Deepali Pant Joshi: Improving banking outreach and customer service in
India
Inaugural address by Dr Deepali Pant Joshi, Executive Director of the Reserve Bank of India,
at Conference of Principal Code Compliance Officers (PCCOs) of Regional Rural Banks
(RRBs), organised by the Banking Codes and Standards Board of India (BCSBI), Mumbai,
15 July 2013.
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Assistance rendered by Mr. A.G. Ray, General Manager, Ms. Beena Abdulrahiman, Deputy General Manager and
Ms. Jaya Bharathi Kannan, Assistant General Manager is gratefully acknowledged.
1. It is a privilege to be here this morning and I would like to thank Shri A.C. Mahajan,
Chairman, BCSBI, and Shri N. Raja, CEO, BCSBI, for giving me the opportunity to be here. I
extend warm congratulations to the BCSBI on the initiative of hosting this Conference of
Principal Code Compliance Officers (PCCOs) of Regional Rural Banks (RRBs). I understand
it is an annual event.
2. The purpose is to interface with the Chairmen of RRBs. This becomes especially
important as we all accept that the quality of customer service and the bank's treatment of
customers depend on guidance of its Top Management in the building of an organization
culture committed to high level of customer service with an ethical value system.
3. The Banking Codes and Standards Board of India (BCSBI) was set up seven years
ago, since then it has prepared and published voluntary comprehensive Codes and
Standards for banks for providing fair treatment to customers.
4. It functions as an independent body to monitor and to ensure that the Codes voluntarily
adopted by banks are adhered to, in true spirit in delivering the services, as promised.
BCSBI had evolved two Codes for Member Banks to implement:
1. Code of Bank's Commitment to Customers
2. Code of Bank's Commitment to Micro and Small Enterprises
These Codes are periodically updated keeping in view the contemporary recent changes.
5. Now let us talk a bit about RRBs:
The RRBs are now treated on par with other commercial banks and as banks, they must
focus on customer empowerment and extending customer service. I have been a Director of
several RRBs many years ago and have keenly watched their evolution. I will now spend
some time in discussing their evolution and growth.
Establishment of RRBs
6. The Narasimham Working Group (1975) conceptualized the creation of RRBs in 1975
as a new set of regionally oriented rural banks, which would combine the local feel and
familiarity of rural problems characteristic of cooperatives with the professionalism and large
resource base of commercial banks. Regional Rural Banks (RRBs) were established under
the Regional Rural Banks Act, 1976 to create an alternative channel to the cooperative credit
structure and to ensure sufficient institutional credit for the rural and agriculture sector. RRBs
are jointly owned by the Government of India, the concerned State government and sponsor
banks, with the issued capital shared in the proportion of 50 percent, 15 percent and
35 percent, respectively. As per the provisions of the Regional Rural Banks Act, 1976 the
authorized capital of each RRB is Rs. 5 crore and the issued capital is a maximum of Rs. 1
crore.
7. From a modest beginning of 6 RRBs with 17 branches covering 12 districts in
December, 1975 the number of RRBs increased to 196 RRBs with 14,446 branches in 1991
operating in 518 districts across the country. After a phase of consolidation starting from
September, 2005, the number of RRBs was reduced from 196 to 82. In the current phase of
consolidation which began in October, 2012 by amalgamation of RRBs across sponsor
banks within a State, the number of RRBs has further reduced to 61 RRBs as on date with
over 18000 branches in 638 districts.
Reforms in the RRB Sector have taken place in three phases :
First Phase: 1993-2000
8. Based on the recommendations of the Narasimham Committee Report (1992), reforms
were initiated in 1993 with a view to improve the financial health and operational viability of
RRBs. Various measures including recapitalization, rationalization of branch network,
providing better access to non fund business, expanding avenues of investment and
advances, upgrading the level of technology and taking up select RRBs for comprehensive
restructuring were taken. Further, they were permitted to lend to non-target group borrowers
up to 60 per cent of new loans. From January, 1995 the investment avenues for RRBs were
broadened to improve the operational efficiency and profitability. In December, 1996 the
investment policy was further liberalised, to accord parity with commercial banks, permitting
RRBs to invest in shares and debentures of corporate and units of Mutual Funds with a
ceiling up to 5% of the incremental deposits of the bank during the previous year. Prudential
accounting norms of income recognition, asset classification, provisioning and exposure,
were implemented during this period to provide durability to the reform process. In April,
2000, RRBs were allowed to apply for permission to maintain non-resident accounts in
rupees.
