Name: (X- Groundies)

Preetam Babu (UR14026)

Swarup Ranjan Ghadei (UR14040)
Somnath Kejriwal (UR14078)
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Is the rural retail banking ecosystem essentially ready to scale up to become a growth
driver of emerging Indian economy?
Context: As India being emerging economic giant, the banking industry has a crucial role to play in the
economic development of the country and is the most dominant segment of the financial
sector. Retail banking a service of banking sector is being identified to have the phenomenon
potential to lead the country towards the growth (By RBI) which accounts for one fifth of the
total credit facilities being provided by banks. But still the retail banking has been accessed
by only 35% of the adults in India as per World Banks Global Financial Inclusion Survey
(2012). As on January 2015 banks had opened 124 million accounts under the Prime
Ministers financial inclusion scheme, according to PMJDY website. Of this, nearly 74
million were from rural areas and is expected to be covering only 20% of the rural population
of the country. Thus financial inclusion will act as the primary growth driver that will help
transform the Indian banking sector. Out of the above figure only 10% of the account holders
are availing credit facilities. Rural Retail banking industry can be leading role in countrys
path towards growth. Also a large part of the rural Indian population is unskilled & poorly
educated. They need a certain amount of money to spend in skill development & education to
make them employable. Thus loans are the medium to make them avail the basic education &
skill development & then repay the loan amount when they become employed in instalments.
Also, the rural populations increasing purchasing power and the disposable income provides
an opportunity to be explored. It is a great opportunity being provided by the various
interventions like PMJDY, Digital India, license to the small banks and many others as
platform but the bigger challenge is to ensure the loans goes in the right way as required. To
keep the financial sector healthy, we need to also ensure that these loans given to the country
people who would be in large amount i.e. crores or hundreds of crores must be repaid. Also it
is also very important to ensure that the supporting institutions and the infrastructure being
available at the bottom level to boost up these initiatives.
Presently there are various Schemes namely Pradhan Mantri Jan Dhan Yojana (PMJDY) and
Digital India being implemented across india which are directly contributing to the growth of
rural retail banking ecosystem: 1. Pradhan Mantri Jan Dhan Yojana (PMJDY): PMJDY action plan envisages covering all households of the country so as to bring an end to
financial untouchability through its policy of zero balance accounts. Survey has to be made as
per Sub Service Area where the maximum household is fixed at 1500. Either one Bricks and
Mortar branch or one Banking Correspondent (BC) should be available within a radius of 5 k
m.
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All benefits and Direct Benefit Transfer (DBT) of the Central and State Governments will be
credited to the account. Additionally, on successful transaction for more than six months, the
account holder will be eligible for overdraft facility for Rs.5000 with insurance coverage of I
NR 1 lac also being extended to the account holder. In the second stage, other financial servic
es such as MF, Bancassurance etc. will be made available. The plan is being implemented thr
ough all the public, private and regional rural banks in India with a mandate to open at least 2
5 percent of the branches in unbanked rural areas.
Importance and expected Impact: To attain financial inclusion by giving the bottom of the pyramid and rural masses acc
ess to financial services such as easy credit, savings account and insurance facilities
Curb corruption at the grass root level through direct transfer of government welfare s
cheme and subsidy benefits to the beneficiaries instead of the rural elites
Serve as linking chain to suffice the financial needs of other community development
and employability schemes such as model village, skill development plan and make in
India initiative recently announced by government.
Enhance the development growth trajectory of the country as whole by bringing the m
arginalised into the mainstream.

Challenges for Pradhan Mantri Jan Dhan Yojna:The challenge now is to keep this accounts opened transacting. One of the options can
be to give the pay to every individual through the account in order to ensure the
accounts active & through the active account individual availing other benefits
possible.
The Jan Dhan Yojana has brought the Inclusion in terms of opening of account now
its the challenge that the inclusion in terms of banking facility & making sure the
benefits are utilized for the right purpose in right direction. One of the method can be
tracking the loans & repayments in terms of Aadhar based i.e. it will be easy to track
down each & every individual.
The challenges are also on the terms of innovations in the banking facilities of the
country to handle the increase in the transactions & the database handling facilities.
The banking system must be made such that financial inclusion a viable business
strategy. The banks should invest in the new technological innovations in order to
handle such a large consumers & processing of the information & allowing the faster
opening of accounts like KYC. The bank needs to increase the employees by
recruiting more staffs to support the base. In Urban areas fee is a major contributor to
business growth but rural business is focused on lending to the population for the
banks.
The advent of small and payments banks, while talking about the challenges and
opportunities that they are likely to face. These banks are aimed at serving customers
who do not have access to the formal banking system. India will need at least 50 small
banks in the next five years. A small bank would need to develop a deposit base of at
least Rs.1,200 crore to be viable for business. This was likely to take a few years and

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could play as a valley of death for many new players, he added. When it comes to
competition, established banks need not need be wary of small and payments banks,
but rather learn about the innovative technology and business models that they will
bring in to the banking space.

