rupye paise prabandhak nmims

8/4/2019 Rupye Paise Prabandhak NMIMS

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Transformation

Series:2011

2010

Y

ESBANK

NMIMS MBA CORE 2009-11

Team Name

Rupye Paise Prabandhak

SVKM's, Narsee Monjee Institute of Management Studies, Vile Parle(W), Mumbai - 400 056, India

Aditya S Prakash

FTMBA Core, NMIMS

9833692253

[email protected]

Rohit Singh

FTMBA Core, NMIMS

9987311107

[email protected]

Shraddha Kamat

FTMBA Core, NMIMS

9222167824

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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EXECUTIVE SUMMARY

It is suggested that PBoIs selection of region for its pilot project should be based on two factors:

degree of financial exclusion (quantified through CASA accounts per 100 persons) and cost of

transaction. Analysis of above factors has led to Rajasthan being chosen as the ideal region for

the rollout strategy and that mobile technology is used so as to minimize the cost. The mobile

technology must use open standards and architectures to the extent possible. The essential

feature in infrastructure to make this option viable should include low cost repository of

accounts, a payments interface and PoS (Point of sale) devices operated by bank.

The credit & non-credit products are suggested taking into consideration the need for money

among rural & semi-urban people, risk profile of bank and returns that can be achieved through

those products. These suggested products can bring in `30 Cr of income in FY 2011-12 with

further profits in subsequent years because of increase in number of branches of PBoI.

Help of civil societies, religious association & committees (RACs) and panchayats along with

word-of-mouth publicity are the major marketing strategies that PBoI should use to enhance &

retain its customer base.


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SITUATION ANALYSIS

PBoI has emerged as the #1 Mid Sized Bank in the country. PBoI has since inception

invested in innovative business processes and technology platforms and has many firsts

to its credit. PBoI wants to make a rollout strategy for financial inclusion where it can

make use of its strategic capabilities. It needs to develop innovative & profitable means

to serve rural and semi-urban segment through low cost business models.

The roll out strategy should comprise of pilot location, product offering in terms of

credit & non-credit products and marketing strategy. This entire roll out strategy and

design of products should ensure that PBoI risk profile is not significantly affected.

ROLL-OUT OF THE STRATEGY

1. Selection of Region:Factors to be considered

Number of CASA accounts per 100 person (Proxy for penetration of financial inclusion)

Number of savings account per 100 persons and number of credit accounts per 100

persons (for rural as well as urban areas) are found to be lowest for north eastern,

eastern and western region1 . Thus, opportunities of financial inclusion in these

regions are high as compared to other regions.

Costs of Transactions

A look at the comparative costs of provision of services through various channels

shows that removing the physical presence of the bank is by far the cheapest method

of transacting (Graph: 1). So even banking business in general will profit through

technological advances and convergence with digital systems of payment. Therefore,

we will select those regions where mobile penetration is high (Graph: 2).

1Source: Rakesh Mohan, RBI, IDBI Gilts L


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Selected Region - Rajasthan

Graph 2: Circle-wise Mobile Penetration2

Mobile networking is better in this region as compared to other states

Southern states have relatively better financial inclusion therefore scope of

opportunity is less

2http://www.icra.in/Files/Articles/2009-March-TelecomInfra.pdf

0

0.5

1

1.5

Branch

Callcentre

Mail

ATM

InternetU

S$

BAI ICICISource: CGAP Focus Note 32, 2006

Rajasthan is

the most

promising

state with

both

opportunity

and

sufficient

mobile

penetration.

Southern

states have

low scope

of growth

opportunity

Graph 1: Costs of Transaction


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Rajasthan is near to NCR which can very well act as its infrastructure backup

Suggestion for Strategic Advances

To set the future of PBoI Ltd. in micro-finance, as per RBI guidelines, the amount of

advance to an individual will not be greater than ` 50,000. The rate of interest to be

charged would be not less than the open interest rate of 2% p.m.3, as people in the

rural areas need very small amount loans (say ` 1000) for very small duration, say

about 15-30 days, very frequently. The formalities involved for the issuance of such

very short term loans should be minimal.

