SBH Learning Centre, Warangal

“We are not what we know but what we are willing to learn.”


Strategy Adopted for Financial Inclusion
The Secret of Happiness
Important tips to remove the irregularities to improve the score of the branches

Editor D Suresh Babu, Chief Manager,

Co-Editor Satya Dev Inguva, Faculty

Contribution By:
Faculty Members & Other Staff Members

Strategy adopted for Financial Inclusion

One of the major challenges for next decade or more to banks in the country is to capture the banking business of over 50% population of this country of over 1.2 billion people. Poor people need to be provided with access to financial products at low transaction cost. They need to be provided assistance on the demand side (in terms of financial awareness and literacy) as RBIll as on the supply side (in the form of availability of customized financial products).

Dr. Raghuram Rajan, Hon'ble Governor, RBI has powerfully enunciated the need for broad based diversified growth leading to rapid reduction in poverty. Governor has also laid down RBI's developmental measures for the near future on five pillars and one of the most important pillar amongst them is Financial Inclusion where the objective is to expand access of finance to small and medium enterprises, the unorganized sector, the poor, and remote and underserved areas of the country.

The approach adopted for achieving the objectives under Financial Inclusion

RBI’s perspective on Financial Inclusion aims at giving a specific direction to the collaborated efforts to gain synergic benefits. Therefore, RBI have defined Financial Inclusion as “the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players.”

Some of the defining features of approach to FI are:

Institutional Mechanism

Under the institutional mechanism put in place for financial inclusion, RBI have the Financial Stability and Development Council (FSDC), which has an exclusive mandate for financial inclusion and financial literacy. A separate Technical Group on financial inclusion and financial literacy, under the Chairmanship of a Deputy Governor, has been set up under the aegis of FSDC. The Group has representations from all the financial sector regulators. In order to spearhead efforts towards greater financial inclusion, RBI has constituted a Financial Inclusion Advisory Committee (FIAC) under the Chairmanship of Deputy Governor. The FIAC has few Directors from the Central Board of RBI and experts drawn from NGO sector/other civil society representatives, etc. as members. At the State level, there are State Level Bankers Committee (SLBC) further supported by Lead District Managers (671 Districts) at the district level.

Bank led Model

In India, RBI have adopted a bank- led model for financial inclusion, which seeks to leverage on technology. The FI initiatives would have to be ICT based and would ride on new delivery models that would need to be developed by the market participants to best suit their requirements.

Integrated approach – Financial Inclusion & Financial Literacy

Considering that financial Literacy is an important adjunct for promoting financial inclusion, consumer protection and ultimately financial stability, RBI has adopted an integrated approach wherein efforts towards Financial Inclusion and Financial Literacy would go hand in hand.

Bouquet of Financial products

RBI has now advised banks to ensure that all the financial needs of the customers are met by offering, at the minimum, four basic products to customers, viz.

- A Savings-cum-overdraft account

- Entrepreneurial credit products like GCC or KCC

- A remittance product to facilitate EBT and other remittances

- A pure savings account, ideally a recurring or variable recurring deposit

The idea is to ensure that customers who are linked to the banking system is provided with all the basic financial products that are required to enhance their income generation capacity thus helping them to come out of poverty. Such an initiative is expected to be a win-win situation for both banks as also the large section of poor people residing in the rural areas.

Combination of Branch and BC Structure

RBI is advocating a combination of Brick and Mortar structure with Click and Mouse technology for extending financial inclusion, especially in geographically dispersed areas. Banks have to make effective use of technology to provide banking services in remote areas. Reserve Bank has permitted banks to utilise the services of intermediaries in providing banking services through the use of business correspondents. 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.

Leveraging on Technology

Penetrating banking services through the traditional brick and mortar model was expensive for banks. RBI realized that the task of Financial Inclusion was gigantic and would not be possible without actively leveraging on technology and encouraged banks to leverage on technology to attain greater reach and penetration for minimizing the cost of providing financial services in far flung areas of the country.

