Você está na página 1de 62


“A study to understand the Banking Behavior of the Financially

Included rural population in Madurai district”

Under the Guidance of

Smt. Madhavi Sharma
General Manager
Rural Planning and Credit Department
Reserve Bank of India

Chandrakumar B
25013 (Class of 2010)

April – June 2009

Bharathidasan Institute of Management

(School of Excellence of Bharathidasan University)
Tiruchirapalli 620014
A Study to understand Banking Behaviour of the Financially Included Rural Population




OBJECTIVES OF THE RESERVE BANK OF INDIA.....................................................................................................8

MAIN FUNCTIONS..................................................................................................................................9


BROAD WORK AREAS OF THE DEPARTMENT...................................................................................................10

THRUST AREAS....................................................................................................................................11
IMPORTANT ASPECTS RELATING TO PRIORITY SECTOR LENDING BY COMMERCIAL BANKS.......................................................11


CONCEPTUAL FRAMEWORK.......................................................................................................................14
FACTORS AFFECTING ACCESS TO FINANCIAL SERVICES..........................................................................................16
INITIATIVES OF FINANCIAL INCLUSION IN INDIA..................................................................................................17
Summer Placement Programme 2009


PROCEDURAL STEPS FOLLOWED FOR THE SURVEY.........................................................................25

VILLAGES AND BANK BRANCHES VISITED........................................................................................................26

LIMITATIONS OF THE STUDY.......................................................................................................................26

OBSERVATIONS WITH NO-FRILLS ACCOUNT HOLDERS....................................................................27

BANKER’S PERSPECTIVE OF FINANCIAL INCLUSION...............................................................................................37

GENERAL OBSERVATIONS.........................................................................................................................39
A Study to understand Banking Behaviour of the Financially Included Rural Population


OPERATIONS OF A BUSINESS CORRESPONDENT.............................................................................44

PICTORIAL REPRESENTATION.....................................................................................................................45

RECOMMENDATIONS FOR IMPROVEMENT....................................................................................50

IMPLEMENTATION MODEL........................................................................................................................52



Summer Placement Programme 2009
A Study to understand Banking Behaviour of the Financially Included Rural Population


My sincere thanks to Shri. F.R. Joseph, Former Regional Director, Chennai for giving me an
opportunity to undertake project in Reserve Bank of India and for guiding me in the initial
stages of the project by bringing in more clarity to the topic.

A word of thanks to Shri. K. R. Anandha, Regional Director, Chennai for his constant
support for the project.

I also thank my mentor officer Smt. Madhavi Sharma, General Manager, RPCD who was a
constant source of encouragement throughout the project.

A special mention to my project guide Smt. Chandini Moolchandhani, Deputy General

Manager, RPCD is the least I can do to acknowledge her incisive and meaningful insights,
which instilled matchless attributes to my project.

I thank all the officers and staff of RPCD for extending all help and assistance during the
I also thank the Heads of all the Departments who helped me by giving more clarity during
project title identification stage.

I thank HRD cell officers for extending their support and making all arrangement during my
Summer Placement Programme 2009

project. They have made my stay in RBI a memorable one.

B. Chandrakumar
A Study to understand Banking Behaviour of the Financially Included Rural Population

Executive Summary
The banking system has grown enormously in the last five years keeping pace with and in
some cases leading the country's remarkable economic growth. Simultaneously, the banking
system has improved its strength, efficiency and resilience. There have also been significant
improvements in the payments and settlements system and electronic payments and RTGS
is now much more in use. At the same time, large number of households continues to be
excluded from the formal banking system. The greatest challenge faced by the banking
sector and the government is to enable an
inclusive growth environment in the country. Objective of the study
1. To understand the banking
Financial inclusion has to be an urgent national
behaviour of the No-Frills
priority if we are to achieve inclusive growth. In account holders in rural area
spite of the measures taken by RBI to provide No- 2. To study the banker’s
perception on Financial
Frills accounts to everybody, it is seen that the
usage level is very low as compared to the
expected level. Financial Inclusion can become a
profitable and beneficial programme only if the account holders practice a healthy banking
habit. This objective of this study is to understand the banking behavior of the No-Frills
account holders and the banker’s perspective on Financial Inclusion.

Chapter 1 explains about the objective and functions of Reserve bank of India and chapter 2
broadly discusses about the Rural Planning and Credit Department in which the project was
undertaken. Chapter 3 discusses on Financial Inclusion and chapter 4 gives a brief note
Summer Placement Programme 2009

about Madurai district in which the study was conducted. Chapters 5 and Chapter 6 explain
the research methodology followed for the study and various quantitative and quantitative
observations made during the project. Chapter 7 pictorially briefs the Business
Correspondent model. The report concludes with the recommendations and conclusion in
chapter 8.

Chapter 1: About Reserve Bank of India

A Study to understand Banking Behaviour of the Financially Included Rural Population


The Reserve Bank of India was established on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act, 1934. The Bank began its operations by taking
over from the Government the functions so far being performed by the Controller of
Currency and from the Imperial Bank of India, the management of Government accounts
and public debt.

The Central Office of the Reserve Bank was initially established in Calcutta but was
permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and
where policies are formulated. The existing currency offices at Calcutta, Bombay, Madras,
Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue
Department. Offices of the Banking Department were established in Calcutta, Bombay,
Madras, Delhi and Rangoon. Though originally privately owned, since nationalization in
1949, the Reserve Bank is fully owned by the Government of India.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued
to act as the Central Bank for Burma till Japanese Occupation of Burma and later up to April,
1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan up
to June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was
originally set up as a shareholder's bank, was nationalized in 1949.

An interesting feature of the Reserve Bank of India was that at its very inception, the Bank
was seen as playing a special role in the context of development, especially Agriculture.
Summer Placement Programme 2009

When India commenced its plan endeavours, the development role of the Bank came into
focus, especially in the sixties when the Reserve Bank, in many ways, pioneered the concept
and practise of using finance to catalyze development. The Bank was also instrumental in
institutional development and helped set up institutions like the Deposit Insurance and
Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development
Bank of India, the National Bank of Agriculture and Rural Development, the Discount and
Finance House of India etc. to build the financial infrastructure of the country.
A Study to understand Banking Behaviour of the Financially Included Rural Population

With liberalization, the Bank's focus has shifted back to core central banking functions like
Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System
and onto developing the financial markets.

Objectives of the Reserve Bank of India

The Reserve Bank of India Act, 1934 sets out the objectives of the Reserve Bank: The
formulation, framework and institutional architecture of
monetary policy in India have evolved around these
'...to regulate the issue of
objectives – maintaining price stability, ensuring adequate
Bank notes and the keeping
flow of credit to sustain the growth momentum, and
of reserves with a view to
securing financial stability.
securing monetary stability
in India and generally to
The responsibility for ensuring financial stability has entailed
operate the currency and
the vesting of extensive powers in and operational
credit system of the country
objectives for the Reserve Bank for regulation and to its advantage.'
supervision of the financial system and its constituents, the
money, debt and foreign exchange segments of the financial
markets in India and the payment and settlement system. The endeavor of the Reserve
Bank has been to develop a robust, efficient and diversified financial system so as to anchor
financial stability and to facilitate effective transmission of monetary policy. In addition, the
Reserve Bank pursues operational objectives in the context of its core function of issuance
of bank notes and currency management as well as its agency functions such as banker to
Government (Centre and States) and management of public debt; banker to the banking
Summer Placement Programme 2009

system including regulation of bank reserves and the lender of the last resort.

The specific features of the Indian economy, including its socio-economic characteristics,
make it necessary for the Reserve Bank to operate with multiple objectives. Regulation,
supervision and development of the financial system remain within the legitimate ambit of
monetary policy broadly interpreted in India. The role of communication policy, therefore,
lies in articulating the hierarchy of objectives in a given context in a transparent manner,
emphasizing a consultative approach as well as autonomy in policy operations and harmony
with other elements of macroeconomic policies.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Main Functions

1. Monetary Authority:

 Formulates, implements and monitors the monetary policy.

 Objective: maintaining price stability and ensuring adequate flow of credit to
productive sectors.

2. Regulator and supervisor of the financial system:

 Prescribes broad parameters of banking operations within which the country's

banking and financial system functions.
 Objective: maintain public confidence in the system, protect depositors' interest
and provide cost-effective banking services to the public.

