RBI/2016-17/3
FIDD.FID.BC.No.06/12.01.033/2016-17
July
01, 2016
The Chairman/ Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
Dear Sir
Master
Circular on SHG-Bank Linkage Programme
The Reserve Bank of India has,
from time to time, issued a number of guidelines/instructions to banks on
SHG-Bank Linkage Programme. In order to enable the banks to have
instructions at one place, a Master Circular incorporating
the existing guidelines/instructions on the subject has been updated and
enclosed. This Master Circular consolidates and updates the circulars
issued by Reserve Bank on the subject up to June 30, 2016 as indicated in
the Appendix.
Yours faithfully
(A. Udgata)
Principal Chief General Manager
Encl: As above
Master
Circular on SHG-Bank Linkage Programme
1. Despite the vast expansion of
the formal credit system in the country, the dependence of the rural poor
on moneylenders somehow continued in many areas, especially for meeting
emergent requirements. Such dependence was pronounced in the case of
marginal farmers, landless labourers, petty traders and rural artisans
belonging to socially and economically backward classes and tribes whose
propensity to save is limited or too small to be mopped up by the banks.
For various reasons, credit to these sections of the population had not
been institutionalized. The studies conducted by NABARD, APRACA and ILO on
the informal groups promoted by Non-Governmental Organizations (NGOs) brought
out that Self-Help Savings and Credit Groups had the potential to bring
together the formal banking structure and the rural poor for mutual benefit
and that their working had been encouraging.
2. Accordingly, NABARD launched
a pilot project to cover Self-Help Groups (SHGs) promoted by
Non-Governmental Organizations, banks and other agencies under the pilot
project and supported it by way of refinance. The quick studies conducted
by NABARD in a few states to assess the impact of the linkage project brought
out encouraging and positive features like increase in loan volume of the
SHGs, definite shift in the loaning pattern of the members from non-income
generating activities to production activities, nearly 100% recovery
performance, significant reduction in the transaction costs for both the
banks and the borrowers etc, besides leading to gradual increase in the
income level of the SHG members. Another significant feature observed in
the linkage project was that about 85% of the groups linked with the banks
were formed exclusively by women.
3. With a view to studying the
functioning of SHGs and NGOs for expanding their activities and deepening
their role in the rural sector, in November 1994, RBI constituted a working
Group comprising eminent NGO functionaries, academicians, consultants and
bankers under the Chairmanship of Shri S.K. Kalia, the then Managing
Director, NABARD. The Working Group was of the view that the linking of
SHGs with the banks is a cost effective, transparent and flexible approach
to improve the accessibility of credit from the formal banking system to
the unreached rural poor, which is expected to offer the much needed
solution to the twin problems being faced by the banks, viz recovery of
loans in the rural areas and the high transaction cost in dealing with
small borrowers at frequent intervals. The Group, therefore, felt that the
thrust of the policy should be to encourage the formation of SHGs and their
linking with the banks and in this regard, the banks have a major role to
play. The Working Group had recommended that the banks should treat the
linkage programme as a business opportunity and they may design area
specific and group specific loan packages taking into account inter alia
the potential, local needs, available talent/skills etc.
4. The Reserve Bank constituted
four informal groups in October 2002 to examine various issues concerning
micro-finance delivery. Linking of SHGs with banks have been emphasized in
the Monetary policy of Reserve Bank of India and Union Budget announcements
from time to time and various guidelines have been issued to banks in this
regard. To scale up the SHGs linkage programme and make it sustainable,
banks were advised that they may consider lending to SHGs as part of their
mainstream credit operations both at policy and implementation level. They
may include SHG linkage in their corporate strategy/plan, training
curriculum of their officers and staff and implement it as a regular
business activity and monitor and review it periodically.
