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Business Correspondent. Nupur Jha & Subit Saurav. 01 April 2013. Overview. Current Statistics Reasons for Financial Exclusion Regulatory Mandate KGFS viz -a- viz Traditional BC Existing Partnership Arrangement Win-win scenario. Current Statistics- Banking Scenario.
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Business Correspondent Nupur Jha & Subit Saurav 01 April 2013
Overview • Current Statistics • Reasons for Financial Exclusion • Regulatory Mandate • KGFS viz-a-viz Traditional BC • Existing Partnership Arrangement • Win-win scenario
Current Statistics- Banking Scenario • Excluded from the ambit of banking services - approximately 145 million • Only 55 per cent of people have bank accounts • Only 9 per cent have borrowings from the banks • with only one bank branch servicing per 14,000 people • More than 80 per cent of the population do not have access to credit or life insurance cover • 95 per cent have no general insurance • 98 per cent of population does not participate in the capital market • On an average, there is one bank branch for every 19 villages • http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/FIC060911DG.pdf • http://dqindia.ciol.com/content/top_stories/2012/112011804.asp
Reasons for Financial Exclusion • Poor infrastructural set up • High cost of operations • Lower transaction volumes • Lack of viable innovative operating models • Unfamiliar market • Inability to correctly assess risks
Regulatory Mandate • Financial Inclusion • Priority Sector Lending • Domestic Banks – 40% • Foreign Banks – increased to 40% • Service Area • BC’s can service clients only within a 30 km radius from the Bank's branch and in case of urban areas the radius should not be more than 10 km • Transaction Records • All transactions undertaken through BC’s must be recorded in the books of the Bank by the end of working day • KYC Norms • Know Your Customer (KYC) norms must be observed by the promoting Banks for all BC clients Key Components of the Regulatory Framework under BC
KGFS viz-a-viz a Traditional BC • Multiple Product Offering - including asset products • Brick and mortar branch structure – physical branch • Robust enrolment process – building customer database • Seamless technology integration – enables real time transaction • Knowledge management and in depth training procedure • Know Your Customer( KYC ) process • Wealth Management Approach - customer centric • Credit Appraisal Process • Portfolio performance monitoring expertise • Risk sharing in between the BC and the Bank
Existing Partnership Arrangement • Under the Direct Origination Model IRCS shall set up branches under the KGFS model that would serve as BC to the partner Bank • The BC branches can deliver all the products of the Bank, including savings, deposits, payment services and loans to the remote rural customer household • BC Branch 1 • BC Branch 6 • BC Branch 2 • Village 1 • The Bank • (Tier 5|6 Location) • KGFS Branch Location Criteria • No private sector Bank branch in a 5 km radius • No more than one state owned Bank branch in the service area • A population of 10,000 within a 3km radius of the location, with each village in the service area not exceeding a population of 4,000 • A minimum distance of 5km from the block headquarters • Village 2 • BC Branch 3 • BC Branch 5 • BC Branch (Tier 6 locations*) • BC Branch 4 • Village 3 • Village 5 • Village 4
Win-win scenario • Banks • 100% PSL portfolio • Tier 5/6 market penetration – Greater reach • Better loan performance • Quick expansion – to bottom of pyramid • Financial Institutions (BC) • Regular fund inflow • No exposure to interest rate risk • Low capital requirement • KGFS • Full suite of financial products including Savings Account, RD and FD
Business Correspondent Model A major enabler of financial inclusion Source: Financial Inclusion – Issues in Measurement and Analysis - Keynote Address by Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India at the BIS-BNM Workshop on Financial Inclusion Indicators at Kuala Lumpur on November 5, 2012.
