Banking Schemes

• The National Credit Council was set up in Dec. 1967 to determine the priorities of bank credit among various sectors of the economy.
• The NCC appointed a study group on the organizational framework for the implementation of social objectives in Oct. 68 under the Chairmanship of Prof. D R Gadgil.
• The study group found that the Commercial Banks had penetrated only 5000 villages as of June 1967
• The Banking needs of the rural areas in general and backward in particular were not taken care of by the Commercial Banks.
• Besides, the credit needs of Agriculture, SSI and allied activities remained neglected.
• Therefore, the group recommended the adoption of an area approach for bridging the spatial and structural credit gaps. Thus lead bank scheme was launched
• Objectives of Lead Bank Scheme:
• Eradication of unemployment and under employment
• Appreciable rise in the standard of living for the poorest of the poor
• Provision of some of the basic needs of the people who belong to poor sections of the society

Lead Bank Scheme

Service Area Approach

• The basic idea was to have an “area approach” for targeted and focused banking. The banker’s committee, headed by S. Nariman, concluded that districts would be the units for area approach and each district could be allotted to a particular bank which will perform the role of a Lead Bank.
• Under the Scheme, each district had been assigned to different banks (public and private) to act as a consortium leader to coordinate the efforts of banks in the district particularly in matters like branch expansion and credit planning.
• The Lead Bank was to act as a consortium leader for co-ordinating the efforts of all credit institutions in each of the allotted districts for expansion of branch banking facilities and for meeting the credit needs of the rural economy.
• Village adoption scheme (VAS) Under this, bank adopted some villages in their command area for intensive lending.

Differential Rate of Interest

(Fix Interest rate of 4% for vulnerable people)

• DRI is a lending programme launched by the government in April 1972
• A scheme for extending financial assistance at concessional rate of interest @ 4% to selected low income groups for productive endeavours initially by public sector banks and then by private sector banks also.
• The scheme known as Differential Rate of Interest Scheme (DRI) is now being implemented by all Scheduled Commercial Banks.
• all the public sector banks in India to lend 1 percent of the total lending of the preceding year to ‘the poorest among the poor 'at an interest rate of 4 percent per annum

Priority Sector Lending (PSL)

• Priority sector lending (PSL) is a special mechanism geared towards providing institutional credit to sectors and segments for whom getting credit otherwise is an arduous task.
• As far as the priority sector norms are concerned, scheduled commercial banks are supposed to give 40 percent of their loans to the identified priority sectors as per the regulations of the RBI.
• This stipulation of the 40 percent of loans is supposed to be measured in terms of Adjusted Net Bank Credit (ANBC).
• Priority sector was first defined in 1972 in a proper way. It was defined after the National Credit Council emphasized that there should be a larger involvement of the commercial banks in the priority sector.
• The sector was then defined by Dr. K. S. Krishnaswamy Committee. In 1974, the banks were given a target of 33.33 % as share of the priority sector in the total bank credit.
• However, later on the basis of Dr. K S Krishnaswamy committee, the target was raised to 40%.
• As far as the calculation of the non-fulfilment of the PSL requirement by banks is concerned, it is being assessed on quarterly average basis at the end of the respective year from 2016-17 onwards, instead of annual basis.
• The RBI has been very practical in its approach towards the banks regarding meeting PSL targets.
• It acknowledges the fact that the banks can at times fail to meet the PSL targets and has made rules accordingly.
• Scheduled Commercial Banks (SCBs) having shortfall in lending to priority sector/subsectors vis-a-vis the specified targets, are supposed to “contribute to the funds of Rural Infrastructure Development Fund (RIDF) and similar funds set up with National Bank of Agriculture and Rural Development (NABARD) / Small Industries Development Bank of India (SIDBI) / National Housing Bank (NHB)”.

