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M S Sundara

M S Sundara Rajan, Chairman and Managing Director, Indian Bank writes about financial
inclusion and how the banking requirements
of people in rural and urban areas differ from each other.

Reaching the unbanked

The economic landscape of India has undergone a tremendous change with visible signs of growth momentum in all sectors. However, the benefits have not equitably percolated to different segments of our society. Even after establishment of cooperative banks, nationalisation of major commercial banks and creation of Regional Rural Banks, only 59 per cent of adult population in the country has bank accounts. Only 39 per cent of rural adults have access to accounts, while in the urban areas the percentage rises to 60. Only 14 out of 100 adults have loan accounts on an all-India basis. In rural areas it is just 9.5 per cent.
The top six metros (Mumbai, Chennai, New Delhi, Kolkata, Bangalore and Hyderabad) alone contribute 45 per cent to total deposit and to credit 56 per cent, indicating lower penetration of banking services in the remaining parts of the country. All this indicates the extent of financial exclusion and reflects the lack of access to appropriate low cost, fair and safe financial and insurance product and services from mainstream providers. The reasons for such low banking penetration can be attributed mainly to low income, unemployment and under-employment, low level of awareness, low level of financial literacy and lack of access to banking facilities in remote areas.

Financial Inclusion

Financial inclusion is receiving due attention in our country as a means to provide access to financial services to all the people in a fair, transparent and equitable manner at affordable cost, and address the imperative need to modify the credit and financial services delivery system to achieve greater inclusion. The banking requirements of people in rural and urban areas differ. True to its ‘common man’s bank’ image and mission statement providing all financial products and services to all the customers under one roof at affordable cost, Indian Bank has evolved two different financial inclusion models, one rural and the other urban.

Rural model

In rural areas, people hesitate to have banking accounts because of the perception that the banks serve the bigger and affluent customers. In order to remove this apprehension, Indian Bank modelled the financial inclusion project so that the bank staff would contact the people at their homes and open no-frills/zero balance savings bank account and deliver passbooks at their doorsteps.

Ration cards/electoral ID Cards of the families were taken for fulfilling the simplified KYC norms. A photographer accompanying the bank team took photographs of all the persons who opened bank accounts on the spot. The bank also utilised the services of SHG members, students, village volunteers, etc, for identifying the unbanked.

A national pilot project on financial inclusion in UT of Puducherry was launched in 2006 by Indian Bank involving other banks also with the aim of providing at least one bank account in each household. The project was successfully completed in a year.
To start with, the bank provided ‘no-frills’ accounts. As the next step, small overdraft facilities were allowed in the savings bank accounts in order to cater to the account holders’ general purpose or consumption needs, which eventually would provide credit history for the future. Those who are willing to take up income generation activities were provided with a General Credit Card Facility with a flexibility of rollover facility. For the SHGs, instead of giving loans based on extent of savings, a line of credit was extended with simplified accounting procedures giving flexibility to the SHGs and ultimately to the members of the group.

After successful implementation in Puducherry, the concept has been also implemented in Cuddalore and Kollam districts of Kerala. Our bank branches in remaining lead districts (11) are also in the verge of achieving total financial inclusion.
The bank has so far covered 4,271 villages across the country. Around 8,80,000 persons have been provided banking facilities by opening ‘no frills’ savings bank accounts under this project. Overdraft facilities and General Credit Cards have been provided to 52,383 ‘no frills’ account holders with a credit outlay of Rs 108 million.

Urban Model

There is a general feeling that financial inclusion is not necessary in urban and metro centres. In reality, large number of persons in urban centres do not have banking facilities and financial exclusion is very common particularly in respect of migrated labour who have moved into these areas in search of jobs. These people do not have bank accounts or knowledge of banking facilities. Hence, they send money to their family members through informal sources and through friends, relatives, etc, or carry cash whenever they visit their native place, which carries an element of risk.

The situation was no different in Dharavi, Mumbai, Asia’s largest slum with hundreds of domestic and foreign bank branches and ATMs. The people of Dharavi largely rely on cash economy and informal means of payments, transfers, savings and borrowings. To obviate such problems, the Indian Bank worked out an urban financial inclusion model. Dharavi residents who are migrant and working in factories and eateries are contacted by the bank’s team of officials and volunteers at the place where they reside in the slum and encouraged to open an account for which simplified KYC norms were followed. The services of volunteers and community leaders and NGOs were availed in opening of accounts on the spot.

