Understanding
The Finance Industry
in Rural India
Finance Presence in Rural India
Finance Presence in Rural India
Finance presence in Rural areas today; is in the following forms:
– Nationalized Banks
– Private Banks
– Credit Societies
– Co-operative Banks
– Informal loans (Money Lenders)
Rural Finance Penetration in India
Regional Rural Banks and Co-operative Banks form approximately 66% by presence in count although they
account only 5.6% of the total business
The above reflects that even though the finance institutions are present to a certain extent in Rural
areas; perhaps due to lack of awareness & basic financial literacy, the institutions are not deriving the
optimum business, despite the high potential.
Rural Finance Branch/offices Network
• As per the D&B research in 2009-10; of all private sector branches, 13% are in Rural India
• Branch network of Scheduled commercial banks is 40% in Rural India; of the total SCB branches
Finance Presence
Geographic Segmentations
Reserve Bank of India
Public Sector RRBs (88) Private Banks Foreign
Banks (28) LABs (4) (22) Banks (30) Total
Rural 19275 11498 1052 0 31825
Semi
12776 2612 2468 2 17858
Urban
Urban 11336 607 2504 50 14497
Metro 10501 63 2245 227 13306
Total 53908 14780 8269 279 77236
• Besides, there are cooperative banks with more than 12000 branches & over 1 lakh primary credit societies linked with
cooperative banks
• The above numbers are only indicative of the overall finance presence region wise - but do not show current picture
*As in 2005
Rural Finance Growth & Potential
Rural Finance Potential
• As per a research conducted by RBI in 2009-10, 59% of the adult population in the country has bank
accounts and 41% don’t
• In Rural areas, the coverage of banks is 39% against 60% in Urban areas
• There is only one bank for a population of 13,000
• Commercial bank branches cover only 7% of the Rural sector. The large market is still untapped
• Estimated demand for credit in rural India is Rs. 1,33,000 Cr.
• The banking system issued 87.83 million KCCs as on November 30, 2009
Rural Finance Growth
Growth in Mobile Banking Subscribers
Population with Bank
Mobile Subscriber Base
Registered M-Banking
Customers
Active M-Banking
Customers
Units (Millions) Framework of Mobile Banking
• India’s Mobile Phone user base, as on 2009-10, consists of 347
million users, including 73 million Rural users
• As per one of the surveys, by 2012 - mobile banking active user
base to reach 2% up from the current 0.2%
• Mobile-linked no-frills bank accounts are created for rural
inhabitants in India
Rural Consumer Finance Preferences
Finance Preference in a Rural Household
• The financial inclusion in a Rural Household usually follows this preference order:-
– Savings Account
– Fixed Deposit
– Agriculture Credit
– Insurance
– Auto Loan
– Mutual Funds
• Savings & Fixed Deposits are highly preferred - which is the most trusted saving source in Rural
• Agri Credit & Insurance are amongst their most important need
• Auto Loan is a luxury requirement
• Mutual Fund Investment is only when all the above have been secured & they feel financially stable
• Therefore for most Rural Households, it’s a journey from “needs” to “luxury”
Rural Finance Preference Breakup
As per a survey conduced by PHDCCI in December 2010, more than 37% of the people in Rural India showed
preference in Fixed Deposits investment
37%
17%
15% 14%
9%
6%
2%
PHDCCI, December 2010
Rural Finance – Disbursement Trends
2 Peak seasons are observed
• The peak season is March; which may be because banks increase the loan disbursement towards the end
of the year to meet their specific target
• The other peak time observed is in the period between July and September. Most agricultural activities
seem to flourish during the monsoon season, which is usually July to September. These bank branches
may be helping farmers meet their demand for finance
IFMR collected month wise loan disbursement data from 20 bank branches out of which :
12 RRB branches - Andhra Pradesh Grameen Vikas Bank, Andhra Pragati Grameena Bank
8 Commercial Bank branches - State Bank of Hyderabad, State Bank of India, Andhra Bank, Canara Bank, Syndicate Bank, Central Bank of India
IFMR Survey, 2011
Rural Finance Agency wise & Region wise Penetration
Rural Finance – Agency wise Disbursement Break up
