Short Notes on Financial Inclusion (India) #Must_Read

FINANCIAL INCLUSION

It is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups financial inclusion involves

1) Give formal banking services to poor people in urban & rural areas.

2) Promote habit of money-savings, insurance, pension-investment among poor-people.

3) Help them get loans at reasonable rates from normal banks. So they don’t become victims in the hands of local moneylender.

Some Important initiatives for financial inclusion:

1) Lead Banking Scheme (LBS).

2) No Frills Account.

3) BSBDA

4) Business Correspondents (BC) system.

5) Swabhiman Campaign

6) PMJDY (Pradhan Mantri Jan Dhan Yojana)

Lead Bank Scheme

The Lead Bank Scheme, introduced towards the end of 1969, envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district. Accordingly, all the districts in the country have been allotted to various banks. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas, with the district being the basic unit in terms of geographical area.

No Frill Account

'No Frills 'account is a basic banking account. Such account requires either nil minimum balance or very low minimum balance. Charges applicable to such accounts are low. Services available to such account are limited. In what can be described as a watershed Annual Policy Statement, the RBI in 2005-06 called upon Indian banks to design a ‘no frills account’ – a no precondition, low ‘minimum balance maintenance’ account with simplified KYC (Know Your Customer) norms but all the existing ‘No-frills’ accounts opened were converted into BSBDA in compliance with the guidelines issued by RBI in 2012.

BSBDA

RBI in 2012 came out with fresh guidelines and asked banks to offer a ‘Basic Savings Bank Deposit Account’ which will offer following minimum common facilities to all their customers. These guidelines includes:-

(a) This account shall not have the requirement of any minimum balance.

(b) The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments;

(c ) While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and

(d) Facility of ATM card or ATM-cum-Debit Card.

Business Correspondent

Business correspondents are bank representatives. They personally goes to the area allotted to them and carry out banking.

• They help villagers to open bank accounts.
• They help villagers in banking transactions. (deposit money, take money out of savings account, loans etc.)
• The Business Correspondent carries a mobile device.
• The villager gives his thumb impression or electronic signature, and get the money.
• Business Correspondents get commission from bank for every new account opened, every transaction made via them, every loan-application processed etc.

Recently on Financial Inclusion

The Reserve Bank of India (RBI) has constituted a committee with the objective of working out a medium-term (five-year) measurable action plan for financial inclusion. The terms of reference will include reviewing the existing policy of financial inclusion, including supportive payment system and customer protection framework, taking into account the recommendations made by various committees set up earlier.

It will also study the cross-country experience in financial inclusion to identify key learning, particularly in the area of technology-based delivery models, which could inform policies and practices. The committee will also suggest a monitorable medium-term plan for financial inclusion in terms of its various components like payments, deposit, credit, social security transfers, pension and insurance.

“Deepak Mohanty”, RBI executive director, will chair the committee. 

PMJDY (Pradhan Mantri Jan Dhan Yojana)

• Short Description
  Pradhan Mantri Jan Dhan Yojana is world's largest financial inclusion drive launched by the Government of India.

  

  
  
  More about PMJDY:
  

  Website:   http://pmjdy.gov.in

Brief On Non Performing Assets

Banking Awareness: All About NPAs

 

What are NPA’s (Non Performing Assets):

A mortgage in default would be considered non-performing, after a prolonged period of non-payment (90 days).

The lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency. 

Here is an example to help you understand what NPA’s are and how Banks counter it-

Mr. X decided to start a business for that he needed money (the fuel) , X had 25% of the money in his pocket, he decided to go through the route of Initial Public Offering(IPO) to generate 25% more by offering his company shares to public , the remaining 50% he borrowed from Dena bank by mortgaging his papa’s land.

Days passed and the company started to do badly then to worse and the loan installments lapsed month on month, Lena bank issued warning but X continued the bad practice for more than 90 days (condition for NPA) and the bank labeled X as defaulter and the loan as a Non Performing Asset.

Now what X will do?

 He could take his case against the bank to Debt recovery tribunal (DRT- A court for such cases).

