EXECUTIVE SUMMARY

The recent developments in banking technology have transformed banking from the traditional brick-and-mortar infrastructure like staffed branches to a system supplemented by other channels like automated teller machines (ATM), credit/debit cards, internet banking, online money transfers, etc. The moot point, however, is that access to such technology is restricted only to certain segments of the society. Indeed, some trends, such as increasingly sophisticated customer segmentation technology allowing, for example, more accurate targeting of sections of the market have led to restricted access to financial services for some groups. There is a growing divide, with an increased range of personal finance options for a segment of high and upper middle income population and a significantly large section of the population who lack access to even the most basic banking services. This is termed financial exclusion. These people, particularly, those living on low incomes, cannot access mainstream financial products such as bank accounts, credit, remittances and payment services, financial advisory services, insurance facilities, etc. Deliberations on the subject of Financial Inclusion contributed to a consensus that merely having a bank account may not be a good indicator of financial inclusion. Further, indebtedness as quantified in the NSSO 59th round (2003) may not also be a reflective indicator. The ideal definition should look at people who want to access financial services but are denied the same. If genuine claimants for credit and financial services are denied the same, then that is a case of exclusion. As this aspect would raise the issue of credit worthiness or bankability, it is also necessary to dwell upon what could be done to make the claimants of institutional credit bankable or creditworthy. This would require re-engineering of existing financial products or delivery systems and making them more in tune with the expectations and absorptive capacity of the intended clientele. Based on the above consideration, a broad working definition of financial inclusion could be as under: Financial inclusion 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. The essence of financial inclusion is in trying to ensure that a range of appropriate financial services is available to every individual and enabling them to understand and access those services. Apart from the regular form of financial intermediation, it may include a basic no frills banking account for making and receiving payments, a savings product suited to the pattern of cash flows of a poor household, money transfer facilities, small loans and overdrafts for productive, personal and other purposes, insurance (life and non-life), etc. While financial inclusion, in the narrow sense, may be achieved to some extent by offering any one of these services, the objective of Comprehensive Financial Inclusion would be to provide a holistic set of services encompassing all of the above.

INTRODUCTION TO THE TOPIC

My project report is based on technology based financial inclusion under BC (Business Correspondence) model. Financial inclusion is new concept which is initiated by NABARD organizations and it is implemented in all banks according to RBI. Financial inclusion is done for the rural areas with the help of technology which is held on-line. Without the help of BC agents it would not be possible. It is done every banking transaction of deposit and withdrawal in rural areas. I would like to throw on this topic in further of the report.

Financial Inclusion
Financial inclusion 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. Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy. It is becoming increasingly apparent that addressing financial exclusion will require a holistic approach on the part of the bank in creating awareness about financial products, education, and advice on money management, debt counseling, savings and affordable credit. Technology can be a very valuable tool in providing access to banking products in remote areas. The bank has evolved specific strategies to expand the outreach of services in order to promote financial inclusion. We should give wide publicity to products offered under financial inclusion through business correspondent for the benefits of rural masses. Our bank has planned to render financial services in 20,000 un-banked villages through Smart Card based business correspondent module during next three years. Villages having population 2000 or more are to be covered during current financial year. Accordingly 6000 villages are to be covered during current financial years and 7000 villages per year shall be covered during subsequent two years.

Business Correspondents
BCs are retail agents engaged by banks for providing banking services at locations other than a bank branch/ATM. Banks are required to take full responsibility for the acts of omission & commission of the BCs that they engage & have, therefore, to ensure thorough due diligence & additional safeguards for minimizing the agency risk. Basically, Bcs enable a bank to expand its outreach & offer limited range of banking services at low cost, as setting up a brick & mortar branch may not be viable in all cases. BCs, thus, are an integral part of a business strategy for achieving greater financial inclusion.

Banks are permitted to appoint following entities as BCs

1. Section 25 companies in which NBFCs, banks, telecom companies and other corporate entities or their holding companies do not have holdings in excess of 10% 2. NGOs/ MFIs set up under societies / trust acts 3. Societies registered under Mutually Aided Cooperative Societies Act or the Cooperative Societies act of states. 4. Individuals 5. Locally settled retired Government employees like banks, post masters, school teachers, ex-servicemans, etc. 6. Individual Kirana /medical/fair price shop owners 7. Individual Public Call Office (PCO) Operators 8. Agents of small savings schemes of Government of India / Insurance Companies 9. Individuals who own petrol pumps 10. Authorized functionaries of well run Self Help Groups (SHGs) linked to the banks. 11. Companies registered under the Indian companies Act, 1956 with large and widespread retail outlets, excluding Non Banking Financial Companies (NBFCs).