All banks have to follow the compulsory target of priority sector lending

• Agriculture
• Micro and Small enterprises
• Housing loans
• Export promotion
• Education

Others

• Road and water transport
• Retail trade
• Small business
• Software industries
• Agro processing
• Small and Marginal farmers, Artisans
• Self Help groups
• SCs, STs and other weaker sections of society, minorities

New areas included recently

• Sanitation
• Healthcare and drinking water facilities
• Renewable energy
• Medium scale industries
• For Micro enterprise a sub target of 7.5%
• Small and marginal farmers get a sub target of 10%
• Startups
• Solar power motors
• Compressed Bio Gas plants

Indian Banks & Foreign Banks with more than 20 branches

• 40 percent of Adjust Net Banking Credit (ANBC) or credit equivalent off balance sheet exposure to the priority sector every year
• Public sector as well as private sector banks
• 18 percent of the total lending must go to agriculture (10% to small & marginal)
• 7% - Micro enterprises
• 12 percent of the total lending must be lent out to the weaker sections
• Other areas of the priority sector to be covered in the left amount

Foreign Branch with less than 20 Branches

• 40 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher, to be achieved in a phased manner by 2022.

Swabhimaan Scheme

(Bank Saathi – If some village does not have infrastructure to start bank, So one person goes to the village (like walking bank), people open bank account, Deposit, withdrawal from the person)

• A financial security programme was launched by the Central Government to ensure banking facilities in habitation with a population in excess of 2000 by March 2012
• Launched in February, 2011 with its focus on bringing the deprived sections of the society in the banking network
• Banks provide basic services like deposits, withdrawals and remittances using the services of Business Correspondents (BCs) also known as Bank Saathi.
• Large number of migrant workers in urban areas to remit money to their relatives in distant villages quickly and safely.
• Banking facilities like Savings Bank, recurring Deposits, Fixed deposits, Remittances, Overdraft facility, Kisan Credit Card (KCCs), General Credit Cards (GCC) and collection of cheques will be provided.
• imed at increasing the demand for credit among the millions of small and marginal farmers and rural artisans who will benefit by having access to banking facilities.
• Around 74000 inhabitations with more than 2000 population have been provided with banking facilities
• Branchless banking through BCs
• In 2012-13 budget speech, made following changes of 1600 population in plain and 1000 in North East Areas
• The objective was to aid the process of financial inclusion and consequently take banking to the remotest areas of the country and make them bankable.
• So far, banks have covered 74, 199 (99.7 percent) out of 74,414 such villages.

Who is a Business Correspondent?

• The business correspondent is nothing but a bank-in-person, who is authorised to collect small ticket deposits and extend small credit on behalf of the banks.
• A BC also does the following activities:
• Recovering the principal interest of small value deposits
• Sale of micro insurance products
• Selling mutual fund products
• Selling Pension products Receipt and delivery of small value remittances/other payment instruments
• Reserve Bank has allowed an array of entities to work as BCs.
• These include:
• NGOs Micro-finance Institutions set up under Societies/Trust Acts
• Societies registered under Mutually-Aided Co-operative Societies Acts, or
• the Co-operative Societies Acts of States Companies in which NBFCs, banks,
• telecom companies and
• other corporate entities or their holding companies do not have equity holdings in excess of 10%
• Individuals such as Post offices and retired bank employees, ex-servicemen and retired government employees.

Can Business Correspondents work only for a single bank?

• No. The Reserve Bank of India (RBI) has permitted all business correspondents (BCs) or representative of any one particular bank to conduct business for other banks as well.
• This so called “interoperability” system has been allowed at the retail outlets which is the point of customer interface.
• Business correspondent authorised by a bank would now be able to offer services like cash transactions to customers of other banks if the lender doesn’t have a branch of the same bank.

Banking ombudsman scheme

(Solve Problems between Customer and Bank)

• Quasi-judicial authority created in 2006, and the authority was created pursuant to a decision made by the Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks.
• Bank ombudsman scheme – Complaint about if money taken by without permission, Frauds.
• RRBI ombudsman scheme – General Complaint done by customer of all bank.