5. Separate Segment under
priority sector: In order to enable the banks to report their SHG lending
without difficulty, it was decided that the banks should report their
lending to SHGs for on-lending to members of SHGs under the respective
categories, viz. 'Advances to SHGs' irrespective of the purposes for which
the members of SHGs have been disbursed loans. Lending to SHGs should be
included by the banks as part of their lending to the weaker sections.
6. Opening of Savings Bank A/c: The SHGs registered or unregistered which are
engaged in promoting savings habits among their members would be eligible
to open savings bank accounts with banks. These SHGs need not necessarily
have already availed of credit facilities from banks before opening savings
bank accounts. KYC verification of all the members of SHG need not be done
while opening the savings bank account of the SHG as KYC verification of
all the office bearers would suffice. Further, it is clarified that since
KYC would have already been verified while opening the savings bank account
and the account continues to be in operation and is being used for credit
linkage, no separate KYC verification of the members or office bearers is
necessary at the time of credit linking of SHGs,
7. SHG lending to be a part of
planning process: Bank lending to SHGs
should be included in branch credit plan, block credit plan, district
credit plan and state credit plan of each bank. While no target is being
prescribed under SHG bank linkage programme, utmost priority should be
accorded to the sector in preparation of these plans. It should also form
an integral part of the bank’s corporate credit plan.
8. Margin and Security Norms: As per operational guidelines of NABARD, SHGs may
be sanctioned savings linked loans by banks (varying from a saving to loan
ratio of 1:1 to 1:4). However, in case of matured SHGs, loans may be given
beyond the limit of four times the savings as per the discretion of the
bank. Experience showed that group dynamics and peer pressure brought in
excellent recovery from members of the SHGS. The flexibility allowed to the
banks in respect of margin, security norms, etc. under the pilot project
continues to be operational under the linkage programme even beyond the
pilot phase.
9. Documentation: A simple system requiring minimum procedures and
documentation is a precondition for augmenting flow of credit to SHGs.
Keeping in view the nature of lending and status of borrowers, banks should
strive to remove all operational irritants and make arrangements to
expeditiously sanction and disburse credit by delegating adequate
sanctioning powers to branch managers. The loan application forms,
procedures and documents should be made simple. It would help in providing
prompt and hassle-free credit.
10. Presence of defaulters in
SHGs: The defaults by a few
members of SHGs and/or their family members to the financing bank should
not ordinarily come in the way of financing SHGs per se by banks provided
the SHG is not in default to it. However, the bank loan may not be utilized
by the SHG for financing a defaulter member to the bank.
11. Capacity Building and
Training: An important step in the
Linkage Programme would be the training of the field level officials and
sensitization of the controlling and other senior officials of the bank.
Considering the need and magnitude of training requirements of bank
officers/staff both at field level and controlling office level, the banks
may initiate suitable steps to internalize the SHGs linkage project and organize
exclusive short duration programmes for the field level functionaries. In
addition, suitable awareness/sensitization programmes may be conducted for
their middle level controlling officers as well as senior officers.
12. Monitoring and Review of SHG
Lending: Having regard to the
potential of the SHGs, banks may have to closely monitor the progress
regularly at various levels. In order to give a boost to the ongoing SHG
bank linkage programme for credit flow to the unorganized sector, banks
were advised in January 2004 that monitoring of SHG bank linkage programme
may be made a regular item on the agenda for discussion at the SLBC and DCC
meetings. It should be reviewed at the highest corporate level on a
quarterly basis. Further the progress of the programme may be reviewed by
the banks at regular intervals. A progress report, as prescribed vide circular FIDD.FID.BC.No.56/12.01.033/2014-15 dated May
21, 2015, may be sent to NABARD (Micro Credit Innovations
Department), Mumbai, on a half-yearly basis, as on 30 September and 31
March each year so as to reach within 30 days of the half-year to which the
report relates.