Engaging Business Correspondents: The Reserve Bank has permitted banks to engage Business Facilitators (BFs) and Business Correspondents (BCs) as intermediaries for providing financial and banking services. The BC Model allows banks to provide door step delivery of services especially to do ‘cash in - cash out’ transactions, thus addressing the ‘last mile’ problem. The list of eligible individuals/entities who can be engaged as BCs are being widened from time to time and RBI have adopted a test and learn approach to this process. Now, even for profit organisations excluding NBFCs and Telcos have been permitted to operate as BCs of banks.

Relaxation of KYC norms: RBI has alloRBId ‘Aadhaar’ as one of the eligible document for meeting KYC requirements and very recently have also alloRBId banks to provide e-KYC services provided through the Aadhaar platform.

Simplified branch authorisation: Branch licensing norms have been relaxed considerably and banks are now free to open branches in centres with population less than 1 lakh under general permission, subject to reporting.

Opening of branches in unbanked rural centres: To further step up the opening of branches in rural areas, banks have been mandated to open at least 25 per cent of the branches in unbanked rural centres. To help facilitate achieving this mandate, banks have been advised to open to open small intermediary brick and mortar structures betRBIen the base branch and the unbanked villages. The idea is to create an eco-system for ensuring efficient delivery of services, efficiency in cash management, redressal of customer grievances and closer supervision of BC operations.

Financial Inclusion Plan of banks

RBI have encouraged banks to adopt a structured and planned approach to financial inclusion with commitment at the highest levels, through preparation of Board approved Financial Inclusion Plans (FIPs). The first phase of FIPs was implemented over the period 2010-2013. The Reserve Bank has used the FIPs to gauge the performance of banks under their FI initiatives. In this direction RBI have put in place a structured and comprehensive monitoring mechanism for evaluating banks’ performance vis-à-vis their targets. To ensure support of the Top Management of the Bank to the Financial Inclusion process and to ensure accountability of the senior functionaries of the bank, one on one annual review meetings are held with CMDs/CEOs of banks.

Roadmap for providing Banking Services in unbanked villages: With financial inclusion gaining increasing recognition as a business opportunity and with all banks geared to increase presence, RBI adopted a phase-wise approach to provide banking services in all unbanked villages in the country. On completion of the first phase where nearly 74000 villages with population more than 2000 RBI provided with a banking outlet,

In the second phase where the remaining unbanked villages, numbering close to 4,90,000, have been identified in villages less than 2000 population and allocated to banks, for opening of banking outlets by Match 2016.

Direct Benefit Transfer – The GoI has plans to route the social security payments through the banking network by leveraging on the Aadhaar Enabled Payment System based platform. In order to ensure smooth roll out of the Government’s Direct Benefit Transfer (DBT) initiative, banks have been advised to open accounts of all eligible individuals and to seed the existing and new accounts with Aadhaar numbers.

Financial Literacy – RBI have realized that Financial Literacy is an important adjunct for promoting financial inclusion. RBI have adopted an integrated approach, wherein our efforts towards Financial Inclusion and Financial Literacy go hand in hand. Through Financial literacy and education, RBI disseminate information on the general banking concepts to diverse target groups, including school and college students, women, rural and urban poor, pensioners and senior citizens to enable them to make informed financial decisions. To support this RBI have nearly 800 financial literacy centres set up by banks. RBI have designed a mass scale Financial Literacy Program with an objective to integrate the financially excluded population with low level of income and low literacy level with the formal financial system.

