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BW Businessworld

For The People, By The People

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Stanla Nadar, a mother of three, works in a tailoring shop in Asia's largest slum — Dharavi, in Mumbai — to make ends meet. Till recently, she  was denied access to a bank account because she did not have a proper residential address. There are many like Nadar who don't have bank accounts even though they live and work in India's financial capital.

Angrezo Suresh Janjotan works as a sweeper and lives in a slum in Andheri. She pays Rs 5 as interest every month (60 per cent a year) on every Rs 100 she has borrowed from a money lender as her bank denied her a loan because she was not able to find a guarantor or produce a collateral for the Rs 20,000 loan. This, after she had Rs 6,000 as balance in a savings account of the same bank. If this is the low level of financial inclusion in Mumbai, what would be the condition in the rest of India?

The good news is that Nadar and Janjotan will be able to take a loan from State Bank of  India (SBI) by the end of this month or early January 2011 at 10.25 per cent interest rate. The credit goes to SBI, which has been encouraging various self-help groups (SHGs) to financially include more people. Nadar is a part of Glory Mahila Bachat Gat, a Dharavi-registered SHG, while Janjotan is a member of Jyoti Mahila Mandal, an NGO registered in Santacruz that works for the welfare of workers in unorganised sectors.

"I would like to repay my high-interest loan so that I can save more for my children," says Janjotan, while Nadar wants to start a business of selling sarees from home. "A few of us plan to give our share of the loan to Nadar so that she can make a good beginning," explains Andrew Rani, president of Glory Mahila Bachat Gat. "We are around 250 women that have formed 23 SHGs. Why we have opened an account with SBI is because individually many of us are denied loans from banks. In times of need, we have no alternative but to sell our jewellery or take a high-interest loan from a money lender. The SBI loan will act as our emergency fund."

More than giving access to credit, it is SBI's efforts in helping people cultivate a habit of saving and encouraging them to take up livelihood activities that have made it the winner for financial inclusion — for the second consecutive year, ever since Businessworld introduced this category in its Best Banks survey. The bank's mammoth size and reach ensured that the jury had no second thoughts about choosing SBI.

Today, SBI has a hold over 31 per cent market  share with 1.83 million SHGs, with one group catering to 10-12 individuals. The book size is around Rs 20,000 crore, with Rs 13,242 crore disbursement given to SHGs that have an outstanding of Rs 6,567 crore in the hands of around 18.5 million individuals. In the first eight months of FY11, SBI's book has grown by 8 per cent. It is also funding many microfinance companies, but that book size is small. Says Jayanta Sinha, chief general manager of rural business at SBI: "Our exposure to microfinance is a mere Rs 1,150 crore. Loans have been given to 210 microfinance companies."

Though Sinha was not open about it, the risk associated with microfinance has seen SBI going easy in this direction. The reason: the primary trigger for microfinance is loans, while for SHGs, it is saving.  
Purpose And Problems
It has been in the ethos of SBI to expand the banking business to the remotest parts of India. But when, in 2005-06, the government and the  Reserve Bank of India (RBI) came out with a mission of financial inclusion, SBI created a separate vertical in the bank that would pay special attention to financial inclusion and agriculture in the rural regions. It was called rural business group. SBI has a large presence in the rural and semi-urban region — 4,900 of its 13,091 branches are in rural areas (defined as areas with population less than 10,000), while 3,500 branches are in semi-urban regions. "We needed to have a focus to exploit the potential of rural regions. Already two-thirds of our branches are in this geography; it was a business opportunity for us. Simultaneously, a lot of spending is happening for these areas. The trigger for us, though, was the Rs 40,000-crore spending through NREGA (National Rural Employment Guarantee Act)," explains Sinha.
SBI has a dedicated cadre, and has recently recruited 2,500 officers to work in rural areas in marketing and recovery. Its book size is around Rs 4 lakh crore from rural and semi-urban regions, accounting for 35 per cent of the bank's total business and 65-70 per cent of the number of accounts. Already, at an all-India level, SBI enjoys 23 per cent-plus market share for deposits and advances in rural regions. SBI branches are not only opening accounts or remitting money, but are also selling financial products such as pension schemes and mutual funds. By January, they will also start selling insurance products tailor-made for rural clients.

One area where SBI lags its peers is technology. But the bank is not shying away from tackling the problem. In fact, it has a dedicated server for its rural business and has partnered with low-cost technology providers such as Fino and Eko to provide banking services through business correspondents and banking facilitators. Currently, SBI has 11 national and 193 regional alliances. "It is costly and difficult to set up a bank. But because it is difficult, we don't want to deprive, as well as miss an opportunity, to give access to potential customers. So, we have alternative channels — bank correspondents who can do small cash transactions by accepting and disbursing cash," explains Sinha.

SBI has around 14,394 customer service points in 28 states and plans to take this to 50,000 in the next three years. It is not just creating products, but also creating a demand for the products by encouraging rural employment. It has 77 rural self-employment training institutes that encourage entrepreneurship. The plan is to take the count of institutes up to 120. SBI also aims to provide banking access in 12,399 unbanked villages by 31 March 2012. So far, it has covered 905 unbanked villages with a population of above 2,000 each.

The figures may be encouraging, but the fact remains that villages and 50 per cent of India's population is still excluded from the banking system. For example, in a town like Gadchiroli, which is only about 180 km from Nagpur, there is no commercial bank. "I agree that there are remote parts where there is nothing. But by just giving bank access, we can't change the situation entirely. There are issues like law and order, social equity and social development," says Sinha. "I can't send people to places where there are security issues. I can't carry out daily transactions in difficult areas. One should also remember that there are challenges — physical challenges, technology and costing. Ultimately, it is not charity, it's business." He adds that if the government gives developmental works in these areas, the situation would improve. "But there are also people and agencies doing good work in remote regions; we are scouting to partner with them."

Sinha hits the nail on its head in raising the socio-economic issues. In fact, SBI is grappling with such issues even in major cities. They are losing affluent customers to competitors such as Axis Bank and ICICI Bank in Mumbai. "Rich people don't want to rub shoulders with poor people. For example, in our Bandra-Kurla (BKC) branch, a lot of rural migrants who are taxi drivers and construction workers, come to remit money to places such as Bihar. Affluent customers have an issue with low-end customers and due to this congestion, I see business going to my competitors. My problem is I can't close the doors to any customer," says Sinha.

 What SBI did is start the SBI Tatkal Scheme. Rather than coming to the bank, people can go to a kiosk to remit money. This has also generated additional income for people like Rizwan Khan, who runs a mobile recharge shop in the heart of Dharavi. In the past one month, since the kiosk opened, he has been remitting Rs 1-1.5 lakh everyday. "I see huge potential as I can open accounts, complete deposits and remit money, for which the bank pays handsome commission. Daily, I receive Rs 200-300 additional income only from remittances," says Khan.

 The introduction of the unique identification (UID) number, too, will give a thrust to financial inclusion. As Sinha puts it: "If India is growing, everyone will grow. We see a lot of potential and business opportunity. Everyone is going  rural — be it a banker or a multinational. The methods would be different, but the goal is the same." In the end, it's always about the money.


(This story was published in Businessworld Issue Dated 03-01-2011)