2.Digital India
Digital India is a recent Government of India initiative to make sure that all Government
work go online which will help speeding processes and ensure transparency. It will also help
in reducing paper work.
With the launch of Digital India programme, the government is taking a big step forward to
transform the country into a digitally empowered knowledge economy.
How does digital India initiative ensure financial inclusion?
The Digital India initiative, coupled with payments infrastructure, will be the starting point
for a digital economy, it will also help in proper implementation and functioning of various
programmes that have been functional.
1.Aadhar card
The technology-levered Aadhar programme is likely to be the biggest disruptor in financial
inclusion delivery, as innovations leveraging the Aadhar card are expected to assist in broad
basing the access and acceptance by financially excluded segments. An Aadhar card
provides a 12-digit individual identification number, issued by the Unique Identification
Authority of India (UIDAI), to serve as a proof of identity and address. This card is based on
biometrics technology. In addition, the Aadhar Enabled Payment System (AEPS), an open
platform which is a bank-led model, allows online interoperable financial inclusion
transaction at points of sale (MicroATM) through the business correspondent of any bank
using Aadhar authentication. Over 880 million Aadhar cards have been issued as on 21
July 2015. The programme aims to achieve 100 per cent coverage by 2016.06 Following are
some innovative initiatives based on demand side drivers that the Aadhar programme is
expected to propel:
2. Direct benefits transfer (DBT)
The scheme was initiated to facilitate disbursements of government entitlements such as
those under the National Rural Employee Guarantee Act (NREGA), social security pension
scheme, handicapped old age pension scheme, etc. of any central or state government bodies,
using Aadhar and authentication thereof, as supported by UIDAI.
3. Retail banking
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The provision of these services is expected to encourage electronic retail payments and
facilitate inter-operability across banks in a safe and secured manner.
4. Creation of a commercially viable rural banking and financial inclusion model
This is likely to provide a cost-effective model for dispensing last mile access by leveraging
AEPS for biometric identification, using bank technology interfaces for smooth delivery of
services.
Challenges for Digital India: First and foremost, the coverage target set for this initiative is huge.so if we are serious about
making the whole country digitally enabled, we need to set short term targets and keep the
momentum sustainable and action oriented.
This would ensure that each and every aspect of the programme is pushed to show results on
the ground and not go into hibernation after one week of enthusiasm. Considering that most
of the nine pillars of the Digital India programme face serious challenges in implementation,
it is imperative that focused, persistent attention be given to each of its pillars so that the big
programme does not end up in embarrassment and failure.
Another important problem is that the entire programme is designed as a top-down model.
There is no idea of how it would be implemented on the ground to be successful. Infact the
process of implementation of this programme is not clear for six of the nine pillars of the
programme directly related to consumers and people at large: broadband highways, universal
access to mobile connectivity, public Internet access programme, e-kranti or electronic
delivery of services, information for all, and IT for jobs.
Broadband highways, now called BharatNet, is supposed to connect up to gram panchayat,
but laying fiber optic cables is the least of the challenges here. The biggest challenge is
ensuring that each panchayat point of broadband is fired up, functional, used and distributed.
If the broadband highways programme is not implemented well and soon, we may not be able
to implement other pillars of the programme, such as the public Internet access programme,
e-kranti, information for all, and even IT for jobs. All these are dependent on access
infrastructure.
Key Learnings

As per our analysis the rural financial ecosystem consists of 4 major stakeholders(Annexure I) consisting government, market, human resources and the rural community. While the
government plays a great role in policy making and advising, there is a need to enhance the
rural institutions such as SHGs, JLGs and give the grass root level institutions greater
authority and role through fast policy enactments which can create an conducive
environment. Further there is a huge need to develop the basic rural market infrastructure
such as roads, electricity, internet connectivity etc. through public, private or a mixed privatepublic partnership based model. This should serve as the basis for linking the mainstream
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financial institutions with grass root level rural institutions leveraging upon shared
infrastructure and ICT based last mile solutions to reduce costs, risks etc. The onus would lie
upon the financial institutions itself to engage its employees to directly connect with the rural
masses through financial literacy campaign. This would help them develop products to meet
the needs of the rural masses and address issues such as need of collateral security, low credit
rate, identity documentation problem etc.
It was observed that the rural retail banking infrastructure is not strong enough to drive the
growth but needs the establishment of supporting institutions. Also the financial literacy
among the rural masses needs to be strengthened so as to bring savings culture among them.
The saving culture cannot be developed overnight but requires an exclusive programme,
which can lead these small savings to the growth of countrys economy as a whole.
Annexure- I(Rural Banking Eco-System)

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