Way forward - Issues and Challenges


With adoption of new branchless delivery channels by banks, there is a need for banks to revamp the structure for carrying out banking operations. There cannot be a fixed structured defined which can be adopted by all the banks. Each bank has to based on its current architecture develop a structure that can enhance its financial inclusion efforts. This would entail the following:-

Review of the HR policies with respect to recruitment of staff in view of the FI requirements. Separate cadre of staff can be thought off for catering to the needs of providing banking services in far flung rural areas

Banks have to think and act differently and make themselves more flexible so as to meet even the smallest requirements of the rural population. BC Model

There are many challenges being faced while implementing BC model. Sustainability and scalability of the BC model is essential. More and more innovative products will have to be introduced which would benefit both banks as RBIll as the rural people and at the same time make the BC model more viable. Review of the cash management practices for delivery of banking services through the branchless modes need to be done for ensuring scaling up of the various models.


During the first phase of our FI initiative, RBI have had success as regards opening of banking outlets by banks and also in opening bank accounts for large number of individuals. Going forward our idea is to enable more transactions in these accounts by providing more credit products, which will not only help rural people to avail of credit at comparatively loRBIr rates of interest but at the same time also make the BC model viable for banks. Banks have been advised to leverage upon the Direct Benefit Transfer initiative of the Government of India for linking all the individuals to the banking system and for utilizing the large amounts likely to be credited in these accounts for encouraging issue of deposit and credit products.


Finally, financial inclusion cannot be achieved without the active involvement of all stakeholders like RBI, other financial regulators, banks, governments, NGOs, civil societies, etc. The current policy objective of inclusive growth with financial stability cannot be achieved without ensuring universal financial inclusion. Banks alone will not be able to achieve this unless an entire support system would be partnering with them in this mission. All the stakeholders need to join hands and make it possible

Speech delivered by Dr. Deepali Pant Joshi, Executive Director, RBI at a Workshop organized by Government of Madhya Pradesh at New Delhi on January 24, 2014

CIRCULOGY ( Knowledge of circulars)

1. Bank revised the ATM Debit Card charges – as per the revised charges, AMC charges including Service Tax for Platinum card is

1) Rs 225 2) Rs 200 3) Rs 125 4) Rs 100

2. SBH PRASANTHI SCHEME – In case the age of the pensioner is above 72 years and upto 75 years – Loan amount is Rs ______ lacs only subject to EMI not exceeding 40 % of net pension. Age at the time of full repayment of loan should not be more than ____ years.

1) Rs 2.00 lacs & 75 2) Rs 2.00 lacs & 77 3) Rs 2.50 lac and 75 4) Rs 2.00 lacs & 77

3. Branches are advised that whenever a cash deposit or cash withdrawal transaction of Rs._____ lacs and above is conducted in any customer’s account as either a single transaction or more than one integrated transactions in a single day, it must invariably be verified before the transaction is allowed whether the customer’s PAN is available at the branch and recorded in the customer’s particulars in Core Banking Solutions system (CBS). In case the PAN is not available, the transactions should be permitted only after the PAN is obtained, validated and recorded in the system

1) Rs 5.00 lacs 2) Rs 10.00 lacs 3) Rs 0.50 lacs 4) Rs 7.50 lacs

4. Our Bank has decided to switch over to payment of interest on Savings Bank Deposits on Quarterly basis instead of Half yearly hitherto with effect from 01.02.2014 by which Interest would be paid for the quarter on the last working day of

1) April, July, October and January 2) March, June, September and December

3) May, August, Nov , Feb 4) Not specified.

5. It has been decided by the Bank to levy service charges of Rs _______ on all accounts that are non KYC compliant except inoperative accounts and small accounts (Product codes1147-1101, 1147-1201, 1011-1601 & 1011-1701) w.e.f. 15.03.2014 for this year.

1) Rs 125 2) Rs 112 3) Rs 100 4) Rs 75

6) Considering the safety and energy conservation aspects, Bank is now proposed to

Conduct the ___________________audit of all branches and administrative offices.

1) Energy utilization Audit 2) Safety and Energy Audit 3) Electrical and Electronics

Audit 4) None of these

7) If financial transactions requested by the NRI customer’s through e-mail

1) Branch can accept 2) Branch can accept if the request is made by a letter scanned as an attachment. 3) Branch can accept if phone call followed by e mail 4) Branch can’t act on e mail transactions.

