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KARUR VYSYA BANK

Key to Success

KARUR VYSYA BANK ALREADY HAS A STRONG PRESENCE IN RURAL AND SEMI-URBAN AREAS. IT

WILL NOW BRING MORE VILLAGES WITHIN ITS FOLD WITH THE FINANCIAL INCLUSION PLAN

Karur Vysya Bank has a strong presence in semi-urban and rural areas,having started its first rural branch in November 1970. As of date, out of its 346 branches, 123 are located insemi-urban areas and 53 in rural centres. "Our bank has been a pioneer in encouraging the use of ATMs insmaller centres. The first such ATM in a rural centre was installed in March 2002," says PT Kuppuswamy,MD and CEO, Karur Vysya Bank.

Semi-urban branches contribute to 22 percent of the total business of the bank, while the rural branchescontribute five percent. On an average, the semi-urban branches are growing at about 25 percent, while therural branches at about 40 percent. "Less than one percent of the total number of branches in semiurbanand rural areas is reporting losses, that too branches that are in their gestation period," adds Kuppusamy.

Competition for KVB is invariably from state-owned banks and old private sector banks. "But due to longpresence and brand recall, our foray into rural centres has been very successful. Our staff in the ruralbranches interact with the public through frequent customer meets and traditional means of advertising tobring to their attention the various schemes and benefits," he says.

With the improvement in telecommunications and logistic support, location is no longer a constraint inestablishing and running branches in rural centres. As a result, KVB is now taking up financial inclusion in abig way using the Banking Correspondent model, which is expected to help improve their services in ruralareas.

In KVB's experience, the customers in the semi-urban and rural centres are very receptive to the use oftechnology in their banking operations. "Our first challenge was in making the concept of ATMs acceptableto rural customers during the initial days of implementation. For this purpose, we posted our staff in the ATM

rooms to give a practical demonstration of its use and encouraged customers to make use of the ATM," heexplains. The average number of hits in KVB's semi-urban and rural centres exceeding 100 per day itself isan indication of how well the customers have adapted to the concept.

Use of mobile banking and net banking facilities too are picking up in rural centres. "Earlier, literacy itselfwas a challenge. Today, it is technological literacy. But we are optimistic since its acceptance is high," headds.

INDUSIND BANK


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Road Ahead

THROUGH TRUCK FINANCE, INDUSIND BANK HAS ALREADY PROVED ITS COMMITMENT TO

RURAL INCLUSION AND IS NOW EXPLORING MORE OPTIONS

With the opening up of the Business Correspondent and Business Facilitatorroute by RBI in Jan 2006, the opportunities in the rural and semi-urban segments have gone up for banks inIndia. Following this, IndusInd Bank's Financial Inclusion plan proposes to use a two-pronged strategy:Bank-Led Model and Branchless Banking through Business Correspondents.

IndusInd has already been working in the rural segment through its truck financing division. "It works onrelationships at a personal level. We know our customers well. We understand how this business works, andso we can customise solutions," says SV Parthasarathy, Head Consumer Finance, IndusInd Bank.

The hub and spoke model used for truck financing has enabled the bank to view inclusive bankingholistically. One of its recent initiatives in this regard has been the special drive initiated in New Delhi underthe Indus Easy - No Frills account propaganda in Minto Road and catchment area. To include the sociallyunder-privileged, the bank has tied up with Ashok Leyland to open Savings Account for mechanics and otherassociates across India.

Currently, out of the 224 branches as on June 30, 2010, the bank operates 18 rural and 56 semi-urbanbranches. It also has 78 branches in under-banked locations, and of this, 32 branches are in semi-urbanlocations and another eight in rural locations.

Under the Financial Inclusion, the target segment is the unbanked sector, and the main competitor is theinformal sector viz, moneylenders, pawn brokers etc. "Financial literacy and safety of funds are the keydrivers. Access to affordable credit under the microfinance programme has seen a lot of informal moneylenders who used to charge high rates getting closed down," he adds.

The bank is currently in the process of identifying suitable intermediaries who can act as BusinessCorrespondents, though this area has proved to be an issue of concern. Technological innovations havehelped in cost benefit viability and Indusind is working towards making inclusion a reality.

INDIAN OVERSEAS BANK

Working towards FINANCIAL INCLUSION

INDIAN OVERSEAS BANK IS WORKING ON FINANCIAL INCLUSION THROUGH SANITATION,

EDUCATION AND OTHER CRUCIAL ASPECTS...


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Inclusive banking, in the form no-frill accounts for households that didnot have any bank account, has already brought the excluded segment into the domain of banking to a largeextent. On the basis of this achievement, many districts of the country have been declared as 100 percentincluded. "Credit facilities have also been provided to many of these account holders," says Nupur Mitra,Executive Director, Indian Overseas Bank. Unbanked villages having population of 2,000 and above areserved through brick and mortar branches or through intermediaries called Business Correspondents. Butthe key driver to this phenomenon is technology. "Smart Card and POS machines are used to enableoperation of bank accounts at the doorsteps of villagers," says Mitra.

