneurs, shop keepers, small scale service establishments, factory workers and workers in small scale/medium scale manufacturing and processing units particularly in rural and semi-urban areas 8. Besides the above, the Bank also provides loans against gold jewellery at various locations across the country primarily to meet the short term loan requirements of the common masses that have hitherto been serviced by local money lenders In particular, we would like to highlight HDFC Banks Innovative IT enabled Initiatives with a view to bring to Rural India the same hasslefree banking services which hitherto were being provided to the urban customer in the metros and bigger cities. The Banks Branch Hub & Spoke model adopted to bring world class banking services to under-banked and un-banked rural India is a case in point. Under the Hub & Spoke model, a Hub is a location with HDFC Bank Branch presence and a Spoke is the target rural location typically located at a distance of 30 to 40 KMs from the hub branch. Customers at the spoke locations maintain their savings accounts with the hub branch but are able to transact in these Bank a/cs through business correspondents (BCs) located at these spokes. The Bank has tied up with several such BCs, mostly Credit Societies and Cooperative Banks, who act

on our behalf in accepting deposits as well as withdrawals of small value cash at their counters. The crucial technology enabler in this arrangement is the Point of Sale (POS) / Electronic Data Capture (EDC) machine installed at these BC counters which make the transactions possible in an easy and hassle free manner. Today, through the above innovative yet simple technology enabled arrangement, debit card holders of Unnati Savings A/c - HDFC Banks recently launched savings bank account specifically catering to the rural population - can access their bank accounts through the business correspondents (BCs). The transactions are effected easily by swiping at the POS/EDC terminals at the BC counters. At the time of swiping their cards, customers are required to feed in their pin No, known only to them, which adds a measure of safety to the transaction. Needless to say, customers can also access their accounts directly from HDFC Bank Branches or through the ATMs at hub locations. This arrangement has given our rural customers cash transaction capability at locations which are far away from our bank branches or ATMs. Unnati Savings Account is thus a unique new age product whose other salient features include mobile banking, phone banking and Net banking which enable the customer to remotely query the account. The customer can also very conveniently carry out e-booking of railway tickets and e-recharging his mobile phone. HDFC Bank is now looking at rural markets as the next business opportunity and is offering a complete bouquet of modern, hi-tech products to the farming community

to cater to his current as well as future banking/financial needs. Amongst the various product offerings for the farmer, the Kisan Gold Credit Card (KGC) is a key IT enabled offering bringing convenience, flexibility and easy access to funds. The farmer can use the card to withdraw cash from ATMs of ALL Banks anywhere in the country. No-Frills Savings Accounts is yet another product meant for the not so affluent rural customer. It has features like zero balance requirement, free ATM card, and an adequate number of free transactions allowed every month. Finally, the Banks Microfinance unit is currently working out a solution to facilitate A/c operation of Self-Help Groups (SHGs) with the Bank at non-bank branch locations by possibly providing hand held devices to business correspondents. This arrangement, once implemented, is expected to benefit SHGs mostly comprising poor women in rural areas who are generally located in under banked locations and bring them under Financial Inclusion.