8) Branches should ensure that there is no mis-selling or forcible selling of life and non- life insurance products. In this connection, branches are advised to display in the bank premises prominently _____________________________________________

9) Which of the following is true with regard to latest guidelines for fixing Reserve Price of movable/immovable assets

1) Reserve price is to be fixed at realizable value of the securities and the reason viz. defects / issues involved in sale of the securities involved between market value and realisable value is more than 15%. Due care should be exercised in such cases.

2) Further, reserve price may not be reduced by more than 15%, on failure of the auction.

3) It should also be ensured that the valuation report is less than 6 months old based on which the Reserve Price is proposed to be approved.

4) It is also proposed that valuation report should be obtained from two empanelled valuers in case of securities having value of _ 1 Crore and above and higher of the two valuations shall be fixed as the Reserve Price.

5) All the above

10) During the recently concluded Annual Financial Inspection-2013, the auditors havefurnished the following major findings in respect of non-observance of stipulated guidelines in respect of takeover of Housing Loans. Which of the following are true

1) Non mentioning the reasons for switching over

2) Non obtention of opinion reports from existing Bankers

3) Non mentioning of adherence to takeover norms in housing loan appraisal notes.

4) All of the above

The Secret of Happiness

A merchant sent his son to learn the secret of happiness from the wisest of men.

The young man wandered through the desert for forty days until he reached a beautiful castle at the top of a mountain. There lived the sage that the young man was looking for.

However, instead of finding a holy man, our hero entered a room and saw a great deal of activity; merchants coming and going, people chatting in the corners, a small orchestra playing sweet melodies, and there was a table laden with the most delectable dishes of that part of the world.

The wise man talked to everybody, and the young man had to wait for two hours until it was time for his audience.

With considerable patience, the Sage listened attentively to the reason for the boy’s visit, but told him that at that moment he did not have the time to explain to him the Secret of Happiness.

He suggested that the young man take a stroll around his palace and come back in two hours’ time.

“However, I want to ask you a favor,” he added, handling the boy a teaspoon, in which he poured two drops of oil. “While you walk, carry this spoon and don’t let the oil spill.”

The young man began to climb up and down the palace staircases, always keeping his eyes fixed on the spoon. At the end of two hours he returned to the presence of the wise man.

“So,” asked the sage, “did you see the Persian tapestries hanging in my dining room? Did you see the garden that the Master of Gardeners took ten years to create? Did you notice the beautiful parchments in my library?”

Embarrassed, the young man confessed that he had seen nothing. His only concern was not to spill the drops of oil that the wise man had entrusted to him.

“So, go back and see the wonders of my world,” said the wise man. “You can’t trust a man if you don’t know his house.”

Now more at ease, the young man took the spoon and strolled again through the palace, this time paying attention to all the works of art that hung from the ceiling and walls. He saw the gardens, the mountains all around the palace, the delicacy of the flowers, the taste with which each work of art was placed in its niche. Returning to the sage, he reported in detail all that he had seen.

“But where are the two drops of oil that I entrusted to you?” – asked the Sage.

Looking down at the spoon, the young man realized that he had spilled the oil.

“Well, that is the only advice I have to give you,” said the sage of sages. “The Secret of Happiness lies in looking at all the wonders of the world and never forgetting the two drops of oil in the spoon.”

- from the book The Alchemist

Important tips to remove the irregularities to improve the score of the branches

The overall health of the branches may be at desired level securing good score and rating as well, if directed efforts with all enthusiasm are ensured as under:

Credit Risk Management

Pre- Sanction Process

Pre-sanction Survey wherever applicable is conducted / recorded.

• A statement of Assets & Liabilities in appropriate cases is obtained in the form of
Sworn Affidavit.