Name of Agency Loan Disbursed by banks/FI to MFI No. of Micro Finance
during the year (Amount Rs. Lakhs) Institutions (MFIs)
Commercial Banks 803860.64 645
RRB 2413.61 46
Cooperative Banks - -
SIDBI 266575.10 88
Total 1072849.35 779
* The actual number of MFIs would be less as some MFIs have availed loan from more than one bank
Rural Finance – Region wise & Agency wise Disbursement Break up
(Amount in Rs. Lakhs)
Commercial Banks RRB Banks Cooperative Banks Total
Region No. of SHGs Loan Amount No. of SHGs Loan Amount No. of SHGs Loan Amount No. of SHGs Loan Amount
Northern Region 15076 15482.63 11070 7936.94 11229 7213.76 37375 30633.33
North Eastern Region 16652 12537.25 21365 11215.22 11290 4964.52 49307 28716.99
Eastern Region 156918 85155.62 77573 53962.25 42955 14900.78 277446 154018.65
Central Region 34108 28638.02 37713 30201.9 6025 4369.96 77846 63209.88
Western Region 67304 36802.6 19876 4513.5 61950 23381.44 149130 64697.54
Southern Region 687463 799402.43 209200 225490.25 99055 79161.29 995718 1104053.97
Total 977521 978018.55 376797 333320.06 232504 133991.75 1586822 1445330.36
• Unlike common belief, the Southern region dominates with maximum amount of loan disbursed by commercial banks , followed
by Eastern region
• North Eastern region has minimum loan disbursed by commercial banks
*Loans disbursed during 2009 – 2010
Rural Finance – Trend in Disbursement
MFIs & SHG Bank Linkage
Loan Disbursements in MFIs is higher as compared to SHG-bank linkage.
Overall the trend reflects the increasing loan demands & disbursements in rural India
*2008-09, NABARD, CRISIL
Some of the Renowned Micro Finance Institutions
Uttar Pradesh Tamil Nadu Kerala Assam
• Cashpor Micro Credit • Grama Vidiyal Micro • ESAF Microfinance & • Rashtriya Gramin Vikas
(CMC) • Equitas Micro Finance Investments Pvt. Ltd Nidhi
• Sonata Finance • Sarvodaya Nano Finance (EMFIL) • ASOMI
• Gandhi Smaraka Grama
Seva Kendram
Orissa Andhra Pradesh West Bengal Karnataka
• Gram Utthan • SKS Microfinance Ltd • Bandhan Financial • Shri Kshetra
(SKSMPL) • Sahara Uttarayan Dharmasthala,Rural
• Spandana Sphoorty Development Project
Financial Ltd (SSFL) (SKDRDP)
• Asmitha Microfin Ltd • BSS Microfinance
(AML) • Grameen Financial
Services
Initiatives in Rural Finance
Initiatives in Rural Finance
• HDFC
– HDFC Bank has targeted mandis to expand rural reach by opening additional branches
– It has tied up with the Postal Department to explore the vast network potential of the latter
– HDFC is also offering loans at reasonable rates to rural people
• ICICI Bank
– ICICI Bank has increased its focus further on rural and semi urban areas by providing customized financial support to
farmers, traders, commission agents, small processors etc.
– After its tie-up with Bank of Rajasthan, it has increased its reach in rural as BoR has a total of 463 branches – 40% are
located in rural and semi-urban areas
– ICICI also has tie dup with NGO's and other community-based societies in order to train and equip them to deliver
products and has already transformed hundreds of them into Micro-Finance Institutions (MFIs)
– Has set up a model in which channel partners are appointed at different franchisees and kiosks
– Channel partners are the local people who provide banking services which are usually obtained in regular branches
– They operate like a full-fledged bank and are available in small centers, sharing profits and losses with ICICI
• RBI
– Project Financial Literacy : includes financial education to the rural people through various mediums. These include
films, games, cartoons etc. which could appeal to the rural audience. Its main objective is to spread financial
information about the central bank and general banking concepts to target groups such as women, self help groups
etc.
• SBI
– Instead of spending too much on setting up office s, the firm minimized the documents required for loan provisions;
like - no income statement provision is required for loan processing
Future Trends
• As per the World Bank Report, it is estimated that in next 5 years, 65% of the Rural people will have excess
to MFIs.
• Many Pvt. Banks and Foreign Banks would enter this business segment, because of very low NPAs.
• It is estimated that 5 % of the people below the poverty line will get reduced in the next 5 years
Thank You