3. Manager of Foreign Exchange

 Manages the Foreign Exchange Management Act, 1999.

 Objective: to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.

4. Issuer of currency:

 Issues and exchanges or destroys currency and coins not fit for circulation.
 Objective: to give the public adequate quantity of supplies of currency notes and
coins and in good quality.
Summer Placement Programme 2009

5. Developmental role

 Performs a wide range of promotional functions to support national objectives.

6. Related Functions

 Banker to the Government: performs merchant banking function for the central
and the state governments; also acts as their banker.
 Banker to banks: maintains banking accounts of all scheduled banks.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Chapter 2: Rural Planning and Credit Department


The Rural Planning and Credit Department formulates policies relating to rural credit and
monitors timely and adequate flow of credit to the rural population for agricultural activities
and rural employment programmes. It also formulates policies relating to the priority sector
which includes agriculture, small-scale industries, tiny and village industries, artisans and
retail traders, professional and self-employed persons, state sponsored organisations for
Scheduled Castes and Scheduled Tribes and Government Sponsored credit-linked
programmes like Swarnjayanti Gram Swarojgar Yojana (SGSY), Prime Ministers Rojgar
Yojana (PMRY) etc. It implements and monitors the Lead Bank Scheme which is aimed at
forging a coordinated approach for providing bank credit to achieve overall development of
rural areas in the country. The department also oversees implementation of the Banking
Ombudsman Scheme.

Broad Work Areas of the Department

 Monitoring and facilitating flow of credit to rural, agricultural and small scale
industries' sectors.
 Framing policies on priority sector lending.
 Making allocations for contribution to Rural Infrastructure Development Fund (RIDF)
amongst scheduled commercial banks.
 Implementing and monitoring Lead Bank Scheme which aims at forging a co-
Summer Placement Programme 2009

ordinated approach for providing bank credit to achieve overall rural development.
 Giving financial and policy support to NABARD.
 Acting as regulators for Regional Rural Banks and State/Central Co-operative Banks.
 Monitoring implementation of Government-sponsored poverty alleviation schemes.
 Implementation of Banking Ombudsman Scheme: A scheme set up by the Reserve
Bank of India to give members of public an easy and inexpensive forum for redressal
of their grievances against banks.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Thrust Areas

 Credit delivery innovations

• Micro finance initiatives

• Kissan credit cards

 Restructuring co-operatives
 Framing guidelines for rehabilitation of sick SSIs

Important aspects relating to priority sector lending by commercial


I. Targets/Sub-Targets

The targets and sub-targets set under priority sector lending for domestic and foreign banks
operating in India are:

Category of advances Domestic banks Foreign banks in India

Aggregate advances to 40 per cent of net bank 32 per cent of net bank
priority sector credit credit

Advances to agriculture 18 per cent of net bank No target


Advances to weaker 10 per cent of net bank No target

sections credit

Advances to SSI No target 10 per cent of net bank

Summer Placement Programme 2009


Export Finance Export finance does not 12 per cent of net bank
form part of priority sector credit
for domestic banks
A Study to understand Banking Behaviour of the Financially Included Rural Population

II. Activities

Broadly, the activities/ purposes financed by banks included in priority sector are:

a. Agriculture
b. Small scale industry
c. Small road and water transport operators
d. Retail traders and small business operators
e. Professional and self-employed persons
f. State-sponsored organisations for Scheduled Caste/Scheduled Tribe,
g. Educational loans, up to Rs. 0.75 million for studies within the country and Rs. 1.5 million for
studies abroad.
h. Housing up to Rs. 1.5 million in all areas for acquisition by individual. Rs. 0.1 million in
rural/semi urban areas and Rs. 0.2 million in urban/metropolitan areas for repairing of
existing unit)
i. Consumption loans for weaker sections,
j. Self Help Groups/ Non Governmental Organisations,
k. Software industry (having credit limits up to Rs 10 million from the banking system)
l. Food and agro based processing sector

III. Weaker Sections

The categories of borrowers included under weaker sections are:

i. Small and marginal farmers with land holdings of five acres and less, landless labourers,
tenant farmers and sharecroppers;
Summer Placement Programme 2009

ii. Artisans, village and cottage industries where individual credit requirements do not exceed
Rs. 50,000 ;
iii. Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY), Swarna Jayanti Shahari Rozgar
Yojana (SJSRY) and Scheme for Liberation and Rehabilitation of Scavangers (SLRS);
iv. Scheduled castes and scheduled tribes;
v. Beneficiaries under the Differential Rate of Interest (DRI) scheme;
vi. Self Help Groups
A Study to understand Banking Behaviour of the Financially Included Rural Population

Chapter 3: Financial Inclusion


Access to safe, easy and affordable credit and other financial services by the poor and
vulnerable groups, disadvantaged areas and lagging sectors is recognised as a pre-condition
for accelerating growth and reducing income disparities and poverty. Access to a well-
functioning financial system, by creating equal opportunities, enables economically and
socially excluded people to integrate better into the economy and actively contribute to
development and protects themselves against economic shocks. Despite the broad
international consensus regarding the importance of access to finance as a crucial poverty
alleviation tool, it is estimated that globally over two billion people are currently excluded
from access to financial services (United Nations, 2006a). In most developing countries, a
large segment of society, particularly low-income people, has very little access to financial
services, both formal and semi-formal. As a consequence, many of them have to necessarily
depend either on their own or informal sources of finance and generally at an unreasonably
high cost. The situation is worse in most least developed countries (LDCs), where more than
90 per cent of the population is excluded from access to the formal financial system (United
Nations, 2006a).

Theories of development advocate that financial development creates enabling conditions

Summer Placement Programme 2009

for growth through either a ‘supply-leading’ (financial development spurs growth) or a

‘demand-following’ (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
A Study to understand Banking Behaviour of the Financially Included Rural Population

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).

In India, growth with equity has been the central objective right from the inception of the
planning process. Accordingly, over the years, initiatives have been taken continuously by
the Government and the Reserve Bank to address the issue of inclusive growth.
Notwithstanding the rapid increase in overall GDP and per capita income in recent years, a
significant proportion of the population in both rural and urban areas still experiences
difficulties in accessing the formal financial system. Recent concerns have arisen from an
inadequate reduction in poverty levels, sectoral divergences in growth and employment
opportunities and tardy improvement in other social indicators, despite higher economic
growth. The Eleventh Five Year Plan, therefore, re-emphasised the need for a more inclusive
growth in order to ensure that the per capita income growth is more broad-based. The
farming, micro, small and medium enterprises have immense potential to play a critical role
in achieving the objective of faster and more inclusive growth as these sectors contributes
to output and employment generation in a significant way with capacity to expand
regionally diversified production and generating widely dispersed off-farm employment.

Conceptual Framework

Definitions of financial exclusion in the literature vary depending on the dimensions such as
Summer Placement Programme 2009

‘breadth’, ‘focus’ and ‘degree’ of exclusion.

 The ‘breadth’ dimension is the broadest of all definitions linking financial exclusion
to social exclusion which defines financial exclusion as the processes that prevent
poor and disadvantaged social groups from gaining access to the financial system
(Leyshon and Thrift, 1995).
 The ‘focus’ dimension is in the middle of the spectrum that links financial exclusion
to other dimensions of exclusion. It defines financial exclusion as the potential
difficulties faced by some segments of population in accessing mainstream financial
services such as bank accounts/home insurance (Meadows et al., 2004). The
A Study to understand Banking Behaviour of the Financially Included Rural Population

definitions laying emphasis on the ‘focus’ also vary significantly to include various
segments of population such as individuals, households, communities, and
 The ‘degree’ dimension, which is the narrowest of all definitions of financial
exclusion, defines financial exclusion as exclusion from particular sources of credit
and other financial services including insurance, bill-payment services and accessible
and appropriate deposit accounts (Rogaly, 1999).

Finally, definitions of financial exclusion vary considerably according to the dimensions

such as the concept of relativity, i.e., financial exclusion defined relative to some
standard (i.e., inclusion). This line of thinking defines the problem of financial exclusion
as that emanating from increased inclusion, leaving a minority of individuals and
households behind (Kempson et al., 2000).
Thus, there exists duality of hyper inclusion with some having access to a range of
financial products and at the same time a minority lacking even the basic banking
services. This phenomenon is observed mostly in developed countries with high degree
of financial development.
Summer Placement Programme 2009
A Study to understand Banking Behaviour of the Financially Included Rural Population

Over the years, several definitions of financial inclusion/exclusion have evolved. Listed
below are few definitions of financial inclusion.