COMPANY PROFILE
BANK OF BARODA
Bank of Baroda (BoB) (BSE: 532134) (Hindi: ) is the highest profit-making PSU bank in India and the third largest PSU bank in terms of number of total business in India. BoB is ranked 763 in Forbes Global 2000 list. BoB has total assets in excess of Rs. 3.58 lakh crores, or Rs. 3,583 billion, a network of 3,991 branches (out of which 3904 branches are in India) and offices, and about 1,657 ATMs. It plans to open 400 new branches in the coming year. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, credit cards and asset management. Its total business was Rs. 5,452 billion as of June 30. As of August 2010, the bank has 78 branches abroad and by the end of FY11 this number should climb to 90. In 2010, BOB opened a branch in Auckland, New Zealand, and its tenth branch in the United Kingdom. The bank also plans to open five branches in Africa. Besides branches, BoB plans to open three outlets in the Persian Gulf region that will consist of ATMs with a couple of people. The Maharajah of Baroda, Sir Sayajirao Gaekwad III, founded the bank on 20 July 1908 in the princely state of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalized on 19 July 1969, by the government of India

10

Our Vision & Mission

To be a top ranking National Bank of International Standards committed to augmenting stake holders value through concern, care and competence.

OVERVIEW OF BANK OF BARODA

TYPE

PUBLIC

TRADED AS

BSE 532134

INDUSTRY

BANKING AND FINANCIAL SERVICES

FOUNDED

1908

Vadodara, India HEADQUARTERS Ahmedabad, India

AREA SERVED

Worldwide

KEY PEOPLE

M. D. Mallya (Chairman & MD)

11

Credit cards, consumer banking, corporate banking, finance and insurance, PRODUCTS investment banking, mortgage loans, private banking, private equity, wealth management

REVENUE

25,800 crore (US$5.15 billion) (2011)

NETINCOME

4,433 crore (US$884.38 million) (2011)

TOTAL ASSETS

355,826 crore (US$70.99 billion) (2011)

WEBSITE

www.bankofbaroda.com

International presence
In its international expansion, the Bank of Baroda followed the Indian diaspora, especially that of the Gujaratis. It has significant international presence with a network of 72 offices in 25 countries, six subsidiaries, and four representative offices. Among the Bank of Barodas 85 overseas branches are ones in the worlds major financial centers (e.g., New York, London, Dubai, Hong Kong (which it has upgraded recently), Brussels and Singapore), as well as a number in other countries. The bank is engaged in retail banking via 17 branches of subsidiaries in Botswana, Guyana, Kenya, Tanzania, and Uganda. The Bank of Baroda also has a joint-venture bank in Zambia with nine branches. The Bank of Baroda maintains representative offices in Malaysia, China, Thailand, and Australia. It plans to upgrade its offices in China and Malaysia shortly to a branch and joint-venture, respectively. It also has a large presence in Mauritius with about seven branches spread out in the country. The Bank of Baroda has received permission or in-principle approval from host country regulators to open new offices in Trinidad and Tobago and Ghana, where it seeks to establish joint ventures or subsidiaries. The bank has received Reserve Bank of India approval to open
12

offices in The Maldives, and New Zealand. It is seeking approval for operations in Bahrain, South Africa, Kuwait, Mozambique, and Qatar, and is establishing offices in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has plans to extend its existing operations in the United Kingdom, the United Arab Emirates, and Botswana. The slogan of Bank of Baroda is "India's International Bank".

History
1908-1959

1908: Maharaja Sayajirao Gaekwad III set up Bank of Baroda (BOB). 1910: BoB established its first branch in Ahmedabad. 1953: BoB established a branch in Mombasa and another in Kampala. 1954: BoB opened a branch in Nairobi. 1956: BoB opened a branch in Dar-es-Salaam. 1957: BoB established a branch in London. 1959: BoB acquired Hind Bank.

1960s
1961: BoB merged in New Citizen Bank of India. This merger helped it increase its branch

network in Maharashtra.
BOB also opened a branch in Fiji.

1962: BoB opened a branch in Mauritius.

1963: BoB acquired Surat Banking Corporation in Surat, Gujarat. 1964: BoB acquired two banks, Umbergaon Peoples Bank in southern Gujarat and Tamil Nadu Central Bank in Tamil Nadu state. 1964: BoB lost its branch in Narayanjanj (East Pakistan) due to the Indo-Pakistan war. It is unclear when BOB had opened the branch. 1965: BoB opened a branch in Guyana. 1967: The Tanzanian government nationalized BoBs three branches there and transferred their operations to the Tanzanian government-owned National Banking Corporation. 1969: The Government of India nationalized 14 top banks, including BoB. BoB incorporated its operations in Uganda as a 51% subsidiary, with the government owning the rest.

1970s

1972: BoB acquired The Bank of Indias operations in Uganda. 1974: BoB opened a branch each in Dubai and Abu Dhabi. 1975: BoB acquired the majority shareholding and management control of Bareilly Corporation Bank (est. 1928) and Nainital Bank (est. in 1954), both in Uttar Pradesh. Since then, Nainital Bank has expanded to Uttarakhand State. 13

1976: BoB opened a branch in Oman and another in Brussels. The Brussels branch was aimed at Indian firms from Mumbai (Bombay) engaged in diamond cutting and jewellery having business in Antwerp, a major center for diamond cutting. 1978: BoB opened a branch in New York and another in the Seychelles. 1979: BoB opened a branch in Nassau, the Bahamas.