The plan for the next two to five years is that all unbanked villages having population above 2,000 will becovered by Smart Card basis banking by March 2012. Simultaneously, the number of accounts is expectedto increase by about 500 for every such identified village, thus generating about Rs4 crore additionalSavings Accounts.

According to Mitra, from April 2012 onwards, banks will expand Smart Card based banking to other villages,that is villages with population less than 2,000. They will also cover urban slums and unbanked pocketsinside urban areas. "Opening bank branches in far-flung rural and semi-urban areas is the first and basicinitiative. Our bank has voluntarily opened branches even in very remote locations all over the country,"explains Mitra.

Not content with mere opening of branches, IOB also provides a range of products tailor-made for the ruralmass, including agricultural loans, loans for rural industries, village and cottage industries etc in the creditsegment. There is no-frill Savings Accounts in the rural segment. "Financial inclusion is the latest effort toinculcate banking habits among rural people. This encompasses opening of accounts, providing micro-creditand other financial services without the villager having to come to the branch," she adds. When IOB startedoperations on February 10, 1937, it opened three branches in Chennai, Rangoon and Karaikudirespectively. One was a metro branch, one a foreign branch and one a rural branch. Thus IOB has been into

rural banking right since inception.

"Today we have 2,012 branches of which 1,030 are rural and semi-urban," she stresses, talking about thecommitment of IOB to rural India. "In order to create awareness, we have not only been assisted by ournationalised status, but also received a great deal of word-of-mouth publicity, she adds.

INDIAN BANK

SETTING UP A MODEL

INDIAN BANK WITH AMPLE EXPERIENCE IN RURAL INCLUSION IN PUDUCHERRY WILL NOW

TRANSFER THESE LEARNINGS TO COVER RURAL AREAS IN TAMIL NADU AND OTHER STATES BY

INTRODUCING INNOVATIVE PRODUCTS TO REACH OUT TO VILLAGERS


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Since the nationalisation of banks, the main focus of our countrysfinancial system has been to include rural and semiurban areas in the financial growth of the country. Thenational and State governments have been introducing schemes to ensure that funds are easily available tothe rural sector. Despite this, those in rural areas continue to turn to the unorganised sector - moneylendersprimarily - to source money. This year, there has been a concerted effort, especially, to encourage inclusivegrowth with special thrust on taking banking to villages with a minimum population of 2,000.

Indian Bank is the State Level Bankers' Committees (SLBC) convenor in Puducherry and has successfullycovered the areas allotted to it in 2006. "Subsequently, such 100 percent inclusionwas extended toCuddalore, Kollam and other districts where our bank holds the SLBC responsibilities," says TM Bhasin,Chairman and Managing Director. The bank is responsible for 498 rural branches out of the total 1,758branches.

Through the Puducherry experience, the bank has established a model, of first conducting a survey tounderstand the needs of the villagers, reaching out to each family personally to introduce them to theconcept of savings, and open accounts for them. Through innovative products such as mortgaging of land,the bank ensures it is repaid even while letting the farmers enjoy their land. They work closely with RuralDevelopment Officers and the Panchayats for creating awareness.

In addition to brick and mortar establishments in some places, the bank also uses Information andCommunication Technologies (ICT) effectively to keep the costs down. The bank has empanelled retiredstaff as Business Correspondents (BC) - this ensures that while the BCs know their business and use theirtime productively, the bank too has the assurance that it will not be cheated. Based on its experience, thebank is in the process of drawing up a financial inclusion plan for the next three years. "As rural and semi-urban areas offer scope for future banking, our bank foresees enormous potential and opportunities," saysBhasin.

As a first step, the branches have been sensitised to open no-frill accounts, with OD (Over Draft) andgeneral credit card facilities. The bank has also introduced the SHG (Self Help Groups) concept forinculcating savings among locals and operates 27 specialised micro finance branches to cater to them.Wage payment has been facilitated through smart cards, thus eliminating middle men. Indian Bank expectsto ensure inclusive growth through an amalgamation of creating awareness among villagers, BCs, ICT andthrough brick and mortar set ups.

STATE BANK OF INDIA

On an INCLUSIVE TRAIL

THE STATE BANK OF INDIA HAS BEEN OPERATING IN RURAL AREAS FOR A LONG TIME. WITH

RURAL INCLUSION BECOMING THE KEYWORD FOR BANKS IN THE COMING YEARS, IT IS GEARING

UP WITH MEASURES TO TARGET SMALLER VILLAGES


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Despite the existence of 6,241 (as on Dec 09) branches of banks (includingcooperative and regional rural banks), microfinance institutions are expanding their operations. This islargely due to a lack of alternatives. "Our bank intends to continue working towards f inancial inclusion, saysJ Chandrasekaran, Chief General Manager, State Bank of India (SBI), Chennai.