Author Definition
Stephen P. Sinclair (2001) Financial exclusion means the inability to access necessary
financial services in an appropriate form. Exclusion can come
about as a result of problems with access, conditions, prices,
marketing or self-exclusion in response to negative
experiences or perceptions.
United Nations (2006 b) A financial sector that provides ‘access’ to credit for all
‘bankable’ people and firms, to insurance for all insurable
people and firms and to savings and payments services for
everyone. Inclusive finance does not require that everyone
who is eligible use each of the services, but they should be
able to choose to use them if desired.
Report of the Committee on The process of ensuring access to financial services and
Financial Inclusion in India timely and adequate credit where needed by vulnerable
(Chairman: C.Rangarajan) groups such as weaker sections and low income groups at an
(2008) affordable cost.

Factors Affecting Access to Financial Services

 Gender issues: Access to credit is often limited for women who do not have, or
cannot hold title to assets such as land and property or must seek male guarantees
Summer Placement Programme 2009

to borrow.
 Age factor: Financial service providers usually target the middle of the economically

active population, often overlooking the design of appropriate products for older or
younger potential customers.
 Legal identity: Lack of legal identities like identity cards, birth certificates or written
records often exclude women, ethnic minorities, economic and political refugees
and migrant workers from accessing financial services.
 Limited literacy: Limited literacy, particularly financial literacy, i.e., basic

mathematics, business finance skills as well as lack of understanding often constrains

demand for financial services.
A Study to understand Banking Behaviour of the Financially Included Rural Population

 Place of living: Although effective distance is as much about transportation

infrastructure as physical distance, factors like density of population, rural and
remote areas, mobility of the population (i.e., highly mobile people with no fixed or
formal address), insurgency in a location, etc., also affect access to financial services.
 Psychological and cultural barriers: The feeling that banks are not interested to look
into their cause has led to self-exclusion for many of the low income groups.
However, cultural and religious barriers to banking have also been observed in some
of the countries.
 Social security payments: In those countries where the social security payment
system is not linked to the banking system, banking exclusion has been higher.
 Bank charges: In most of the countries, transaction is free as long as the account has
sufficient funds to cover the cost of transactions made. However, there are a range
of other charges that have a disproportionate effect on people with low income.
 Terms and conditions: Terms and conditions attached to products such as minimum

balance requirements and conditions relating to the use of accounts often dissuade
people from using such products/services.
 Level of income: Financial status of people is always important in gaining access to
financial services. Extremely poor people find it difficult to access financial services
even when the services are tailored for them. Perception barriers and income
discrimination among potential members in group-lending programmes may exclude
the poorer members of the community.
 Type of occupation: Many banks have not developed the capacity to evaluate loan
Summer Placement Programme 2009

applications of small borrowers and unorganised enterprises and hence tend to deny
such loan requests.
 Attractiveness of the product: Both the financial services/products (savings
accounts, credit products, payment services and insurance) and how their availability
is marketed are crucial in financial inclusion

Initiatives of Financial Inclusion in India

A Study to understand Banking Behaviour of the Financially Included Rural Population

Financial inclusion in the Indian context implies the provision of affordable financial services,
viz., access to payments and remittance facilities, savings, loans and insurance services by
the formal financial system to those who tend to be excluded.

In order to expand the credit and financial services to the wider sections of the population, a
wide network of financial institutions has been established over the years. The organised
financial system comprising commercial banks, regional rural banks (RRBs), urban co-
operative banks (UCBs), primary agricultural credit societies (PACS) and post offices caters
to the needs of financial services of the people. Besides, MFIs, self-help groups (SHGs) also
meet the financial service requirements of the poorer segments. Furthermore, development
of the institutional framework in recent years has focussed on new models of expanding
financial services involving credit dispensation using multiple channels such as civil society
organisations (CSOs), nongovernment organisations (NGOs), post offices, farmers’ clubs, and
panchayats as business facilitators/correspondents. Specific financial instruments/products
were also developed in order to promote financial inclusion.

The broad strategy for financial inclusion in India in recent years comprises the following
a. encouraging penetration into unbanked and backward areas and encouraging agents
and intermediaries such as NGOs, MFIs, CSOs and business correspondents (BCs)
b. focussing on a decentralised strategy by using existing arrangements such as State
Level Bankers’ Committee (SLBC) and district consultative committee (DCC) and
strengthening local institutions such as co-operatives and RRBs
Summer Placement Programme 2009

c. using technology for furthering financial inclusion

d. advising banks to open a basic banking ‘no frills’ account
e. emphasis on financial literacy and credit counselling
f. creating synergies between the formal and informal segments

The objective of bringing financially excluded people within the fold of the banking sector
received renewed emphasis in 2005-06 as the term ‘financial inclusion’ was explicitly used
for the first time in the Annual Policy Statement for 2005-06. It observed that there were
legitimate concerns in regard to the banking practices that tended to exclude rather than
A Study to understand Banking Behaviour of the Financially Included Rural Population

attract vast sections of population, in particular pensioners, self-employed and those

employed in the unorganised sector

The process of financial inclusion received further impetus in November 2005, when banks
were advised to make available a basic banking ‘No Frills’ account with low or nil minimum
balances as well as charges to expand the outreach of such accounts to vast sections of the
population. The low cost or free of cost account is internationally considered to be helpful in
expanding the access of banking services, particularly to the low income groups.

Category End-March End-March2 End-December

2006 2007 2007
Public Sector Banks 3,32,878 58,65,419 1,10,26,619
Private Sector
Banks 1,56,388 8,56,495 15,60,518
Foreign banks 231 2,753 30,260
Total 4,89,497 67,24,667 1,26,17,397

No-Frills accounts:
As a proactive measure, the RBI in its Annual Policy Statement for the year 2005-06, while
recognising the concerns in regard to the banking practices that tend to exclude rather than
attract vast sections of population, urged banks to review their existing practices to align
them with the objective of financial inclusion. In the Mid Term Review of the Policy (2005-
06), the RBI exhorted the banks, with a view to achieving greater financial inclusion, to make
available a basic banking ‘no frills’ account either with nil or very minimum balances as well
as charges that would make such accounts accessible to vast sections of the population. The
Summer Placement Programme 2009

nature and number of transactions in such accounts would be restricted and made known
to customers in advance in a transparent manner. All banks have been urged to give wide
publicity to the facility of such ‘no frills’ account. A number of banks have since come out
with schemes for such ‘no frills’ account facility.

Relaxation of KYC norms:

A Study to understand Banking Behaviour of the Financially Included Rural Population

In order to ensure that persons belonging to low income groups, both in urban and rural
areas do not encounter difficulties in opening bank accounts, the know your customer (KYC)
procedure for opening accounts was simplified for those accounts with balances not
exceeding Rs.50,000 and credit limits not exceeding Rs.100,000 in a year. The simplified
procedure allowed introduction by a customer on whom the full KYC drill had already been

General Purpose Credit Card:

In urban areas, credit cards enable households to manage to get their credit needs met by
the banking system, with not only the ability to make purchases on credit but also facility to
draw cash against card. In the rural areas, there are no points of sale or outlets where
plastic cards can be used. Banks have been recently advised by RBI to provide a General
purpose Credit Card (GCC) facility at their rural and semi urban braches. The credit facility
extended under the Scheme will be in the nature of revolving credit. The GCC-holder will be
entitled to draw cash from the specified branch of bank up to the limit sanctioned. Banks
would have flexibility in fixing the limit based on the assessment of income and cash flow of
the entire household. However, the total credit facility under GCC for an individual should
not exceed Rs.25,000. Interest rate on the facility may be charged as considered appropriate
and reasonable. The borrowers would be eligible for availing the credit facilities provided
under GCC, as per their requirement, without any insistence on security and the purpose or
end-use of the credit. Fifty per cent of credit outstanding under GCC up to Rs.25,000 will be
eligible for being treated as indirect agricultural financing coming under the ambit of priority
Summer Placement Programme 2009

sector lending norms. The eligibility criteria will be subject to review. It is not necessary that
GCC should be linked to purchases and GCC may not necessarily be in the form of a card.
GCC can be issued in the form of a Pass Book, if the holder of GCC desires to operate cash
withdrawals from bank branches. It is expected that banks will come out with their own
schemes to popularise this product amongst the rural clientele. Based on assessment of
household cash flows, the limits are sanctioned. Interest rate on the facility is completely
deregulated. Fifty per cent of GCC loans are treated as priority sector lending.
Business Correspondent:
In January 2006, the Reserve Bank, permitted banks to utilise the services of NGOs/ SHGs,
MFIs (other than NBFCs) and other civil society organisations as intermediaries for providing
A Study to understand Banking Behaviour of the Financially Included Rural Population

financial and banking services through the use of business facilitator (BF) and business
correspondent (BC) models. In April 2008, banks were permitted to engage retired bank
employees, ex-servicemen and government employees as BCs, subject to appropriate due
diligence. The BC model allows banks to do ‘cash in - cash out’ transactions at a location
much closer to the rural population, thus, addressing the last mile problem. Banks are also
entering into agreements with Indian Postal authorities for using the enormous network of
post offices as BCs, thereby increasing their outreach. In order to provide social security to
vulnerable groups, in some cases banks have provided, in association with insurance
companies, innovative insurance products at affordable cost, covering life disability and
health cover. SHGs and MFIs are also being used extensively for financial inclusion on the
credit side.