Realising the success of the urban model, the bank has opened a branch in the slum with Core Banking Solution (CBS) and ATM facility. Besides linking the migrant workers to the formal system of savings and borrowing, this step has enabled them to remit money to their family members in their native places. To facilitate easy remittance the bank has also opened a CBS branch at Valliyur in Tirunelveli district of Tamil Nadu from where a large chunk of migrant labour moved to Dharavi. Encouraged by the success of online ATM, the bank recently set up offsite ATMs in other parts of Dharavi.  To deliver banking and financial services at the doorsteps of the common man, the bank has piloted biometric-enabled Smart Card banking at Dharavi in association with Financial Information Network and Operations (FINO).

Role of Technology

The financial inclusion process can be speeded up and made more effective in providing various financial products and services by leveraging technology. This will improve efficiency, accuracy, transparency and outreach. The bank leveraged technology for opening large volumes of ‘no frills’ accounts in a shorter period. Laptops with suitable in-house software packages were extensively used to open such accounts at doorsteps.

The rural and semi-urban branches implementing financial inclusion were brought under CBS to enable them to cope up with large volumes of accounts. Regular ATMs have been provided to 23 rural branches and all ATMs are interconnected for online ATM transactions. To overcome the barrier of digital recognition which many times the rural people are unable to remember, the bank has set up the first of its kind, voice-guided and networked biometric-abled ATM at Klayarkoil in Tamil Nadu.To increase outreach among the common man, the bank has also embarked on a pilot project on Smart Card Banking. These multi-application e-cards will act as customer identity tokens using bio password and enable transactions at the doorsteps of the customers. Banking Services Centre (BSC), the new business delivery model introduced by the bank enables banking transactions online.

The bank is in the process of disbursing salaries, pension through various schemes and wages under National Rural Employment Generation Scheme (NREGS) through the bank’s no-frills savings accounts in some states like Andhra Pradesh with the help of biometric-enabled Smart Cards.


Laying strong emphasis on life, disability and health cover for the vulnerable section, the bank provides two new micro-insurance schemes namely Janashree Bima Yojana for members of the groups such as SHGs, etc., in association with Life Insurance Corporation to provide life and disability cover and Universal Health Care Policy (UHCP), a mediclaim insurance scheme in association with United India Insurance Company Ltd (UIIC) aimed at below poverty line (BPL) families.
The premium payable is low and affordable and the policy benefits are very attractive and come handy in unforeseen circumstances such as death, accident, sickness, etc. So far, the bank has provided insurance cover to 165,705 SHG members and their spouses under JBY and 16,220 persons have been covered under UHCP.



Micro-finance offers cost-effective approaches to formal institutions for expanding outreach to the poor, develop collateral substitutes, focus on rural poor, specially women, facilitate empowerment of the poor and effectively pursue the macro-economic objectives of growth.The primary objective of micro-finance is financial deepening, the creation of a separate system of ‘sustainable’ financial intermediation for the poor. Micro-finance is emerging as a powerful instrument for financial inclusion.

Indian Bank, as early as 1989, by partnering Tamil Nadu Women Development Corporation launched the concept of group financing for the first time in the country. This concept reduced the transaction cost for both the borrower and the lender. The recovery under SHGs lending has proven to be excellent with more than 95 per cent recovery rates. So far the bank has assisted 2,51,000 SHGs benefiting more than 3 million women financially and socially empowering them.
The bank also established an exclusive micro-finance branch called Microsate branch at Chennai for financial inclusion of those in the lower income group through the concept of SHGs. Line of credit is provided to them with flexibility and simplified accounting procedures. Based on its success the bank has opened 12 Microsate branches across the country and is going to open 15 more branches in tier II city/town centres.

Learning from Success

The financial inclusion initiative of the Indian Bank has vindicated the belief that the poor are certainly bankable. There is enormous potential at the bottom of the pyramid and it is a business proposition for the banks.
The poor need banking services for channelising their small surpluses and to link to institutional service for those who still depend on informal sources of savings. For accelerated growth of the economy, it is necessary that all the people should be covered by the sector through financial inclusion. It is not the agenda of the bank alone. It is a collective agenda. It is an agenda in which everyone has a role either as a user or as a partner




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