1980s BoB opened a branch in Bahrain and a representative office in Sydney, Australia. BoB, Union Bank of India and Indian Bank established IUB International Finance, a licensed deposit taker, in Hong Kong. Each of the three banks took an equal share.

1985: BoB (20%), Bank of India (20%), Central Bank of India (20%) and ZIMCO (Zambian government; 40%) established Indo-Zambia Bank (Lusaka). BoB also opened an Offshore Banking Unit (OBU) in Bahrain. 1988: BoB acquired Traders Bank, which had a branch network in Delhi.

1990s

1990: BoB opened an OBU in Mauritius, but closed its representative office in Sydney. 1991: BoB took over the London branches of Union Bank of India and Punjab & Sind Bank (P&S). P&Ss branch had been established before 1970 and Union Banks after 1980. The Reserve Bank of India ordered the takeover of the two following the banks' involvement in the Sethia fraud in 1987 and subsequent losses. 1992 BoB incorporated its operations in Kenya into a local subsidiary with a small tranche of shares quoted on the Nairobi Stock Exchange. 1993: BoB closed its OBU in Bahrain. 1996: BoB Bank entered the capital market in December with an Initial Public Offering (IPO). The Government of India is still the largest shareholder, owning 66% of the bank's equity. 1997: BoB opened a branch in Durban. 1998: BoB bought out its partners in IUB International Finance in Hong Kong. Apparently this was a response to regulatory changes following Hong Kongs reversion to the Peoples Republic of China. The now wholly owned subsidiary became Bank of Baroda (Hong Kong), a restricted license bank. BoB also acquired Punjab Cooperative Bank in a rescue.

BoB also incorporate wholly owned subsidiary BOB Capital Markets Ltd.for Broking Business. 1999: BoB merged in Bareilly Corporation Bank in another rescue. At the time, Bareilly had 64 branches, including four in Delhi. In Guyana, BoB incorporated its branch as a subsidiary, Bank of Baroda Guyana. BoB added a branch in Mauritius, but closed its Harrow Branch in London.

14

2000s

2000: BoB established Bank of Baroda (Botswana). 2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of Indias request. BSB was established in 1946 but traced its origins back to 1871 and its function as the treasury office of the Benares state. In 1964, BSB had acquired Bareilly Bank (est. 1934), with seven branches; it also had taken over Lucknow Bank in 1968. The acquisition of BSB brought BOB 105 new branches. 2002: Bank of Baroda (Uganda) was listed on the Uganda Securities Exchange (USE). 2003: BoB opened an OBU in Mumbai. 2004: BoB acquired the failed Gujarat Local Area Bank, and returned to Tanzania by establishing a subsidiary in Dar-es-Salaam. BoB also opened a representative office each in Kuala Lumpur, Malaysia, and Guangdong, China. 2005: BoB built a Global Data Centre (DC) in Mumbai for running its centralized banking solution (CBS) and other applications in more than 1,900 branches across India and 20 other counties where the bank operates. BoB also opened a representative office in Thailand. 2006: BoB established an Offshrore Banking Unit (OBU) in Singapore. 2007: In its centenary year, BoBs total business crossed 2.09 lakh crores, its branches crossed 1000, and its global customer base 29 million people. 2008: BoB opened a branch in Guangzhou, China (02/08/2008) and in Kenton, Harrow United Kingdom. BoB opened a joint venture life insurance company with Andhra Bank and Legal and General (UK) called India First Life Insurance Company

2010s

2010: Malaysia awarded a commercial banking license to a locally incorporated bank to be jointly owned by Bank of Baroda, Indian Overseas Bank and Andhra Bank. The new bank, India BIA Bank (Malaysia), will reside in Kuala Lumpur, which has a large population of Indians. Andhra Bank will hold a 25% stake in the joint-venture; BoB will own 40% and IOB the remaining 35%. BoB opened a branch in New Zealand

Subsidiaries
BOB Capital Markets Ltd. (BOBCAPS) is a SEBI-registered investment banking company based in Mumbai, Maharashtra. It is a wholly owned subsidiary of Bank of Baroda. Its financial services portfolio includes Initial Public Offerings, private placement of debts, corporate restructuring, Business valuation, mergers & acquisition, project appraisal and loan syndication.