• While processing the application, veracity of documents like salary slip, I. T.
Returns, applicant’s assets & liabilities, etc are examined. Scoring sheets provided
for various schemes are properly filled in. Supporting documents, if any
prescribed, are taken and these are verified with originals / independent

• TIR is obtained on the prescribed format and genuineness of the title deed is also
being confirmed in the opinion report.

• In Govt. Sponsored Scheme identification of the borrower and viability of the
activity is analyzed by the Branch independently.

Post- Sanction Process


It is just like “Heart” in a body, which regulates the body.

• Appropriate documents are obtained and all Documents are properly stamped,
entered in Documents Execution Registers, kept under proper custody and
available for verification.

• Control return submitted and scrutinized copy kept on record.

• Revival letter is obtained or filled.

• Arrangement letter is signed by the borrower/guarantor as also by the Branch

• All formalities for creation of Equitable Mortgage (including independent valuation
of property) is completed.

• Lien is marked / evidenced on the scrips obtained as Security.

• PDCs kept along with the documents. PDCs to be held in proper custody.

• In case of Vehicle loan copy of R.C and Insurance Policy with Bank’s charge noted
thereon is obtained.

• Insurance Policy for the assets hypothecated/pledged is obtained with adequate

• Type of Security Charged to the Bank’s and its value etc are entered in the CBS to
arrive at correct capital adequacy of the Bank.

• Stipulations in the sanction note are complied with before disbursement of the

• Deviations in the terms and conditions / Score (In score Model) have the approval
of the Competent Authority.

• Stock statements are obtained at stipulated intervals.

• Inspection / follow up of the unit is done at laid down periodicity.

• Inspection reports are prepared and put up to the appropriate authority for review
in applicable cases.

• Review / renewal exercise is done at stipulated intervals.

• CRA rating is done annually.

• Classification of assets is done as per RBI norms.

• Irregularity reports are submitted to the Controllers.

Follow-Up Monitoring and Control:

It is just like a physical exercise in our daily routine, which keeps our body and mind fit and fine.

• Irregularity reports / returns of irregular accounts are sent at stipulated periodicity
and controllers confirmation obtained.

Problem Loan Management

Identification of NPAs is just like detection of ailment in a human body. As we also go for certain health check-up to ascertain that everything is normal or within the tolerance level periodically, loan accounts are also subjected to review at some fixed periodicity. As ailments, if detected are subjected to treatment immediately to bring the things on right track, NPA is also required to be treated immediately. Hence, please ensure that:

• Identification of NPAs/Reporting done as per extant guidelines.

• Monitoring done & follow up action taken in cases of persisting irregular / potential

• If need be, follow-up & monitoring responsibilities of such loans are transferred to
SARC with the approval of the Controllers for necessary action. Overdue notices /
letters sent in all case of irregular accounts.

• Written confirmation is obtained from the customers for seeking time /

rephasement etc.

• Suits are filed immediately after transferring the assets to the Recalled Assets.

• Notices are issued under SARFAESI Act in respect of all eligible cases.

• Review mechanism of AUCA is in place.

• Register for recording all written off accounts for follow up is maintained.

Operation Risk Management

Business Lines:

Ethical business practices are required every where. Hence, please ensure:

• KYC norms are followed and KYC formalities in respect of the existing accounts are
completed at the Branch.

• New accounts opened are monitored for high value transactions in the initial
period of 6 months.

• Passbooks / Welcome kits and non-personalised ATM Cards (at the request of the
account holders) are handed over to the account holders against proper

• Account opening form came back from LCPC for some faults are duly recorded in a
register and sent back after due corrections.

• Nomination facilities are extended to all eligible cases.

• Dormant / Inoperative Accounts are revived with proper authorisation, addresses
verified, fresh signature obtained through Cheque referred and returned Register

(wherever needed).

• Proper custody of passbooks kept overnight is ensured and unclaimed passbooks
are dispatched as per extant instructions.

• Signature scanning since completed in old accounts also.

• Proper monitoring and fortnightly reporting of Cash transactions of Rs.10 lacs and
above is being done.