One of the major differences between the business facilitator and business correspondent is
business facilitators will not be involved in any financial activity while they will be involved
in survey, counselling and account opening. While business correspondents act as an
intermediary and process any transaction between bank and the customer. They involve in
all financial activities in granting loans and collecting deposits and giving it to banks.

Role of Foreign Banks and Private Banks:

The foreign banks and private sector banks have approached the access issue through either
setting up relatively lower cost non bank companies for providing small value retail loans or
have partnered with micro finance institutions that provide financial services to the
Summer Placement Programme 2009

relatively higher risk segments of the population. Microfinance has drawn attention to an
entire sector of borrowers who had been previously poorly served by the formal financial
sector - and MF has demonstrated how to make lending to this sector a viable proposition.
However the rates of interest charged are quite high, typically 24 to 30 percent, mainly on
account of the high transaction cost for the average loan size that can be quite small.
Compared to the informal sector, perhaps the rates are lower, but issues are raised whether
these rates are affordable - in the sense whether they would leave any surplus in the hands
of the borrowers and lead to higher levels of living.

IT Solutions for Financial Inclusion:

A Study to understand Banking Behaviour of the Financially Included Rural Population

The use of IT solutions for providing banking facilities at doorstep holds the potential for
scalability of the FI initiatives. Pilot projects have been initiated using smart cards for
opening bank accounts with biometric identification. Link to mobile or hand held
connectivity devices ensure that the transactions are recorded in the bank’s books on real
time basis. Some State Governments are routing social security payments and also
payments under the National Rural Employment Guarantee Scheme through such smart
cards. The same delivery channel can be used to provide other financial services like low
cost remittances and insurance. The use of IT also enables banks to handle the enormous
increase in the volume of transactions for millions of households for processing, credit
scoring, credit record and follow up.

In order to have a better understanding of the Financial Inclusion and to study why the
usage of No-Frills accounts is too low, Madurai District was identified for the study.
Summer Placement Programme 2009

Chapter 4: Madurai District Profile

A Study to understand Banking Behaviour of the Financially Included Rural Population

 The Geographical extent of Madurai District is 3741.73 sq.km. accounting for 2.9% of
the geographical area of Tamilnadu state

 There are two revenue

divisions and 13 blocks in
the district. There are 596
villages and 252 bank
branches in the district

 The total population is

about 25.62 Lakhs
comprising of 12.95 Lakhs
males and 12.67 Lakhs
females as per 2001 census

 The district has well laid out roads and railway lines connecting all major towns
within and outside the state

 Madurai District is classified into 6 sub-zones (Southern Plateau and hill region)
under zone x among 13 agro-climatic zones in the country. Normally sub-tropical
climate prevails over the district without any sharp variation. The district possess
very good communication network

 The average rainfall of the district is 835.3 mm. There are four distinct season viz.,
South-West Monsoon, North-East Monsoon, winter and summer. Vaigai is a major
Summer Placement Programme 2009

river in the district originating in the Western Ghats. The major sources of irrigation
are by canals and wells.

 The types of soil available in the district are thin red, deep red, red sterile, black and
red sandy. As regards mineral resources, lime stone deposits, granite etc is available
in the district

 The district is basically agrarian based and also offers scope in the field of textiles,
readymade garments, dairying, floriculture, coir units, bakery units, brick klin, toy
making etc.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Chapter 5: Research Methodology

In order to understand the banking behaviour of financially included rural population,

Madurai district was identified as the region of study.

The methodology followed was primary data collection through questionnaire survey and
in-depth interview technique

Two questionnaires were prepared for the study.

 Questionnaire for the bank branches

 Questionnaire for the No-Frills account holders

The questionnaire for No-Frill account holders contains 23 questions and was designed in
order to get the details related to the financial habit, banking behaviour and credit planning.
The questionnaire also contains open questions in order to record their views on low usage
of bank accounts. The questionnaire was designed with multiple choice and dichotomous

The questionnaire for the Bank Managers contains 15 questions and it majorly focussed on
the strategies followed by banks in order to encourage people to open No-Frills accounts
and the steps taken by them to motivate frequent bank account usage. This questionnaire
majorly contains open questions in order to obtain a descriptive opinion of the Managers.
Summer Placement Programme 2009
A Study to understand Banking Behaviour of the Financially Included Rural Population

Procedural Steps followed for the Survey

The procedural steps followed for the research is schematically represented below.

Step 1: After the questionnaire1 was designed, the next step was to identify the bank
branches in the Madurai District that could be taken for the study. Under the guidance of
the Lead District Officer of Madurai, six bank branches were selected so as to geographically
cover all the blocks in the District.

Step 2: The identified six branches were visited and the questionnaire was administered to
Summer Placement Programme 2009

the Bank Managers. This questionnaire majorly contained open questions in order to obtain
a descriptive opinion of the Managers

Step 3: With the help of the respective Bank Managers, 2 or 3 villages in the service area of
the bank was selected for study.

Step 4: Totally 9 villages were visited and 102 respondents were interviewed. The
questionnaire was explained to them in the local language and their answers were recorded
in an interview format.

Annexure I & II
A Study to understand Banking Behaviour of the Financially Included Rural Population

Villages and Bank Branches visited

Following are the details of the Bank Branches and the villages visited for the survey,

S. Bank Name Block No. Of Villages Villages visited for the

No covered by the survey
1 Canara Bank, Kallikudi Kallikudi 11 Veeraperumalpuram
2 State Bank of India, Melur 16 Therkutheru
Therkutheru Sembur
3 Indian Overseas Bank, Madurai 10 Velliyamkundram
Appantirupathi East
4 Indian Bank, Madurai 11 Karupayurani
Karupayurani East Andarkottaram
L. Poolangulam
5 State Bank of India, Alanganallur 22 Vellayampatti
6 State Bank of India, Chellampatti 7 Chokkanthevanpatti

Limitations of the study

Following are the limitations of the study

 Project was to be completed in a period of 2 months

 The study was restricted to Madurai District

 Not many of the No-Frills account respondents were ready to share information
about their possession of Gold or House
Summer Placement Programme 2009

 Only two stake holders of the Financial Inclusion (Account holders & Bankers) were
interviewed as a part of the project. Interview with all the stake holders could have
given a complete picture of the implementation of Financial Inclusion
A Study to understand Banking Behaviour of the Financially Included Rural Population

Chapter 6: Observations

Observations with No-Frills account holders

A total of 102 respondents were randomly selected from 9 different villages for the survey.

 Only the primary data collected through the interview was used for the analysis

 The sample composed of 69% male and 31% female respondents.

 The sample contains more female than male because in majority of the household
women showed more interest to open a bank account for saving compared to the
male member. Moreover more female registered themselves with the NREGS and
hence possessed Bank passbooks.
Summer Placement Programme 2009

Education level:
A Study to understand Banking Behaviour of the Financially Included Rural Population

 About 57% of the respondents did not have proper schooling

 13% of them had education till 5th Grade and 28% of the respondents had schooling

till 12th grade

 It was also seen that 1% of the respondents were graduates and completed technical
studies like welding, tailoring, teacher training etc.,

Occupation of the respondents:

Summer Placement Programme 2009
A Study to understand Banking Behaviour of the Financially Included Rural Population

 A majority of the respondents (60%) were agricultural and non-agricultural labours

who were also registered for the NREGS. They have opened the bank account after it
was made mandatory for the NREGS jobs.