Second Phase: 2004-2010
9. The next Phase of reforms started in 2004-05 with the structural consolidation of RRBs
by amalgamation of RRBs of the same sponsor bank within a State. Capital support
aggregating Rs. 1796 crore was provided during the period 2007-08 to 2009-10 as part of
this process. In October, 2004, RRBs were permitted to undertake insurance business
without risk participation and in May, 2007 they were allowed to take up corporate agency
business for distribution of all types of insurance products without risk participation. In
December, 2005, to further extend support to RRBs for accelerating the flow of credit to the
rural areas, the resource base of RRBs was expanded to include lines of credit from sponsor
banks; they were also permitted to access the term money markets and CBLO/Repo
markets. Issuance of credit/debit cards, setting up of ATMs, opening of currency chests,
undertaking government business, as subagents, were allowed to enhance business
opportunities. In March, 2006, RRBs were permitted to apply for AD-Category II licence to
undertake non-trade related current account transactions for certain specified purposes to
further enhance the scope of business. In June, 2007 to increase their exposure to foreign
exchange business they were allowed to accept FCNR deposits. RRBs were also allowed to
participate in consortium lending with sponsor banks, DFIs and other banks within the area of
operation. The capital adequacy standards were introduced in December, 2007 in the
context of financial stability and RRBs were required to disclose the level of CRAR in their
balance sheets.
Third Phase: 2010 onwards
10. Based on the recommendations of Dr. K. Chakrabarty Committee (2010), 40 RRBs
have been taken up for recapitalization to enable them to achieve and sustain a CRAR of
9%. In November, 2010 the branch licensing policy was liberalized which allowed RRBs to
open branches in Tier 3 to Tier 6 centres (with population of up to 49,999 as per 2001
Census) without prior approval from the Reserve Bank, subject to certain conditions. This
policy was further liberalized in August, 2013 to also include Tier 2 centres. The second
phase of consolidation commenced from October, 2012 with amalgamation of RRBs across
sponsor banks within a State.
Performance of RRBs Post Amalgamation:
11. It can be seen from the data on performance of RRBs post amalgamation that there
has been consistent progress in the operations of RRBs.
Post amalgamation, in terms of total business 2 RRBs are larger than some private sector
commercial banks as can be seen from the graph below:
In terms of owned funds Andhra Pragathi Grameena Bank is much larger than some of the
private sector commercial banks.
Financial Inclusion by RRBs
12. In order to achieve the objective of universal financial inclusion, RRBs have been
directed to use a combination of strategies, which include (a) provision of basic banking
products; (b) introduction of the Business Correspondent/Business Facilitator (BF) model; (c)
adoption of the relaxed regulatory Know Your Customer (KYC) guidelines; (d) enhanced use
of technology; and (e) setting up financial literacy centres in districts to achieve greater
outreach. Though the share of RRBs in aggregate deposits and gross bank credit is only
around 2.5 to 3 per cent, they play a critical role in financial inclusion. RRBs are required to
prepare Financial Inclusion Plans which are to be integrated with their business plans. The
major highlights of their performance under the first FIP for the period April, 2010-March,
2013 are as under.
1. Banking Outreach
The number of rural branches has increased by 15%. The self set FIP targets have almost
been met. At the same time number of branches in unbanked villages has grown from 0 in
2011 to 1175 as on year ended March, 2013. However, they could not completely full fill their
targets of opening up the total number of branches. The target was set around 18,755
branches while they were able to open close to 17,867 branches only as on year ended
March 2013.
2. Type of Banking Outlets- Based on Size of Population
a. Population > 2000
The total number of banking outlets can be viewed in terms of Bank Branches, Business
Correspondents (BCs) and Other Modes. For villages with population of more than 2,000
there has been a considerable increase in the number of BCs. There was a steep rise from
mere 703 BC outlets (year ended March, 2010) to close to 19,000 BC outlets (year ended
March, 2012).
b. Population < 2000
For villages with population less than 2000, the number of BCs registered a sharp growth.
However, the RRBs failed in achieving the set target for BC outlets for the year ended March,
2013.