Bank of Baroda financials 2012

Sales Rs. 24,695 crores Profits Rs. 4,241 crores Assets Rs. 3,58,397 crores

15

REVIEW OF LITERATURE
RBI JOURNAL PUBLICATIONS
Theories of development advocate that financial development creates enabling conditions for growth through either a supply-leading (financial development spurs growth) or a demandfollowing (growth generates demand for financial products) channel. Earlier theories of development hypothesised that a rise in inequality was inevitable in the early stages of development. The early literature on the subject focussed on the need to develop an extensive financial system that could tap savings and then channel the funds so generated to a wide spectrum of activities. The modern development theory perceives the lack of access to finance as a critical factor responsible for persistent income inequality as well as slower growth. A large body of empirical literature suggests that developing the financial sector and improving access to finance may accelerate economic growth along with a reduction in income inequality and poverty. Without an inclusive financial system, poor individuals and small enterprises have to rely on their own limited savings and earnings to invest in their education and entrepreneurship to take advantage of growth opportunities (World Bank, 2008).

Report of the Committee for Financial Inclusion, 2008

In the Indian context, financial inclusion, according to the Finance Ministers 2006-07 budget speech, was defined as the process of ensuring access to timely and adequate credit and financial services by vulnerable groups at an affordable cost (Union Budget, 2007-2008). In a similar vein, the Committee on Financial Inclusion defines financial inclusion as the process of ensuring access to financial services and timely, adequate credit where needed, to vulnerable groups such as weaker sections and low income groups, at an affordable cost

THE INDIAN ECONOMY REVIEW

Rangarajan Committee (2008) viewed financial inclusion 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. All efforts made to encourage financial inclusion will turn futile, unless the deprived class is brought into mainstream banking and channelizing banking services to diverse class of the society whose 37.2% population (as per Tendulkar Committee Report) reeling under poverty with majority contribution is from the rural belt will be daunting challenge which needs spirited policy adjustments, innovation in product dynamics, proficient human resource and technological circumvention at all levels to marginalize the hiatus. A conventional and unconventional measures needs to be advocated as orthodox banking practices will head nowhere in breaking the bottlenecks faced at the grass root level.

16

RESEARCH METHODOLOGY
Selection of Research methodology is based on research problem. For this research a detail study on selected products was done and various books and websites were referred for any type of information related to the study. The methodology is applied briefly which is discussing step by step.

RESEARCH PROBLEM
The main research problem is what are the technology used based on financial inclusion. It also wants to know whether the technology and BC model is effective or not. It is also important to know about the cash management in BC model.

SCOPE OF THE STUDY

The project report deals with technology based financial inclusion of BC model. It helps me to learn real scenario of effectiveness of BCs and technology and its cash management. It also helps me to learn on how to administer and manage the Bank. It gives the knowledge on the enrolment process and risk factors. It also gives information on transaction and its accounting process.

LIMITATION OF THE STUDY

The study is carried basing on the information and documents provided by the company and based on the interaction with the various employees of the company. Most of the information are not given by company because that information is confidential to the company only. The period of two months is not enough to conduct a depth study. Due to hectic of work they couldnt interact or co-operate fully or to give a kind information so much.

Data Collection
Data was collected from secondary sources through bank.

17

Awareness Campaign
Though the concept of providing banking services through appointed agents is not new in India however it was not a very popular concept in general public due to absence of technology component for authenticity of financial transaction. At present most of the nationalized banks are providing financial services through brick and mortar model and it is not feasible to open a banks branch in every village. In view of this Government of India has decided to leverage available technology for rendering financial services in all un-banked area and include vast sections of disadvantaged and low income groups in main stream for financial development. In this regard various committees have been setup by the Government at various levels and they have suggested some ITC based models to provide banking services in a cost effective manner. Our bank has identified 20000 villages to render financial services through ICT based Business correspondent model in service area of our branches. Since it is a new concept emerged in the market, we need to create awareness amongst general public where financial inclusion solution to be implemented so that common man should understand the initiatives taken by the bank to fulfill financial needs of such population. Corporate office has already issued the guidelines in this direction to respective Zones/Regions.

Technology for Financial Inclusion

At present bank has decided to implement smart card based financial inclusion solution across the country. We have planned to implement end-to-end FI solution in which hardware, software, smart card, handheld devices, connectivity, support / maintenance of hardware & software and Business correspondents are to be provided by the service provider. The service provider will install the server at our data centre to maintain historical and transaction data. Data related to Accounts like KYC details, financial & non-financial Transactions etc., should be accessed / updated online/offline from/to Banks CBS (Finacle) server. In other words, upon authorization of enrollment data, account should get opened immediately in our CBS (Finacle) Server and thereafter all customer transactions should take place in CBS (Finacle) directly through online & offline mode. It is imperative that the server should be synchronized by latest 6 pm on daily basis to ensure successful end of day and that the internal memory is clean for start of next day.

18

 Smart Card
A plastic card containing a microprocessor that enables the holder to perform operations requiring data that is stored in the microprocessor; typically used to perform financial transactions.

Hand Held Devices

Handheld device is a small portable machine through which BC can perform banking transactions for financial inclusion customers. The machine is voice enabled and capable to capture/authenticate biometric data. After completion of successful transaction machine prints a receipt for customer indicating transaction details as valid transaction proof. To perform any transaction through POS device physical presence of the customer along with smart card is required.