What are Lena bank’s options?

In 2002, Govt. gave bank’s a lifeline called as SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of security interest Act)

With this Act Lena bank has the power to take possession of Mr.X’s property or can transfer this to some other ownership.

What bank will do with the acquired property?

Ø  Bank can use this for their own purpose like , opening a new branch on it, installing of ATM’s etc.

Ø  Bank can advertise in newspapers for the auction of the property acquired and could auction them on any pre decided day.

Ø  Bank can sell the property to ARC (Asset Reconstruction Company), these are registered companies under RBI, they buy such assets from banks and sell them at higher prices to gain profits.

NOTE- Total amount of NPA’s are around 4.4% of the total assets of banks in India and expected to increase to 4.7% till the end of FY’15

A Brief on CURRENCY SYSTEM IN INDIA

A Brief on CURRENCY SYSTEM IN INDIA

Dear Readers,

Today I am providing you all some important points on our Currency system as this is one of the important topic within Banking Awareness.

Present Denomination of Bank Notes:

At present, banknotes in India are issued in the denomination of Re.1, Rs.5 Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called banknotes as they are issued by the Reserve Bank of India (Reserve Bank).

Denomination of Bank Notes & Coins:

The Reserve Bank can also issue banknotes in the denominations of five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify. There cannot, though, be banknotes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India of Act, 1934.  Coins can be issued up to the denomination of Rs.1000.

Role of Government of India in Currency System:

In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India. The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The Government of India also attends to the designing and minting of coins in various denominations.

How much currency to be produced?

The Reserve Bank decides the volume and value of banknotes except Re. 1 note to be printed each year. The quantum of banknotes that needs to be printed, broadly depends on the requirement for meeting the demand for banknotes due to inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements.

Who decides the coins issue?

The Government of India decides the quantity of coins to be minted on the basis of indents( official order) received from the Reserve Bank.  

How does the Reserve Bank estimate the demand for banknotes?

The Reserve Bank estimates the demand for banknotes on the basis of the growth rate of the economy, the replacement demand and reserve stock requirements by using statistical models/techniques. 

What is a currency chest?

To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorized select branches of scheduled banks to establish Currency Chests. These are actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank.

What is a small coin depot?

Some bank branches are also authorized to establish Small Coin Depots to stock small coins. The Small Coin Depots also distribute small coins to other bank branches in their area of operation.

What are soiled, mutilated and imperfect banknotes?

(i) "soiled note:" means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note.

(ii) Mutilated banknote is a banknote, of which a portion is missing or which is composed of more than two pieces.

(iii) Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote.

 Can soiled and mutilated banknotes be exchanged for value?

Yes. Such banknotes can be exchanged for value.

Clean Note Policy:

Reserve Bank of India has been continuously making efforts to make good quality banknotes available to the members of public.  To help RBI and banking system, the members of public are requested to ensure the following:

a) Not to staple the banknotes

b) Not to write / put rubber stamp or any other mark on the banknotes

c) Store the banknotes safely to prevent any damage

Note:

1) Seeking to spread awareness among public about fake notes, the Reserve Bank has launched a website explaining ways to detect counterfeit notes. With a tagline 'Pehchano Paise Ki Boli, Kyunki Paisa Bolta Hai', the website- www.paisaboltahai.rbi.org.in -- gives visual presentation with pointers on currency notes of 10, 20, 50, 100, 500 and 1,000 rupee denominations.

2) MINIMUM RESERVE SYSTEM

The Reserve Bank has the sole right to issue currency notes, except one rupee notes which are issued by the Ministry of Finance. The RBI follows a minimum reserve system in the note issue. Initially, it used to keep 40 per cent of gold reserves in its total assets. But, since 1957, it has to maintain only Rs. 200 crores of gold and foreign exchange reserves, of which gold reserves should be of the value of Rs. 115 crores.

3) After a gap of over 20 years, Re 1 note has been released in the country and it bears the signature of Finance Secretary Rajiv Mehrishi. Incidentally, the note was released at Shrinathji temple in Nathdwara, Rajasthan, on March 6 by Mehrishi.