13. Encourage SHG Linkage: Banks should provide adequate incentives to their
branches in financing the Self Help Groups (SHGs) and establish linkages
with them, making the procedures absolutely simple and easy while providing
for total flexibility in such procedures to suit local conditions. The group
dynamics of working of the SHGs may be left to themselves and need neither
be regulated nor formal structures imposed or insisted upon. The approach
to financing of SHGs should be totally hassle-free and may include
consumption expenditures.
14. Interest rates: The interest rate applicable to loans given by
banks to Self Help Groups/member beneficiaries would be left to their
discretion.
15. Service/ Processing charges: No loan related and adhoc service
charges/inspection charges should be levied on priority sector loans up to ?
25,000. In the case of eligible priority sector loans to SHGs/ JLGs, this
limit will be applicable per member and not to the group as a whole.
16. Total Financial Inclusion
and Credit Requirement of SHGs: Banks
have been advised to meet the entire credit requirements of SHG members, as
envisaged in the Paragraph 93 of the Union Budget announcement made by the
Honourable Finance Minister for the year 2008-09 where in it was stated as
under: "Banks will be encouraged to embrace the concept of Total
Financial Inclusion. Government will request all scheduled commercial banks
to follow the example set by some public sector banks and meet the entire
credit requirements of SHG members, namely, (a) income generation
activities, (b) social needs like housing, education, marriage, etc. and
(c) debt swapping".
Appendix
List
of Circulars consolidated in the Master Circular
Sr.
No.
|
Circular
No.
|
Date
|
Subject
|
1.
|
RPCD.No.Plan.BC.13/
PL-09.22/91/92
|
July 24,1991
|
Improving Access of Rural poor
to Banking- Role of Intervening Agencies- Self Help Groups
|
2.
|
RPCD.No.PL.BC.120
/04.09.22/95-96
|
April 2,1996
|
Linking of Self Help Groups
with banks- Working Group on NGOs and SHGs- recommendations –Follow up
|
3.
|
DBOD.DIR.BC.11/13.01.08/98
|
February 10,1998
|
Opening of Savings bank
accounts in the name of Self Help Groups(SHGs)
|
4.
|
RPCD.PI.BC/12/04.09.22/98-99
|
July 24,1998
|
Linking of Self Help Groups
with Banks
|
5.
|
RPCD.No.PLAN.BC.94/04.09.01/98-99
|
April 24,1999
|
Loans to Micro Credit
Organizations- Rates of Interest
|
6.
|
RPCD.PL.BC.28/04.09.22/99-2000
|
September 30,1999
|
Credit delivery through Micro
Credit Organizations/ Self Help Groups
|
7.
|
RPCD.No.PL.BC.62/04.09.01/99-2000
|
February 18, 2000
|
Micro credit
|
8.
|
RPCD.No.Plan.BC.42/04.09.22/
2003-04
|
November 03, 2003
|
Micro Finance
|
9.
|
RPCD
No.Plan.BC.61/04.09.22/2003-04
|
January 09, 2004
|
Credit flow to the unorganized
sector
|
10.
|
RBI/385/2004-05,
RPCD.No.Plan.BC.84/04.09.22/2004-05
|
March 03, 2005
|
Submitting progress report
under micro credit
|
11.
|
RBI/2006-07/441
RPCD.CO.MFFI.BC.No.103/12.01.01/2006-07
|
June 20,2007
|
Microfinance-Submission of
progress reports
|
12.
|
RPCD.MFFI.BC.No.56/12.01.001/2007-08
|
April 15, 2008
|
Total Financial inclusion and
Credit Requirement of SHGs.
|
13.
|
DBOD.AML.BC.No.87/14.01.001/2012-13
|
March 28, 2013
|
Know Your Customer Norms/Anti
Money Laundering Standards/ Combating of Financing of
Terrorism/Obligation of banks under Prevention of Money Laundering Act,
2002 – Simplifying norms for Self Help Groups
|
14.
|
FIDD.FID.BC.No.56/12.01.033/2014-15
|
May 21, 2015
|
SHG-Bank Linkage Programme –
Revision of progress reports
|
|