• Proper follow up for reversing DP outstanding entries are being done.

• Collection of S.Cs.: Payment of Interest on delayed collections.

Back Office Operations

• Loan documents are properly kept in the FBR safe.

• All SWO’s cubicles are fitted with automatic lock.

• Time lock is in use.

• Alarm System is in working condition.

• Smoke detectors installed in the Banking Hall.

• Pest Control treatment done in the Branch.

• Right type of adequate number of Fire Extinguishers is installed at the Branch.

• Licence from RBI for opening the Branch is entered in the Branch Document
Register. A copy of the same is displayed in the premises.

• Lease deed of the Branch premises is renewed on time.

• Obsolete documents removed from the Branch Document Register and destroyed.

• Record room properly maintained and vouchers/registers are kept in proper place.

• All System Room Registers are maintained / reviewed by the Branch Manager

• Access to the System Room is restricted.

• Branch Continuity Plan and Disaster Recovery Plan shown to the members who are
involved in these teams.

• ATM Pins / cards destroyed at the stipulated intervals.

• Cash balance of BGL tallied with the CGL on daily basis by the Branch.

• Physical Cash balance in ATMs is tallied with both ‘Admin Cash Balance’ & ‘ATM
Cash Balance’ accounts.

• Control return of expenses is submitted to the Controllers.

• Cases of loss of pay / unauthorized absence are reported to the Controllers and
salary is recovered from the employee.

• Leave is debited in the Leave Register.

• Delay not observed in settlement of Deceased Accounts.

• Standard Drop Box is installed at the Branch.

Cash/Currency Chest/Small Coin Depot/Postages:

• Please ensure that RBI clean note policy is implemented.

• Ensure that cash is not exceeding beyond cash retention limit (for non-chest
Branches), if exceeds, it is being reported to controller.

Safe Custody/Security/Lockers:

· Please ensure that ‘Locker Module’ is fed in to the system and locker rentals are

not in arrear. In case of old rentals, it is being followed up and where required,

breaking open exercise is done as per Bank’s extant instructions.

Government Business:

· Reconciliation of Government accounts has been done.

· In pension payment cases all the accounts are migrated to CPPC.

· Live certificates are obtained in due time.

· Timely reporting / submission of reports / returns pertaining to Govt. Business is

done to avoid penal action by RBI. Govt. Accounts is being reconciled promptly.

General Branch Management:

· KYE of newly recruited employees are complied with.

· Preventive vigilance meeting and its monitoring is done periodically to avoid

perpetration of fraud.

· Branch layout and ambience is Customer friendly.

· Conduct of Customer Relation programmes (CRP) /Customer Service Committee

(CSC) meetings and the follow-up action are taken thereon. CRP invariably

precedes CSC meetings and issues raised in CRP are discussed in CSC and

meaningful action taken thereon.

· Dealing with Audit Reports: Closure status and adherence to time frame. Quality

and extent of rectification during the course of inspection / residual irregularities

after the closure of previous reports. Instances of recurrence of irregularities


· VVRs not checked regularly and their records are kept properly.

· Subsidies received are appropriated and their accounts also maintained properly.

· TDS return filled in due time.

· Self Audit is conducted periodically and duly vetted by controller.

Special attention to avoid Fraud/Forgery:

· Verification of genuineness of documents at the time of opening of accounts.

· Verification of genuineness of land possession certificate / any other documents by

· competent authority required for disbursement of loan.

· Noting of issuance of duplicate passbook in the System to avoid fraudulent

withdrawal of amounts.

· Ensuring fugitive test before passing of cheques for more than Rs.25000/-

· Instant credit of Dividend warrants through authorized mode only.

· Payment of cheques through authorized mode only.

· Disbursement of loan amounts phasewise as stipulated in sanction.

· Prompt and meaningful checking of VVRs.

· Change of photograph after 3 years as stipulated especially in illiterate accounts.

· Password secrecy is to be maintained.