The micro loan process should be fast and simple.

Daily collection of interest (`50-100) should be done.

TECHNOLOGY DRIVEN

Mobile Technology would be a critical factor in spreading of our strategy as it would

provide the banks with a means of communicating with the customers based in far

flung villages. The mobile technology must use open standards, and architectures to the

extent possible.The essential pieces of technology infrastructure:

1. Low cost repository of accounts

2. A payments interface among the accounts (G2P and P2P)

3. PoS (Point of sale) devices operated by bank, business correspondents and

merchants

FINANCIAL PRODUCTS

Products Description Risk Mitigation

CREDIT PRODUCTS

3it comes out to be 24% p.a. for the bank


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Loan-surance In this product, the insurance premium will be

included in the loan amount itself, which would

ensure that the loan liability is secured.

The loan will

be insured in

the Banks

name.

Mobile

Overdraft

facility

(MOD)

MOD can be availed through short text

messages (SMS) only for business purpose by

the members who have opened an account with

the bank under micro finance schemes.

Mobile can be given to any civil society center in

the village or kept with the BC/BF or it can also

be available with the traders and merchants.

The member

must have a

credit balance

in the account

at least once in

2 months.

Credit Loan

Certificates

Life 6 months interest 6-7% p.a. for ` 5,000,

10,000, 20,000 for all customers with loan facility

upon it interest rate 12-13%.

The member

must have

fixed deposits

with PBoI

Dairy-

Business

Promotional

Loans

In India, there is a shift to organic farming,

where the fertilizers, pesticides, etc., which are

obtained from plant and animal products.

Government is willing to take strong actions in

promoting the conservation of cows which is

generally taken up by women in rural areas. So,

with all this in the background, PBoI should try

to get a first mover advantage by introducing

such a product.

To be approved

to only credit

worthy

customers who

have good

historical

record


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Current

account with

overdraft

facility

It is meant for small businessman, self employed

persons, religious associations and committees

For example, Ramlila committees, Mandir,

Maszid, Church and Gurudwara etc., small public

schools

Minimum

current account

balance to be

maintained

Credit

Capacity

Card

Prepare credit capacity card a of an individual

with the help of his / her property and wealth

once in a year, whenever he / she demand loan

within the capacity, there will be no paper

formalities.

Secured by

property and

wealth of the

borrower

NON CREDIT PRODUCTS

MNFB

Facility

Mobile Non Fund based credit facility up to a

prescribed limit can be availed through short

text messages (SMS) by the members who have

opened an account with the bank under micro

finance schemes.

Its a

contingent

based liability

and bank will

give this facility

only to

customers with

good track

record.

MARKETING STRATEGY

Business correspondents can be trained through training centers, seminars and

lectures. Initial training would include the knowledge of the product, its benefits,


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documentation and bank norms. Further training would include ways of expanding

and branching out further in other villages.

Direct marketing through posters describing the various benefits of the product in

the regional languages displayed at prominent places such as temples, post office,

weekly markets and at village panchayats can be done

Credit counseling centers can offer advice as to which PBoI product best suits the

needs of the customer and could also provide specialized advice to farmers, small

enterprises and self-help groups. Institutions such as temples and local community

could also be made part of this credit counseling center which would lend

authenticity to the centers. These Financial Counseling Centers (FCC) to be opened

in 5 lead districts.

Customers can also be encouraged through availing of gifts such as mixers, cookers,

bicycle and farm equipment. Festival gifts for FDRsof more than 1 year (gift value 1%

of the amount).

Word-of-mouth publicity plays through the village panchayat and elders of the

village can be tapped in to publicise the products of PBoI.

Women folk, who generally have more savings or access to savings in a household,

can be made the focus of these marketing strategies.

Bank should give more microfinance loans to build faith in the villages that it will

not run away taking their money as banks own money is stuck in the village.