19

Account opening form

We have designed a simplified one page (Printed on both side of a page) Savings Bank Account opening form exclusively for opening of financial inclusion savings account which should be used at the time of enrolment. The form is enclosed as annexure I.

Enrolment Process
Link branch has to plan enrolment process in the designated village/cluster of villages along with BC and service provider. BC should be introduced to the residents and inform the public that BC will provide banking services in the village on be half of the bank through hand held device, carry out demonstration of few transactions so that common man should understand the process, develop confidence and encourage others for enrolment. Inform the general public to collect machine generated receipt of transaction without fail for their safety and security. Hand written or any other receipt generated other than hand held device should not be accepted which is not a genuine transaction receipt. During enrolment process biometric and demographic data will be captured to issue a smart card. KYC guidelines applicable to no frill accounts are to be followed at the time of enrolment. Enrolment is opening of accounts, during this process Business correspondent will fill in account opening form for the applicant, enter the related data in enrolment kit, and capture all 10 fingers tip images through biometric device and photo of an applicant. Therefore, applicant needs to be present at the time of enrolment process. The BC will also collect KYC documents as per simplified procedure for opening of no-frills account. The simplified KYC procedure for opening of no frills account is as under.

KYC IDENTIFICATION DOCUMENTS/PAPERS SUBMITTED BY APPLICANT(S)

TO

BE

(Any one document from each of the following two lists subject to Banks satisfaction)

20

LIST I (Latest/recent documents showing identity proof)) 1.Driving license with photograph 2. NREGA job card 3. Voters identity Card 4.PAN Card, Government ID Card 5. Any other document with photograph evidencing identity of the applicant/s acceptable to the bank.

LIST-II Latest/recent documents showing address proof) 1.Driving license with address, Voters Identity Card, 2. Telephone Bill, Electricity Bill, Ration Card 3. Bank account statement (with address), NREGA Job Card 4. Any documentary evidence in support of residential address acceptable to the Bank. 5. In case of married women address proof of the groom is acceptable

In case beneficiary do not hold any such document then, branch can take the individual's introduction from an existing account holder on whom the full KYC procedure has been completed and has had satisfactory transactions with the bank for at least six months The photograph and address of the prospective account holder need to be certified by the person who introduces him/her. These simplified KYC norms are applicable for those who intend to keep balances not exceeding Rs. 50,000 in all their accounts taken together. The total credit in all the accounts taken together should not exceed Rs. 1 lakh in a year. The BC will enter all account details in to the enrolment system for opening of Bank account and submit account opening forms along with KYC documents available with the applicant to the respective link branch for verification of KYC norms and checking of details entered in to the enrolment system. The service provider will process the data and handover the file to the bank for uploading in to our CBS system. After uploading of the file in to CBS, branch has to verify the accounts through menu options HCUMM and HOAACVSB preferably on the same day. Branch to ensure that details entered by the BC while enrolment is correct and applicant has fulfilled the KYC norms applicable for opening of no-frills accounts. In case branch observes some errors/mistakes in the enrolment data same should be conveyed to the service provider/BC for correction or reject the account opening with appropriate reasons for rejection. The service provider will correct the data of rejected accounts and re-upload in to the CBS for opening of accounts. Again branch to follow same process in CBS for verification of accounts. After opening of the accounts in to CBS service provider will issue smart card to the customer with in 10 days from date of opening of the account.

21

 Issue of Smart Card

After successful completion of enrollment service provider will submit all account opening forms to the link branch for KYC verification and authorization of account in the CBS. Branches have to authorize all accounts through HCUMM & HOAACVSB menu options. The smart card shall be issued to the customer within 10 days from date of verification of account details by the branch. Service provider will customized the smart card as per bank requirement and following details will appear on the face of the card.
SMART CARD Details 1. Our Banks Name & Logo 2. Name of the customer 3. Photo of the account holder 4. Address 5. Village 6. State with pin code 7. Card Number 8. Account Number 9. Swabimaan Logo 10. Logo of service provider Other side of the card: 1. Instructions 2. Address of Financial Inclusion cell.

At present bank has decided to issue smart card to the financial inclusion customer without recovering any cost. In case of loss or damage of card, cost of re-issue of card may be passed on to the customer. No transaction can be processed without card therefore customer has to maintain card in a good condition. The smart card is capable to store account details, biometric data, latest 10 transaction of the account and balance available in the account.

De- Activation of Card:

BC will arrange for immediate de-activation of the card on receipt of intimation regarding the card being lost, closure of account and death of Card holder, etc.