 13% of them were farmers who owned cultivatable land.

 Around 11% of them worked in public/private sectors and these set of people were
involved in active savings through the saving schemes sponsored by the organisation
they work in.

 About 8% of them were Housewives, 4% of them were traders and 1% of the sample
were unemployed.

Income level:
Summer Placement Programme 2009

Around 71% of the respondents lead their life with a monthly income of less than Rs. 1500
and 25% of them had savings in the range of Rs. 1500 to Rs. 3000 per month. Around 4% of
the respondents had monthly earnings in the range of Rs. 3000 to Rs. 5000.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Frequency of usage of Account holders:

The district administration and the banks have taken efforts to make sure the district is
100% financially included primarily driving through the NREGS by making it mandatory for
the job card holders to possess a bank account. But it was found that around 65% of the
account holders haven’t done any bank transaction and their passbooks appear blank. 19%
of the respondents have made 1 to 3 bank transactions and they were found to possess a
sum of around Rs. 200. A total of 9% of the respondents have made 4 to 10 bank
transactions while 7% of them have made more than 10 transactions.

Reason for opening No-Frills account:

Summer Placement Programme 2009
A Study to understand Banking Behaviour of the Financially Included Rural Population

 Majority of the respondents (62%) answered that they have opened the account in
order to receive payments through Government schemes

 This was majorly attributed to the fact that Bank account opening was made
mandatory for the NREGS

 15% of the respondents had the desire to avail loan from bank and it was observed
that these respondents were effectively utilising the jewel loan

 Only 14% of the respondents have expressed the interest to use bank account for

 Depositing cheques/DD was the reason for 6% of the respondents to open a bank
account and 3% of them felt that the bank account was offered at their doorsteps

Reasons for poor usage of Bank account:

Summer Placement Programme 2009

 A total of 90 respondents whose bank account usage was minimum were

interviewed the reason for poor usage

 Bank’s location was the reason constraint for the majority of the respondents (28
A Study to understand Banking Behaviour of the Financially Included Rural Population

 Equally contributing is that people have the perception that small amounts cannot
be saved in banks. Even among the respondents the practise was to save small
amount in their house and depositing the saved money in the bank once in a month.
In this process, they tend to spend the saved money for consumption needs

 13 respondents felt that the complex process involved in the transaction was the
reason for their poor usage

 In few villages, it was observed that even after the No-Frills accounts were opened,
they were not provided with the Bank passbooks. As they have no means of
connection with the bank, they tend to be detached from the bank.

 Seven respondents felt that they have no awareness about the banking services.

 Banks officials response for queries and the Bank’s functioning time were other
reasons for the poor usage

Savings habit of the respondents:

Summer Placement Programme 2009

It was interesting to note that 96% of the respondents had the savings habit. Though only a
few of them used Bank accounts for saving purpose, rest had the practise of saving through
other informal means like keeping it safe in the house, giving it to the relatives etc., Some of
them felt that they did not have enough money to save, which is one of the reasons for the
lack of savings habit.
A Study to understand Banking Behaviour of the Financially Included Rural Population

Savings is also found to be done through Diwali fund which is operated by the petty shops.
The individual has to pay Rs. 10 per week which would be redeemed in the form of groceries
and other items from the shop during Diwali.

What is the purpose of saving?

 A majority of the respondents (approx 38%) were observed to be doing savings for
fulfilling their consumption needs. They do small savings like Rs. 5 per day which
would be mostly spent for groceries and other items depending on the need

 One fourth of the respondents were doing savings which would be spent entirely on
social functions like daughter’s wedding. Apart from the savings, they also resort to
Money Lenders to fill the gaps of the financial needs.
Summer Placement Programme 2009

 Around 17% of them are doing savings in order to provide education to their children
and 12% of respondents who were basically agriculture labours aspired to start a
small business/petty shop of their own

 Purchasing/Repairing the house, Agriculture needs were other reasons for savings of
the individuals

What is the preferrable source of savings:

A Study to understand Banking Behaviour of the Financially Included Rural Population

 Around half of the respondents (52 of 98) said that they have been doing savings by
keeping it in their house. The inference of this habit is that the people lack in
financial literacy and they are ignorant about other means of doing savings

 Self Help Groups play a major role in imbibing savings habit in the people

 11 respondents said that Post Office was their preferable source because they were
located within their village premises

 LIC/Insurance was said to be the preferable source of saving by 11 respondents. The

main reason was that the LIC agent who usually used to be a relative or friend of the
individual goes to the doorsteps to collect the premium amount
Summer Placement Programme 2009

 Cooperative societies were found be the preferable source of saving for 7

respondents mainly due to their accessibility

 Only 4 respondents (approx 4%) were doing savings through banks

 Some factories have also given a provision to save a few amount of money in their
own savings scheme. This has got a positive response because the workers in the
factory can save a small amount of their wages from the place where they get the
A Study to understand Banking Behaviour of the Financially Included Rural Population

Reason for saving through sources other than banks:

 About one third of the respondents who do not have savings habit through banks
said that they cannot withdraw the saved money at the time of emergency

 About 31% of the respondents felt that banks were not accessible while the other
sources were readily available at their doorsteps

 Approximately One-fourth of the respondents said that they were unaware of other
means of savings

 Around 13% of thm felt that the bank transactions were not easy and convinient to
Summer Placement Programme 2009


Source of Borrowing:
A Study to understand Banking Behaviour of the Financially Included Rural Population

 Majority of the respondents (approx 65%) possess the habit of borrowing from the

 A few of them (approx 12%) borrow from their relatives and friends when the need
is small and usually they repay it on the next day

 Borrowing from Self Help groups have benefitted 11% of the respondents and
generally it is seen that defaulting is very minimal due to the peer pressure in the

 Totally 7% of the population have borrowed from the Cooperative societies and 5%
of them through banks. Bank borrowing generally happens throught the Jewel loan
and it has benefitted the people as they possess some form of Gold with them

 People who borrow from the banks face the problem of partial payment for the
Summer Placement Programme 2009

project and they do not get the full amount required. This situation naturally drives
them to borrow from the Money lender for meeting the needs

Reason for borrowing from Money Lender:

A Study to understand Banking Behaviour of the Financially Included Rural Population

In spite of the fact that the Money lenders charge a higher interst rate, a large population
prefers to borrow from them. Respondents who borrowed from the Money lenders were
asked the reason for borrowing from Money lenders. Majority of the people (46% of the
respondents) depend on Money lenders because they have no other means of getting
credit. Lesser procedure and documention involved is another attraction for availing the
Money lenders service. A Money lender typically does a Spot payment with Zero
documentation. Availability of cash at the time of emergency is the reason for the choice of
12% of the respondents. Mostly when the cash needs arise out of medical emergency, it is
Summer Placement Programme 2009

met only by the Money lenders as they ask for no documents or surelty and gives the cash in
hand. Location criteria and anytime access of cash are other reasons for borrowing from
Money lenders

Banker’s perspective of Financial Inclusion

“Cattle grows along with the interest” 

It is been a practise in some villages that when a housewife borrows money
from a Money Lender, she also buys a goat. After a year, she sells the well All
grown cattle to repay the money to the lender. the
A Study to understand Banking Behaviour of the Financially Included Rural Population

banks have relaxed the KYC norms for account opening. They open the account for a
person if he/she is identified by the Makkal Nala Paniyalargal2

 Local NGOs and the Makkal Nala Paniyalargal have played a major role in
communicating the village people about the account opening and for coordinating
them to the banks. They have also volunteered in account opening work

 Door to door campaign has been used by the bank in order to communicate and
create publicity about opening bank account. Pre survey was also used as a chance
to meet people in the village and communicate the need for opening bank account

 Murasu3 announcement were made in the streets of the village to communicate the
gathering point for account opening formalities. These announcements are made
either in the evening or in the early morning when the people are available in their

 Banks have opened account opening centres at common places on Sunday where
people gather at the aforesaid time which
Makkal Nala Paniyalargal have played
helped the banks to do a bulk processing of a vital role in coordinating the efforts
of bringing people to the banks for
account opening account opening and assisting them in
documentation clarifications
 Bank Managers felt that the bank account
opening drive has gained momentum after making it mandatory for NREGS jobs. In
some banks, the number of No-Frills account were calculated based on the number
of NREGS job cards issued in their service area
Summer Placement Programme 2009