PROJECTIONS

Credit Projections

Sr.no

Financial Inclusion Products Mar-11 Mar-12 Mar-13 Total for 3years

1 Core Banking Solution (CBS)

a PBoI 100.00% - -

b RRBs 0.00% 10.00% 20.00%

2 No villages coverage under Total Financial

Inclusion


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a Branches 5 20 30 55

b Micro Finance Branches 2 5 8 15

c By BC s

> 2000 population4

100 400 600 1100

< 2000 population5

300 1200 1800 33003 No. of No-Frills accounts to be opened (in

thousands)6

30 50 50 130

4 No of BCs (RACs)7 500 2000 3000 5500

Individual 100 400 600 1100

5 No. of households to be covered (in

lakhs)8

1.221 4.875 7.314 13.41

6 Credit facilities (No. in lakhs )9

a. Credit Loan Certificates10

0.317 1.268 1.902 3.487

b. Loan-surance11

0.75 1.25 1.25 3.25

c. MOD 1.221 4.875 7.314 13.41d. Dairy Business Promotional Loan

120.061 0.244 0.366 0.671

e. Credit Capacity Card 1.221 4.875 7.314 13.41

7 Non Credit Facilities

MNFB 1.221 4.875 7.314 13.41

8 Technology Initiatives

Mobiles 600 2400 3600 6600

Kiosks 500 2000 3000 5500

ATMs13 5 20 30 55

9 FCT14

2 3 4 9

10 Business Volume (Crores)

Deposits 125.00 400.00 600.00

Advances 249.603 822.125 1170.902

4No of villages covered by BCs is 20 times the no of villages covered by branches

5No of villages covered by BCs is 60 times the no of villages covered by branches

6Average accounts 200 per branch per year, Number of branches by Mar 2011 is 157, Number of branches in year

subsequent to Mar 11 is 250 with PBoI objective of opening 100 branches7

Regional Associations and Committees and Individuals, 3 vi llages are covered between 2 BCs8 Average population per village = 1500 (http://cee45q.stanford.edu/2003/briefing_book/india.html), Average

number of persons per household = 5, Household per village = 1500/5 = 3009

Minimum 1 earner per household, conservative estimate10

26% of total household, exhibit 1 of Yes Bank Case Study11

Assuming 500 loans per branch (76.6million loan taking earners exhibit 3/number of branches in India 150,000)

(NABARD)12

5% of households13

Assuming one ATM in every village covered by branches14

Financial Counseling and Training


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Income Projection

Projections for

2011-12

Projections for

2012-13

Projections for

2013-14

Credit facilities (No.in lakhs )

CreditLimit

No. ofBeneficiari

es (in

Lakhs)

Amt (Ìn

Crores)

No. ofBeneficiari

es (in

Lakhs)

Amt (Ìn

Crores)

No. ofBeneficiari

es (in

Lakhs)

Amt (Ìn

Crores)

Credit Loan

Certificates

5000 0.32 15.87 1.27 63.38 1.90 95.08

Loan-surance 10000 0.75 75.00 1.25 125.00 1.25 125.00

MOD 500 1.22 6.11 4.88 24.38 7.31 36.57

Dairy Business

Promotional Loan

(Govt Sponsored)

50000 0.06 30.53 0.24 121.88 0.37 182.85

Credit Capacity Card 10000 1.22 122.10 4.88 487.50 7.31 731.40

Total Credits 249.60 822.13 1170.90

Interest Income15

29.95 98.66 140.51

Fee Based Income

(MNFB) (1% of total

Granted)

1000 0.12 0.49 0.73

Total Income 30.07 99.14 141.24

CONCLUSION

PBoI should roll out its strategy in semi-urban & rural areas of Rajasthan as a pilot

project. Since rural areas of Rajasthan have better mobile connectivity as compared to

that of other states and taking into account minimum cost of implementation, PBoI

should build communication infrastructure on mobile technology. It can provide

different innovative products (credit & non credit), as suggested. It can rely on word-of-

mouth publicity and rural RACs for marketing its products.

15Base Rate+5% average premium

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