22

Transaction Process
All cash transactions are to be carried out on hand held device. To perform any successful transaction presence of the account holder along with smart card is required. Customer need not fill in any deposit / withdrawal slip or sign any document to perform the transaction. The smart card will be inserted in to card reader device of the hand held machine and machine will prompt the customer in local language to place a finger on biometric device for authenticity of the genuine customer. After successful completion of customer authentication BC can perform financial/non-financial transaction for the customer (Financial Transactions: Deposit/Withdrawal, Non-financial Transactions: Balance enquiry, mini statement). For performing financial transactions BC will enter the amount of transaction requested by the customer in to hand held device. Device will confirm the amount with voice prompt in local language for better understanding and transparency. Hand held device will process the transaction after biometric authentication. After completion of successful transaction hand held device will print transaction receipt indicating transaction details. BC will collect/pay the cash from/to the customer. This printed receipt generated by the device is only valid transaction receipt for customer record. Simultaneously balance available in the account will be updated on the smart card automatically. Similarly customer can inquire balance in the account and request for mini statement through BC. Mini statement will contain latest 10 transactions of the account. The customer can perform maximum 2 (Two) transactions in an account per day. In view of the financial risk involved, it has been decided to allow maximum withdrawal of Rs. 1000/- and deposit of Rs 5000/- per transaction per day through BC. Depending upon the connectivity available in the village online or offline transactions will be carried out through BC. However, customer may approach the branch for any transaction irrespective of amount through hand held device being provided at the base branch.

23

Accounting Process
System will work online and offline mode as per availability of network. It has been decided to open all financial inclusion accounts in our CBS system on day to day basis through business correspondent. In case of online transactions our CBS will be upgraded on real time basis. However, in case of offline transactions, at the end of the day BC will upload daily transactions on aggregation server for consolidation and maintenance of individual account. Subsequently on same day service provider will upload all transactions data automatically on our CBS server through interface. During the process transactions will be updated in the respective accounts in our CBS. Branch has to open/maintain following accounts to route the financial inclusion transactions
1. Current account/ Overdraft account of BC (no charges are to be levied in such account) any transaction other than financial inclusion entries are not allowed to route through this account. 2. Similarly P/L Service charges on Financial Inclusion and P/L Interest Paid on savings bank FI accounts are also to be opened by data centre for the respective link/ base branches.

Following entries will be passed by the system on real time basis or during day end in CBS depending upon online/offline mode of transactions
1. On receiving cash by field BC for crediting customers account. a. Dr. Current account/ Overdraft Account of BC b. Cr. Respective customers account 2. On Cash payments made by the field BC to various customers. c. Dr. Respective customers account d. CR Current account/Overdraft Account of BC.

24

Cash Management
Good cash management means when, where and how your cash needs will occur. Business correspondents are empowered to carry out financial transactions on behalf of the bank and will be in need of cash to perform transactions.

Management of Cash held by the BCs

Cash management system need to be put in place for monitoring of receipts and payments made by the business correspondents at field level. At present various banks have adopted centralized and decentralized cash management for this purpose. We are planning to implement decentralized cash management system in our bank. The salient features of the scheme are as under. 1. Bank will assign separate overdraft sub head code for opening of overdraft accounts of the BCs . 2. The Overdraft facility should be granted to the business correspondent against fixed deposit or bank guarantee as collateral security with zero rate of interest. 3. Individual branch may obtain the fixed deposit of equivalent amount of limit sanctioned to the BC and obtain the necessary documents required for overdraft facility. 4. Or one consolidated limit may be sanctioned to the corporate BC against bank grantee as collateral security and sub limit will be fixed for each link branch. 5. Branch will allow need based withdrawal up to certain amount to the BC and keep remaining balance in the account to meet the transactions. 6. BC should arrange to deposit the cash at branch on same day or at opening of next day on accumulation of cash above retention limit. 7. Depending upon availability of network, online or off line transactions will be processed through POS devices. 8. Once in a fortnight, the BC has to settle the entire overdraft by depositing the balance cash to the Overdraft account and a fresh withdrawal will be made for further cash to the Business Correspondent. 9. The consolidated debit balance of BCs accounts will be reflected under Suspense Cash with BC and consolidated credit balance will appear as Suspense Cash with BC (Credit Balances) in the Balance sheet of branch/Bank. 10. Branch has to monitor overdraft account of the BC on daily basis.

25

11. Reports can be taken at all levels for regularly monitoring of cash. The following entries would be posted at the respective branches while dealing with BC cash:
1. While paying Cash to the BC at Branch Dr. Current account/Overdraft account of Business correspondent Cr. Cash in Hand (BC will withdraw cash for daily requirement) 2. While Depositing Cash by the BC at Branch Dr. Cash in Hand Account Cr. Overdraft account of Business Correspondent. 3. While accepting customer deposit by BC Dr. Overdraft account of BC Cr. Customer account 4. While payment to the customer by BC Dr. Customer account Cr. Overdraft account of BC.