 As of now, funds of Government schemes are not credited directly into the
individual’s account. They are either paid in the form of cash or as a crossed cheque.
People step into bank mainly for availing services like Gold loan and for collection of
issued by Government schemes

 Benefits that the banks enjoy after the Financial Inclusion drive,

• Increase in customer base and higher foot falls in the banks

Makkal Nala Paniyalargal are the panchayat functionaries

Is a type of Percussion instrument
A Study to understand Banking Behaviour of the Financially Included Rural Population

• Increase in the floating deposit base

• Variety in the portfolio of the bank’s credit

• Greater utilisation of the Gold Loan facility

 Private bank’s participation in the Financial Inclusion is found to be very less

 Banks have not taken any initiative to impart financial literacy. They help out the
people who enter the bank by assisting them in filling up the forms and guiding them
to the right place

General Observations

 Most of the people felt that the bank account is opened only for the NREGS purpose
and they do not associate saving habit with the bank. This is mainly because of the
fear that small amount cannot be saved in bank and also they cannot afford to spend
a day’s work for depositing the money

 Education on long term financial planning is very much required for the people

 Short term financial needs are generally met by the money that they keep safe in the

 The farmer respondents expressed that they have opened a bank account for
availing agriculture loan
Summer Placement Programme 2009

 Generally traders have a very small working capital and they work on rotation of
money and they are found to be having a good savings habit primarily through
nearest post office

 Insurance is perceived to be a comfortable saving medium as they were persuaded

by their relative or friend who works as an insurance agent to start a policy. The
insurance agent comes to the door-step to collect the premium amount.

 The financial Inclusion drive has gained momentum in this district after the bank
account opening was made mandatory for the NREGS beneficiaries. The village
A Study to understand Banking Behaviour of the Financially Included Rural Population

panchayat has taken the initiative to coordinate the account opening process for the

 Makkal Nala Paniyalargal collects the required details, photographs from all the
individuals who have the NREGS job card and submits the filled in application forms
to the bank. Once the account opening procedure is completed, the Bank Managers
give the account numbers to them, which is then informed to the individuals

 In some villages, Bank Pass books are not distributed to the individuals through the
Makkal Nala Paniyalargal but they are issued to the Individual itself when they step
into the bank for any transaction

o Bank Managers feel that if the person steps into the bank for collecting the
pass book it would be a chance of acquaintance and moreover they feel that
it is not worth giving the passbook to a person who would not use the bank

o On the other hand, the account openers feel that they may have to forgo a
day’s work if they go to the bank for just collecting the passbook. So they
keep postponing this work until they have a NEED to use the bank account

 In some villages even after the banks have issued the pass books in bulk, they
haven’t reached the respective account holders. They were collected and kept in the
Panchayat office. It was informed that they would be issued to the respective
account holders when they have a need to use the pass book
Summer Placement Programme 2009

 Makkal Nala Paniyalargal have been greatly helping the bank branches in gathering
and coordinating the people for account opening but their remuneration is too low
compared to the volume of work performed by them. Increasing the
remuneration/incentives to these workers will help in increasing the pace of financial

 Wages are disbursed on a weekly basis and the amount of wages to be paid to each
beneficiary is calculated on the number of days he/she was present for the work.
The technical and qualitative aspects of the work are inspected and the
A Study to understand Banking Behaviour of the Financially Included Rural Population

compensation is decided accordingly, which is then divided among the number of

persons who have been present for the work.

 Weekly wages funds are released to the Gram Panchayat by way of cheque which
the Gram Panchayat gets credited into its bank account specifically opened for the
purpose of NREGS. The amount is withdrawn from this account and the actual wages
is disbursed in cash to the beneficiaries.

 Though NREGS has a provision to credit the wages directly into the beneficiary’s
accounts, it is not followed yet

 As of now, the bank accounts are opened because the weekly wages has to be
credited into the account of the beneficiary if he/she is not available on the day of
salary. But this method is not practised yet.

 In some villages it was observed that people get Rs. 72 as a daily wage under NREGS.
The reason for this wage cut is that the work has not been performed to the TARGET
LIMIT. The actual wage a person has to get is Rs. 80 per day

 Infrastructure and the man power requirements are the major challenges from the
bank’s side if the NREGS wage is directly credited into the individual’s account

 A large section of people have a perception that the government is issuing them
bank pass books free of cost and if they get an account now they need not run for
opening an account when they receive any cheques from government schemes or
insurance. Savings doesn’t seem to the primary objective of opening an account.
Summer Placement Programme 2009

 In Indian Overseas Bank, Appantirupathi it was observed that jewel loan was not
provided to the No-Frills account holders because the system does not allow
entering a loan transaction for a No-frills account

 In some cases it is seen that the No-frills account pass book is blank with no
transactions. But the same person has done a considerable amount of savings in the
SHG account. They use their No-Frills account for availing loan or for passing cheques
but they don’t have any individual savings as such
A Study to understand Banking Behaviour of the Financially Included Rural Population

 Veeraperumalpuram is a village located 12 kms from

the nearest bank branch – Canara Bank, Kalligudi. For
any transaction, a person has to travel by two buses to
reach the bank. In this village people have a healthy
savings habit through the Post office which is located
within the village. People in this village can benefit a
lot if the bank comes to the door steps of the people

 As of now, Business Correspondence has not been used

in any bank branches. There is a huge savings potential
which could be tapped if the bank’s services are made available in the door steps of
the customers

 Banks have not extended the Overdraft facility to the No-Frills account and the
people are not even aware of such a facility

 A communication letter was sent from SBI to the Individual households informing
their account number and other details. Entire
“I am doing small savings in
communication is done in English language my house which is generally
(Refer picture). This type of first correspondence spent for repaying the Money
from the bank mentally alienates the customer
A quote by a villager
from the bank

 Money Lenders play a major role in catering to the finance needs of the rural people
by providing them the financial assistance at the times of emergency, at their
Summer Placement Programme 2009

doorsteps with no collateral or guarantor but charging a high interest rate.

 The Money lending business typically works like – when there is a need for Rs.
10,000, the Money Lender enters the borrowed amount in his books but gives only
Rs. 8,500 in hand. From the next day, the borrower has to pay Rs. 100 per day for
100 days to repay the debt. This type of loan is generally given for productive
activities like running a petty shop or for fulfilling the last few days cash requirement
for Agriculture
A Study to understand Banking Behaviour of the Financially Included Rural Population

 This example exemplifies the potential of a person to give Rs. 100 to a Money lender
and these people pay them promptly with the fear that the unpaid interest would be
added to the principal amount in case of default

 Banks have the provision to issue debit cards for the No-Frill account holders but the
bankers feel that the debit card could also be used as a property to be mortgaged as
it is been followed with the old age pension pass books.
Summer Placement Programme 2009

Chapter 7: Business Correspondent Model

A Study to understand Banking Behaviour of the Financially Included Rural Population

After the study in the Madurai District, a one-day visit was made to Nanmangalam village
located in Chennai where Business Correspondent Model was implemented and is executed

Uma Maheswari works as the Business Correspondent (BC) in this village and she started
operating from February 2007. She was identified through the Head Master of the school
located in the village after which a short training was given on operating the Electronic Data
Capture Machine. She was also given training in basic accounts book handling which she
already had experience by handling few SHGs.

