Financial Inclusion

Question 1

Financial Inclusion

Answer 1

Three priority areas

1. Access to banking
2. Access to affordable credit
3. Access to free face to face financial advice

Question 2

Steps taken by govt for financial Inclusion:

Answer 2

Steps taken by govt for financial Inclusion:

1. Nationalisation of banks- 1969 and 1980
2. Regional Rural Banks in 1975
3. Priority sector landings
4. SHG’s
5. Differential rate of interest
6. Kisan Credit Cards
7. Aadhar:
   i. KYC problem will be reduced.
   ii. Risk management will undergo a paradigm shift.

Question 3

PSL includes

Answer 3

Agriculture, Export, Small scale industries, SHG, vulnerable groups

Question 4

PSL allocation

Answer 4

Categories:

Domestic scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) and Foreign banks with 20 branches and above (CB)
Foreign banks with less than 20 branches (FB)

Total Priority Sector:

CB-Total Priority 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off- Balance Sheet Exposure, whichever is higher
FB- 40 per cent of Adjusted Net Bank Credit or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher to be achieved in a phased manner by 2020

Agriculture:

CB- 18 per cent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
Within the 18 percent target for agriculture, a target of 8 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is prescribed for Small and Marginal Farmers.
FB- Not applicable

Micro Enterprises:

CB- 7.5 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
FB- Not applicable

Advances to weaker sections:

CB- 10 percent of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher
FB-Not applicable

Question 5

PSCLs

Answer 5

Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall.

This also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby enhancing lending to the categories under priority sector

Under the PSLC mechanism, the seller sells fulfilment of priority sector obligation and the buyer buys the obligation with no transfer of risk or loan assets.

Question 6

RIDF

Answer 6

Operated by NABARD

Gets money out of the priority sector lending shortfall of the banks

Used in creation of infrastructure in agriculture and rural sectors across the country

Question 7

Customer Protection

Answer 7

Banking Ombudsman (BO)
NBFC Ombudsman (NO)
Digital Transactions Ombudsman (DO)

When:
BO- 1995
NO- 2018
DO- 209

RBI designates a senior RBI official under:
BO- Banking Regulation Act, 1949
NO- Powers to regulate NBFCs under RBI Act, 1934
DO- PSS Act, 2007

Where does he sit:
BO- 21 offices across India
NO- 4@ Chennai, Kolkata, New Delhi and Mumbai, looking after respective zones.
DO- Same as BO

Customer can file free complaint against:
BO- Any type of bank
NO- Any NBFC-Deposit-taking Prepaid (e.g Mahindra, Jindal, Sriram), OR Any NBFC with assets size of 1 billion & customer interface. Although Exempt: Infrastructure finance/debt companies, Core Investment Companies, NBFCs under liquidation (for them NCLT, SEBI SCORE)
DO- Prepaid payment, instruments, Mobile wallets Apps NEFT/RTGS and other digital transactions

For amounts:
BO- upto Rs 20 lakhs
NO- upto Rs 10 lakhs
DO- upto Rs 20 lakhs

Penalties:
BO- Ombudsman can order penalty upto 1 lakh for customer mental agony, waste of time and money
NO-
DO

Question 8

Microfinance

Answer 8

1 Def: Provision of credit and other financial services like insurance of very small amount to poor in rural, semi-rural and urban areas for enabling them to raise their income level and living standards, Consumption and production needs, Other household needs like housing

2. Dominant Model: SHG-bank linkage
3. Government allows Micro credit/rural credit activities for FDI, OCB, and WRI

Question 9

Who can provide Micro credit?

Answer 9

Commercial banks, RRBs, Cooperative banks, Cooperative societies, NBFCs(both registered and non-registered)

Question 10

Microfinance: Areas of concern

Answer 10

1. Unjustified high rate of interest
2. Lack of transparency in interest and other charges
3. Multiple lending
4. Upfront collection of security deposits
5. Over borrowing
6. Ghost borrowers
7. Coercive methods of recovery

Question 11

Microfinance: Malegam Committee

Answer 11

1. Maximum interest rate - 24% for loans up to 25K
2. Creation of separate NBFC-MFI
3. 25000 can be given to families having income more than 50000
4. 75% loan for income generation purpose
5. No multiple borrowing
6. Regulation of MFI by NABARD in coordination with RBI
7. NBFC-MFI: minimum net worth=15 crore
8. Banks lending to NBFC-MFl to be considered as priority sector lending
9. Credit Information agency
10. RBI to draft a consumer protection code.