The cash on hand with the BC would be reflected on the printout generated by them when they carry out the settlement and from balance outstanding in the Overdraft account of the BC. The Branch Managers should ensure that the limit is not breached on any date. In case there is a need for higher limit, the branch should obtain specific permission from their Regional Authority. Though the Bank sanctions the overdraft limit of certain amount, the concerned Branch Manager is advised to provide need based amounts equivalent to the average payments made by the business correspondent during the previous month in order to ensure that idle cash dose not lie with the Business Correspondents.

26

Advantages of the model

1. The individual branch managers would monitor the cash held by the business correspondents and as the number of BCs handled by a branch would be finite, it would be easier for them. 2. The BCs can collect the cash from the link branch and also approach the link branch, in case there is a spurt in the withdrawal or if the amount of receipts is not sufficient to cover the withdrawals. 3. The link branch can monitor the transactions of the Business Correspondents closely as the settlement accounts are maintained in their branches. 4. The cash management for the BC is easier as it is distributed to different branches and the centralized position can be obtained in view of the core banking facility. 5. The inspecting officers who audit the link branch can also carry out surprise audit of the cash held by the Business Correspondents as the data is available at the branch which they are auditing.

General precautions:
Cash insurance is to be arranged by the Business Correspondent at their own cost for burglary, theft and other risks and including the cash in transit. Business Correspondents should be trained to keep a notebook mentioning the day- wise transactions and the closing cash and to tally the closing cash after every settlement so that the branch officials and the inspecting officials of the bank can inspect the cash with the Business Correspondents. The frequency of tallying the amount of cash with the BC should be daily for better control and monitoring. This would also act as a deterrent to prevent misuse of the banks cash by the Business Correspondents.

The service provider is advised to indemnify the Bank in the event of misappropriation of funds by the field Business Correspondents engaged by them. In such cases, the extent of money to be provided by the Bank has to be a part of the Memorandum of Agreement between the Bank and Service provider. We have to put in place a system of monitoring the Cash at BC locations and the reconciliation of the transactions carried out by them

27

Future Trends:
a) Bank to train the Business Correspondents on fake note identification and to identify genuine notes. This can be done at the RUDSETI type of institutions at the district level for Business Correspondents of all Banks operating in that area. b) In the event of BC being a shopkeeper or medical store or the petrol pump owner, they themselves handle large amounts of cash and hence they can make payments from out of their own cash and get reimbursed for the cash payments made by them. Cash need not be separately given to them for handling payments. This would depend on the extent of payments handled by these entities.

Reconciliation
It is the process of comparing and matching figures from the accounting records against those shown in the statement of account. Therefore branches are advised to reconcile general ledger account with overdraft/current account of the BC on daily basis. Similarly balance outstanding in general ledger account should match with the total of balance outstanding in the individual accounts of customers as on particular date (Balancing of books). The transactions report should be system generated and be provided to the respective branches, in secured / protected soft copy, on branch e-mail ID on a daily basis. Immediately after receiving daily transaction receipts from the BC, branch has to carry out verification of day wise entries generated by the system in current/Overdraft account of BC. In case of any discrepancy matter should be taken up with service provider and BC for immediate rectification. Branch to comply with the above said procedure meticulously without fail.

28

Grievances Handling
1. The Complaints and Grievances would be dealt with by the DRM of the Region under whose area, the BCs are operating. 2. The procedure for termination of arrangement has been laid down under the head, Code of Conduct. 3. An illustrative list of warning signals are enumerated below: i) Sourcing large number applications beyond the known potential of the area of operations. Delayed submission of applications at the branch. Complaints against the BC. Life style of the agents of the BC. Irregularity in submission of transaction receipts to the link branch.

ii) iii) iv) v)

4. Immediately on receipt of the complaint, link branch should resolve the grievances and report to Regional Office. 5. Immediately on detection of fraud a report should be sent to Regional Office and Zonal office by the Link Branch.

29

RISK FACTORS AND MITIGATION

Evaluation of Risks: The key risks in outsourcing that need to be evaluated and mitigated are: 1. Strategic Risk: The service provider may conduct business on his own behalf, which is inconsistent with the overall strategic goal of the Bank. Mitigation: Due diligence to be exercised at the time of selection and the activities to be monitored at prescribed intervals. 2. Reputation Risk: Poor service from the service provider, his customer interaction not being consistent with the overall standards of the Bank. Mitigation: Due diligence to be exercised at the time of selection process and the activities to be monitored. Adequate and ongoing training will also be put in place. Technology will ensure standardization. 3. Compliance Risk: Privacy, consumer and prudential laws not adequately complied with. Mitigation: All BC/BF to be trained adequately in the relevant areas.

4. Operational Risk: Arising due to technology failure, fraud, error, inadequate financial capacity, discontinuation of business, to fulfill obligation and / or provide remedies. Mitigation: Back up data should be maintained at a DR server. Selection process will ensure that only reputed organizations are enrolled. Also, the Bank will lay down the minimum criteria for individual operators to be appointed by BC. Security deposits will be insisted upon in the joint names of the BC and the Agent. Customers will also be educated about their responsibilities with respect to their accounts. Bank should insist on a suitable business continuity plan be drawn, documented and made part of MOU.