Operations of a Business Correspondent

1. The BC’s first task is was to campaign the need for opening a bank account and
explain the people about the ease and convenience of operating a bank account
through the machine from their door steps

2. The necessary details of the applicants are captured along with their photograph and
fingerprint with the help of the FINO operatives

3. The collected data is transferred to the bank’s Core Banking System for the purpose
of opening No-Frills account. At the same time the data required for preparation of
smart cards is used by FINO

4. Smart cards are issued to the account holders through the BC. A Master card is also
issued to each BC/CSP4 who acts as an agent to the bank offering the banking
Summer Placement Programme 2009

services to the account holders

5. Each day, BC has to ‘sign-in’ using the land-line phone conncetion to the bank’s
database, in order to be able to carry out banking transactions during the day, the BC
has to ‘sign-off’

6. The BC starts at 4pm daily and she reaches all the households in her village with the
FINO machine and cash that may be required for a day’s transaction

Customer Service Point
A Study to understand Banking Behaviour of the Financially Included Rural Population

7. In order to deposit/withdraw cash, the account holder has to present the smart card
to the BC which is scanned in the machine

8. The smart card is inserted into the slot available and the identity is verified using the
finger print scanning device. The machine allows the transaction only after the
authentication of the finger print stored in the card

9. Once the authentication is successful, the account holder is allowed to deposit or

withdraw cash to the stipulated limit

10. The BC enters the amount of cash to be deposited or withdrawal, this is confirmed
by the account holder once again through finger print authentication

11. It was observed that some people deposit amount as low as Rs. 5 into the account
which is withdrawn after a period of 3 months and paid for insurance (Premium of
Rs. 450)

12. The transaction details are immediately printed from the printing device, in
duplicate, and one copy is handed over to the account holder while the other is
retained by the BC. The account balance in the smart card is also updated

13. The machine also has an to option print a mini-statement of last 10 transactions
performed and to update the pass book, it has to be presented to the bank branch
Summer Placement Programme 2009

Pictorial Representation
A Study to understand Banking Behaviour of the Financially Included Rural Population

In order to have a better understanding of the BC model and functioning, it is pictorially

represented below,

Pic1: Smart card that stores the account information and Finger print details

Pic2: FINO Machine and the smart card inserted into the slot
Summer Placement Programme 2009

Pic3: Sign Board that is placed in front of the residence of the BC

A Study to understand Banking Behaviour of the Financially Included Rural Population

Pic4: BC reaches all the households in the village

Pic5: Initial authenticated of the Account holder by inserting the card and finger print
Summer Placement Programme 2009

Pic6: Amount to be deposited

A Study to understand Banking Behaviour of the Financially Included Rural Population

Pic7: Finger print authentication for deposit

Summer Placement Programme 2009

Pic8: Deposit Slip Generation

A Study to understand Banking Behaviour of the Financially Included Rural Population

Pic9: Copy of Deposit Receipt given to the account holder

Summer Placement Programme 2009

Chapter 8: Recommendations & Conclusion

A Study to understand Banking Behaviour of the Financially Included Rural Population

Recommendations for improvement

Following recommendations may be made in order to see further improvements in the
execution of the Financial Inclusion project

 It was observed that there is lot of potential for implementing the Business
Correspondent as there is lot of willingness shown by the people to save.
Implementation of this model benefits the account holders as well as the bankers to
a greater extent

 In order to purchase the Electronic Data Capture Machine, Smart cards all the banks
in the district can place a bulk order to a vendor. This can help the banks to reduce
the cost of purchase and to negotiate terms and services with the vendor

 Special Awareness and outreach activities should be conducted to ensure that all
concerned labourers, including women are educated on the various aspects of
personal finance planning and about using the bank account.

 As soon as the account is opened, passbooks have to be issued to the account

holders. In some cases it was observed that either passbooks were not issued or the
issued passbooks did not reach the beneficiaries

 Many account holders were not even aware of the purpose of opening the bank
account and having passbook. They were under the impression that holding a bank
passbook might entail them to have some assistance through Government schemes
or result in getting loans in the later stage. Banks have to take necessary action on
Summer Placement Programme 2009

this perception by constantly reaching out to the villages and stress upon the need
for saving

 Any letter communication from the banks should be addressed in the local language
or the language of their preference

 Routing the Government Scheme funds is one of the efficient ways to control the
leakage of funds through intermediaries as the funds reach the beneficiaries directly.
But before implementing the direct crediting of money into the beneficiaries’
A Study to understand Banking Behaviour of the Financially Included Rural Population

accounts it is very important to make sure everybody in the district possess bank

 As majority of the population feel that banks are located far from their residence, it
is very important to take the banking services to their doorsteps. It has to be clearly
understood that this is a “Push Market” and the banks have to reach out to them to
initialize the banking habits in them

 Though the present active account users are very low, they can be effectively used to
propaganda the need for saving. “Word of Mouth” will be an effective medium to
communicate this message

 Banks have to work in the convenient hours for labourers as most of them go to
work early in the morning and come back at around 6pm. Banks have to allocate a
specific time in the evening especially to meet the needs of the labourers

 Banks should leverage technology to the maximum to induce the new account
holders to use and transact the accounts more and save more

 Best practises followed by a bank for some specific problem has to be documented
and shared among other banks within the district on a periodic basis

 External Agencies may be employed to make a post implementation survey in the

region and the feedback on the situation at the ground level may be shared

 District Administration and Lead Bank has to take necessary steps to conduct
Summer Placement Programme 2009

workshops to sensitise the banks, NGOs, BC/BFs and other parties involved on the
need for effective utilisation of bank accounts

 Bank Branches have to be financially helped in upgrading the infrastructure

requirements and to meet the man power shortage. The banks that are performing
better in Financial Inclusion may be incentivised through infrastructure support from

 Bankers have to make a field visit to their service area to have a better
understanding of the customer’s needs. This also enables the Bankers to sensitise
the financial situation of the people
A Study to understand Banking Behaviour of the Financially Included Rural Population

Implementation Model

Following is the proposed 9-stage implementation model for the Financial Inclusion project,

After studying the current implementation strategy of the Financial Inclusion project, a
modified model is recommended.
Summer Placement Programme 2009

Stage1 – Household Survey: Based on the village profile particulars, the individual bank
branches have to form teams of bank officials and SHGs. The team has to be formed in the
village level so that each village in the block assembles its own team. The team shall visit the
individual households; fill the survey form that contains particulars of the households and
their willingness in opening account. The particulars also should contain details of existing
account holders of the household.

Stage2 – Generating Public Awareness/Publicity for account opening: In order to

promote this Financial Inclusion Project, Banks can plan to conduct special camps and
advertise using Door to Door Campaign, Murasu, newspapers and local channels. TV ads
A Study to understand Banking Behaviour of the Financially Included Rural Population

could be an effective medium of communicating as the State Government of Tamilnadu has

issued colour television to all households at free of cost. Small exhibits of Comics in the
Weekly Market can also be an effective channel of communication.

Stage3 – No-Frills account opening: For the willing people, accounts are to be opened in
the household itself, by taking photograph and filling the account opening form. In order to
make the account opening process easier, the banks has to conduct account opening camps
by gathering people of the village in a common place. Simplified KYC norms shall be
followed. The photograph charges shall be bared by the bank itself. Also as a token of
having accepted the opening of the account, the officials have to issue an acknowledgement
slip. Account opening camps shall be conducted on weekends so that it is easier for the
people to assemble for the session. Bank employees from other blocks, NGOs, SHG
volunteers can be trained and used to assist the documentation process.

Stage4 – Financial Literacy session: The success of Financial Inclusion does not ends
with opening a No-Frills account, it can reach its full momentum only if there is a constant
connect between the bank and the customers in the initial stages of account opening.
Financial Literacy programmes can be conducted at a public gathering and it has to cover
the basic aspects of bank account like credit, debit, interest rate etc., in a dramatic manner.
Comic posters and books in the local language could be used. RBI shall pitch in at this stage
and drive through the process.

Stage5 – Follow-up camps: Follow-up camps are to be conducted for two purposed. First
reason is to have a constant connection with the customers. Second reason is to follow-up
Summer Placement Programme 2009

on the bank passbook issue and resolving other discrepancies in the process. The objective
of a follow-up camp is to make sure everybody is supplied with the bank passbooks.

Stage6 – Sanction of Overdraft & GCC/KCC: Based on the household requirements and
eligibility Ods, GCCs and KCCs shall be provided to them. Usually during initial stages Over
Draft of Rs.500 is given and on successful repayment of it, the amount is increased up to
maximum of Rs.5000. This will be a great opportunity to grocery shop owners and small
traders who work out of a small working capital and invest the money in productive
A Study to understand Banking Behaviour of the Financially Included Rural Population

Stage7 – Peer Review: After the implementation of the project, a report shall be prepared
by the respective Bank Branches on the status of the Financial Inclusion project in their
service area. After this, a peer review committee shall be constituted for each bloc
comprising of a banker, NGO member and a panchayat official. This team would survey
villages in another block randomly and collect details regarding the reach of the Financial
Inclusion, issue of passbooks, sanction of OD, GCC/KCC, local problems of account usage
pertaining to that block and shall submit the report to the LDM. A similar team from another
block shall do the same survey cyclically. Peer review will help the System in the following

 Gives a third party perspective of the system

 Enables knowledge sharing between the blocks and sharing of best practises
that may be followed in different blocks for a particular issue

 Effective scrutiny of the system

Stage8 – Routing Government scheme funds: Financial Inclusion drive can be paced up
by disbursing the Government Benefit payment directly into the beneficiaries account. This
not only provides a distinct advantage to the Governments in ensuring accurate and timely
payments to the beneficiaries but also minimizes the instances of leakages, frauds and role
of intermediaries.