SBI has made its presence felt in rural areas for many years, and boasts of 71 lakh no-frill accounts. Thisyear, SBI expects to open 85 branches in rural and semi-urban areas, of which 20 percent will be in theChennai circle.

The Reserve Bank of India's mandate to nationalised banks is that the villagers open an account.Chandrasekaran stresses, "SBI has been in the rural areas for three to four decades now. We made GreenRevolution happen. The challenge today is to bring small and marginal farmers into the banking fold." Forthis, the Government, the banks, and other organisations have to work together. In addition to brick andmortar branches, business correspondents will be an integral part of the system, as will technology. Kiosks,biometric and I-enabled systems will be put in place. Viability though is a challenge.

"The idea behind encouraging farmers to open accounts is to enable the Government to directly transferpayments to their accounts. This is yet to happen, and the system has not been able to scale up as

expected," he admits. This is where BCs andBusiness Facilitators (BFs) will come in to play - to facilitatetransactions, handle money. Business facilitators will be mandated with getting the accounts while BCs willbe vested with banking powers. Banks will have Officers for Marketing and Recovery (OMR) who willparallely work on acquiring business - not just agriculture-related, but other activities in the rural ecosystem.

The SBI will function on a hub and spoke model, with a rural central PC, surrounded by BCs, BFs, ownbranches and OMRs. The initiatives will be multi-pronged, and will include expanding the branch network.Technology platforms are being leveraged to enable service through BC channel. "In Chennai Circle, we aremainly concentrating on kiosk banking and hand-held device models," he says. One of the greatestchallenges of the rural banking sector is the mindset. "We will have to identify options like the GramPanchayat or individuals who can help break the ice with the villagers," he says.He says that all PSU banksneed each other to cover the vast rural ecosystem as no single bank can cover them all. Rural areastypically offer seasonal business and cost-effectiveness has to be worked out for rural bank establishments.

"We are already present in rural India through Grameen banks, cooperative banks since commercial bankscannot reach out as effectively - this is where BCs come in," he says. Funding microfinance institutions thatwork in rural areas is another way of extending support to the rural segment.

Some of the awareness measures include forming Farmers' Clubs in villages with periodical meetings toshare knowledge inputs about modern agricultural techniques, subsidylinked investment loans availablethrough various government bodies and agencies and concessionary interest investment loans. Under ascheme called SBI Ka Apna Gaon programme, special efforts are taken to create awareness amongvillagers, and facilitate intensive development of the villages, both directly, and involving government


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agencies. Chennai Circle has so far adopted 45 villages under this scheme, and this year they will be takingup 15 more villages.

TAMILNAD MERCANTILE BANK LTD.

RURAL DEVELOPMENT is the focus

TAMILNAD MERCANTILE BANK HAS ONLY 35 VILLAGES TO WORRY ABOUT. BUT IT IS NO LESS

SERIOUS ABOUT IT AS THE BANK PLANS TO CONDUCT AN ELABORATE SURVEY AND RESEARCH

BEFORE PLUNGING IN

The Tamilnad Mercantile Bank (TMB), based in Tuticorin, has been

allotted 35 villages under the rural inclusive banking scheme. But this is not the first time the bank will bedealing with the rural sector, nor will it restrict itself to these 35 villages. TMB already has 45 branches in therural segment, and it will use this experience to shape its strategy to reach out to the new villages under itssupervision. "We plan to begin with a video programme showing villagers the benefits of banking. We will beusing mobile vans to spread the message," says Nagamal Reddy, MD and CEO, TMB.

A market research is on to identify who can do this and by December, the work to spread awareness isexpected to begin. The hunt for Business Correspondents is also on, and bank staff in the existing ruralbanks will provide inputs to identify the correct profile for them.

In addition, the bank will look at not only introducing regular banking products, but also meaningful servicesaimed at the needs of the rural segment. The aim would be to increase the income of the villagers, which willin turn enhance business for the banks. Not only will agricultural activities be funded but other ruraloccupations such as handloom, handicrafts, etc will also be given a boost.

"We have also undertaken technology initiatives. Smart card vendors are being evaluated, and the processof setting up the backend is underway," says Reddy. The bank plies two mobile banking vans with fixeddays to specific villages for transactions. "This is the first-of-itskind initiative in Tamil Nadu. We want toincrease the numbers to cover more areas," he adds.

He also recognises that different methods of recovery will have to be adopted, and literacy programmes willbe one way of creating awareness about the need for repayment. Making the villagers self-sufficient will beanother method of encouraging repayments for their own benefit. "Banks should take up the lead to arrangefor cooperatives. It is our corporate social responsibility to ensure development for the sake of it instead ofwith business in mind. In the short term, development should be the focus," he stresses.

Another challenge is to do away with the concept of moneylenders. Banks will have a proactive role infreeing the labourers from the clutches of money lenders through innovative schemes, he adds.

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