5. Legal Risk: Includes but is not limited to exposure to fines, penalties or punitive damages resulting from supervisory actions, as well as private settlements due to omissions and commissions of the service provider. Mitigation: The agreements with the BC/service provider should contain suitable clauses to cover this aspect.

30

DATA ANALYSIS
The below data will shown related to progress report of the financial inclusion given by the Bank of Baroda as in 15 June 2012 of the Valsad district under BC model adopted. Sol ID 3044 Name of the link branch Kaparda Name of the village Khadakval Sildha Ozerda Mendha Veribhavada Kalai Anklash Borlai Borigam Kachigam Karambela Sonwada Nanavagchipa Sondhalwada Dehli Chival Parvasa Panchlai Karamkhal Salvav Kunta Vatar Rehentlav Orwad Tighra Motiwada Palsana Tithal Kanjanhari Jujwa Kakwadidanti Bhagal Malvan Dharsana Pardi parnera Manda
31

1518 1868 0863

Palikarambeli Zaroli Valvada

0236

Pardi

1599

Motavaghchipa

0237

Vapi

0251

Udwada

0233

Bulsar (main)

1594 0256 1166 0625

Dandi Bulsar Unti Parnera Sarigoan

No of enrolment 257 500 235 193 314 25 40 30 39 18 35 34 10 31 193 94 199 173 21 40 33 31 63 140 18 63 12 27 221 58 66 82 86 393 18 60

No of smart card received 0 85 325 113 85 2 20 9 2 12 1 1 0 16 0 25 0 16 1 7 1 17 35 37 25 46 20 10 120 37 25 23 84 230 13 11

Transaction started Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

1005 1349

Phansa Dharampur

Punat Angam Kalgam Karanjgam Kangvi Karanjveri Khatana Bilpudi Barumal Sidumber Aavdha Barsol

10 5 5 9 616 500 571 914 540 815 410 260 8507

9 4 0 0 728 423 512 622 312 491 513 327 5395

Yes Yes No No Yes No Yes Yes Yes Yes Yes No

Interpretations:. From 2011 year onwards the implementation of financial inclusion has been
started. From the given data these are 48 villages with the population of above 2000 in the Valsad district. It has been found that a total of 8057 people had enrolled in financial inclusion through Bank of Baroda and out of these a total of 5395 has been received smart card. In this financial year the bank has maintained transactions of Rs 3550 lacs. This was satisfactory according to their target. From these 8 villages has yet to start a transactions through machine i.e. handheld device.

FINDINGS
The data given was the progress report of the financial inclusion given by Bank of Baroda. From 2011 year onwards the implementation of financial inclusion has been started. With the help of BCs appointed by the bank the transactions of financial inclusion has been started. From the given data these are 48 villages with the population of above 2000 in the Valsad district. It has been found that a total of 8057 people had enrolled in financial inclusion through Bank of Baroda and out of these a total of 5395 has been received smart card. In this financial year the bank has maintained transactions of Rs 3550 lacs. This was satisfactory according to their target. From these 8 villages has yet to start a transactions through machine i.e. handheld device.

32

SUGGESTION
The suggestions related to the topic are as follows:

1. The execution of financial inclusion is not going according to the motto. 2. The quality under the financial inclusion does not exist. 3. The decision taken at top level management does not applicable at bottom level. 4. Bank of Baroda should increase the salary of BCA (Business Correspondence Agents) up to Rs 3000 so that they can seriously work on financial inclusion. 5. Due to low salary the BCA jobs are not attracted. 6. Less salary demotivate the employees thus, there is high chances of losing those vacancies. 7. It is observed that the BCs are uploading the account without completion of KYC norms. Even the BCs are not obtaining the relevant documents, photos etc and just upload the account. 8. In absence of clarity for introduction of financial inclusion account, the officer verifying this accounts find it difficult for complying with KYC norms as BCs are generally introducing this accounts. 9. The BCs and Nodal Officers are not having adequate knowledge about their job role like importance of obtaining documents for ID proof and residents proof& importance of maintaining registers.

33

CONCLUSION
As the financial inclusion is very sensitivity issue which is technology based under BC model helps the rural region at most. It functions like bank with the help of smart-cards and handheld devices that carries every transaction of deposits and withdrawal. With the help of BC model the rural peoples find it easy to work on transactions where BCA plays very important role to help them in opening account through biometrics and banking transactions. The quality of financial inclusion does not exist unless the BCA took their job seriously. The top management should understand the bottom-line problem so that they can take their decision in a proper manner. It is great work done by NABARD organization to initiate the concept of financial inclusion under BC model in which all the banks implemented accordingly.

34

REFERENCES
www.bankofbaroda.com www.nabard.com www.rbi.com www.wikipedia.com Bank of Baroda of financial inclusions manuals

35

ANNEXURE

36

37

38

39