Stage9 – Periodic monitoring of the Implementation: Any reform initiative can be

successful only if it is flexible enough to accommodate changes for the betterment of the
Summer Placement Programme 2009

system. The No-Frills account functioning should be constantly monitored and necessary
assistance shall be given to the customers, Banks and also to other parties that are involved
in the system.

A Study to understand Banking Behaviour of the Financially Included Rural Population

“Economic viability and Social acceptability are the two pillars for the sustainability of a

The willingness shown by nearly 96% of the respondents to save exhibits the fact that there
is a lot of untapped market potential in the rural market for banking. This can be termed as
“Opportunity in the Bottom of the Pyramid”. Many Bank Managers feel that Financial
Inclusion is a social responsibility cast on them to help poor but they must understand the
fact that the banking services need to be “marketed” to connect with large population
segments. It is a win-win situation for the bankers and the account holders. District
administration should enable an environment conducive for the execution of the project via
roads and digital connectivity. Establishing Credit counselling centres and financial literacy
cells is the need of the hour as majority of the people find no other means of getting credit
and get trapped with the Money Lenders.

To sum up, execution of Financial Inclusion does not end with opening No-Frills accounts. It
can be considered successful only if they start utilising the banking services. It is a
collaborative effort that must be taken by all the stake holders like Bankers, District
Administration, NGOs and others. Banks have to redesign their business strategies to
incorporate specific plans specific plans to promote Financial Inclusion of low income group
treating it both a business opportunity and social responsibility.
Summer Placement Programme 2009

Annexure-I: Questionnaire for common man

A Study to understand Banking Behaviour of the Financially Included Rural Population

No- Frills account holders - Questionnaire

District Madurai Village Bank


1) Name of the respondent: ______________________________ Age : _________

2) Gender : Male/Female

3) Education Level

a) Below 5th Std. b) Below 12th c) Graduate & Above

d) Technical Studies e) No Education

4) Occupation

a) Farmer b) Self Employed c) Public /Private Sector

d) Agricultural Labour e) Trader f) Non –Agricultural labour

g) Unemployed h) Hose wife i) Others, Specify:____________

5) Monthly income (Rs.) : a) <1500 b) 1500 – 3000 c) 3000 – 5000 d) >5000

6) Total Number of Adult members _________ of which having _________ bank account

7) When was your Bank account opened? __________________

8) Distance of the bank from your residence:

a) <1 Km b) 1-3 Kms c) 3-5 Kms d) >5 Kms

9) How many transactions were made after opening your account?

a) Zero b) 1 to 3 c) 4 to 10 d) >10

10) If you are not using Bank account, what is the reason?

a) Lack of awareness of banking services b) Banks located far away

Summer Placement Programme 2009

c) Banks not functioning in the convenient time d) Complex process involved transactions

e) Feeling that small amount cannot be saved in banks f) Banks officials not polite to guide us

g) Othes, Specify __________

11) What is the reason for opening “No-Frills Account”?

a) For doing savings b) For availing loans

c) Receiving payments from Govt schemes d) Compulsion by bank officials

e) To deposit Cheques/DD f) Bank account was offered at my


e) Others, Specify_________
A Study to understand Banking Behaviour of the Financially Included Rural Population

12) Do you have a regular savings habit : Yes/No

(Questions 13, 14 & 15 to be answered only if the participant has a savings habit)

13) What is the purpose of savings?

a) Education of children b) Small Trade / Petty Shop c) Purchasing a house

d) Social functions e) Consumption needs f) others, Specify __________

14) What is your most preferable source of saving?

a) Keeping safe in home b) SHG c) Bank

d) Post Office e) Chit funds f) Co-operative Societies

f) Others, Specify____________

15) What is the reason for choosing the channel for saving other than banks?

a) Ease & Convenience of transaction b) High Interest rate

c) Door Step availability d) Lack of Awareness of other means

e) Available at the time of emergency f) Others, Specify ________________

16) In case of a need, from where do you usually borrow?

a) Bank b) Cooperative Societies c) SHG

d) Money Lenders e) Friends/ Relatives/Pawn Brokers f) Others, Specify __________

(If the answer for above question is (d) or (e) then answer Q: 17 & 18)

17) What is the reason for borrowing from the above source?

a) Located nearby b) Lesser procedures/documentation

c) Cash available at emergency d) Lack of credit from other means

Summer Placement Programme 2009

e) Any time access of cash f) Others, Specify __________

18) Has any of your property been mortgaged with money lenders? Yes/No

19) Are you aware of the OD, GCC facility in your “No-Frills account”? Yes/No/No idea

20) If yes, have you utilised the Overdraft facility in your bank? Yes/No

21) What is the reason for not using the Overdraft facility?

a) No financial need b) Poor response from banks officials

c) Fear of more interest d) Fear of hidden charges

22) Do you have any investments in gold/house/ vehicle? Yes/No

23) What are various facilities that you would be requiring from the bank for effective usage of the bank services?
A Study to understand Banking Behaviour of the Financially Included Rural Population
Summer Placement Programme 2009
Annexure-II: Questionnaire for Bank Branches

Bank Branches - Questionnaire

Name of the Bank Location

Area of Operation No of villages/Blocks

1. Details on Financial Inclusion:

S. No Particulars Details
1 Number of households in the area
2 Number of households covered
3 No. Of No-Frills account opened
4 No. Of operative accounts
5 No. Of non operative accounts

2. Has any survey been conducted to measure the reach of Financial Inclusion Initiative? Yes/No

3. What are the offers made to open an account?

4. What are the various channels used for creating awareness and publicity among people? Also, Rank the various
channels used for publicity. (1 being the most effective channel)

a) News paper ads ( ) b) Television Ads ( ) c) Radio Ads ( )

d) Door to door campaign ( ) e) Banners ( ) d) Others, Specify

5. Have you used Business Correspondent/Business Facilitator? (Yes/No) If No, What is the reason for not
Summer Placement Programme 2009

(If YES for previous question, answer Q:6)

6. What are the profiles of people used as Business Correspondents and Facilitators?

7. Have you relaxed the KYC norms for No-Frills accounts? Yes/No
8. How many accounts are getting the funds through government schemes like NREGA etc? And what is the usage
pattern of those accounts? (Frequency of usage, deposit etc)

9. Have you followed any promotional strategy for ensuring the continuous usage of “No-Frills Account”?

10. Have you provided any micro credit facility for any account holders? (Yes/No). If yes, what are the various
schemes of micro finance provided?

11. Do you have any programme/initiatives for the financial literacy of the account holders?

12. What are the benefits obtained by the bank after opening No-Frills account?

13. What are the difficulties faced by you in making the account holders use the banking services?
Summer Placement Programme 2009

14. What are the various measures taken by you to overcome the difficulties?

15. What are the support would you require from RBI for the effective functioning of the No-Frills account?
Annexure-III: News article

Important findings of the study were presented at the District Level Bankers Review
Committee Meeting held in Madurai on 25th of July 2009, which was published in the daily
newspaper “The Hindu”.
Summer Placement Programme 2009

1. Report on Currency and Finance, 2006-2008

2. Speech by Smt. Usha Thorat, Deputy Governor of the Reserve Bank of India at the 4 th
Programme on Human Development and State Finances jointly organised by College
of Agricultural Banking, Reserve Bank of India, UNDP and the Planning Commission,
at CAB, Pune on January 16, 2006

3. Article by Shri. V. LEELADHAR, , Deputy Governor of the Reserve Bank of India in

Reserve Bank of India Bulletin, January 2006 edition on the topic of “Taking Banking
Services to the Common Man -Financial Inclusion*”

4. Speech delivered by Smt. Usha Thorat, Deputy Governor, Reserve Bank of India at
the HMT-DFID Financial Inclusion Conference 2007 on June 19, 2007 at Whitehall
Place, London, UK
Summer Placement Programme 2009