3. Basic Savings Bank Deposit Account
It is observed that most of the Basic Savings Bank Deposit Accounts (BSBDA) were opened
through branches. The number of accounts opened through branches stood at 330.10 lakh,
while only 72.84 lakh accounts were opened through BCs (year ended March 2013).
The graphs show the amount mobilized each year (in percentage) in Basic Savings Bank
Deposit Account (BSBDA) through branches and BCs. In the year 2012, there was a sharp
fall in the amount mobilized through BCs but it has again picked up in 2013.
The total number of Basic Savings Bank Deposit Accounts has increased considerably. From
around 230 lakh accounts (year ended March, 2010) to more than 400 lakh accounts (year
ended March, 2013), the growth rate has been equal to 74%.
4. Kisan Credit Cards
The branches were successful in achieving their target number of KCCs (year ended March,
2013). No KCCs were sourced through the BCs for the years ended 2010 and 2011.
5. General Credit Cards
13. The BC is utilized to externalize part of the credit cycle. He has to work towards
spreading awareness of the availability of the bank's products and services. BCs can be
better leveraged by the RRB branches. They are in need of greater handholding and
necessarily of close and continuous supervision.
14. Though there has been reasonable progress with regard to extending the penetration
of banking services and opening of basic bank accounts, the number of transactions through
the ICT based BC outlets are poor. During the period of the next 3 year Financial Inclusion
Plan i.e. 2013-16 RRBs should endeavour to leverage technology to the optimum.
Technology enables the bank to transcend the barriers of geography and to provide services
at the borrower's doorstep. Though the initial cost is high over time it pays for itself. Regional
Rural Banks should through financial innovation try to focus on mezzanine finance, on the
creation of customised products linked to the income streams of the poor borrowers and
geared to meet the specific needs of the rural clientele. Mobile technology can be harnessed
to improve access and usage of banking services.
The Codes and RRBs
15. All banks offer the same products with variants but what distinguishes and sets apart
and gives the competitive edge to a bank is the quality of customer service extended by the
bank.
16. The Codes are the RRBs mandate, adopted by RRBs with the specific approval of the
Board of Directors. RRBs must take full ownership of these Codes and facilitate their
adoption ensuring complete adherence.
17. RRBs have undergone a sea change. They are now almost treated on par with other
commercial banks. The customers of the RRBS are illiterate and poor; there is also an
asymmetry of information. Hence the adoption of standards of behaviour and codes of
conduct framed by BCSBI for dealing with customers is an imperative.
18. At one point we are all customers of banks. What are the ingredients of treating
customers fairly? Transparency, proper disclosure, non-discriminatory and non-exploitative
pricing, building a robust and responsive grievance redressal mechanism within the bank and
also making the customer aware of redressal available through the Banking Ombudsman
Scheme. Transparency does not mean bombarding the illiterate customer with humungous
amount of information which she is neither able to understand or use. It merely means no
hidden charges. The customer must up front understand what she is letting herself in for; the
terms and conditions of the contract should be clearly understood.
19. The codes need to be clearly understood and fairly implemented by Regional Rural
Banks. Banks are commercial establishments. They are not philanthropic organizations.
However, they enjoy great leverage and an oligopolistic position simply as the borrower in
the rural areas may lack choice which his urban counterpart enjoys. This casts a much
greater responsibility upon the RRBs. Knowledge and general awareness about the Codes of
the BCSBI needs to be increased. Just this morning, Mr Mahajan shared with me that
despite valiant attempts knowledge of and appreciation of the BCSBI codes was spreading
very slowly and this was a cause of concern. The Chairmen of the RRBs must appreciate
that the poor borrower who comes to the door step of the Bank is highly unlikely to meet the
Chairman of the bank. For him the frontline manager is the Bank. The frontline manager
needs to be sensitized to the importance of the Code of Bank's Commitment to Customers.
He must understand and believe in them. This affirmation will then translate to increased
sensitivity and in empathetic behavior towards the special niche clientele of the RRBs. The
pay off in terms not just of profitability but in terms of job satisfaction assuredly, will be
tremendous.
20. To close with a few clear messages for easy recall:
• Please ensure that all the RRB staff are aware of, clearly understand and commit to
the BCSBI Codes.
• The Codes are evident in precept and practice and in the actual business of the
Banks
• Customer empowerment occurs as knowledge and awareness of customer rights is
enhanced.
Once again I thank the BCSBI for this opportunity and commend them on the initiative of
hosting this conference.