Bandhan A microfinance group that beat corporates to a bank license

Dear readers, here we are poting a post on India's newly minted banking institutions. Know more about it.

The Reserve Bank of India granted "in-principle" approval for banking licences to infrastructure financing firm IDFC and Bandhan from among 25 applicants, including corporate heavyweights ADAG Group, Aditya Birla Group and Bajaj Group.

The RBI said it assessed the quantitative and qualitative aspects of the applicants, including their financial statements, 10-year track record of running businesses, proposed business model for the bank and demonstrated capabilities for running a bank, plan for expanding inclusion, and culture of compliance and integrity.

Bandhan was the only microfinance institution that applied for a banking licence.

Organisational Background

Bandhan (meaning togetherness) was born in 2001 under the leadership of Mr. Chandra Shekhar Ghosh, a Senior Ashoka Fellow. The main thrust of Bandhan is to work with women who are socially disadvantaged and economically exploited. Bandhan works for their social upliftment and economic emancipation.

To achieve the above objective, Bandhan is basically engaged in the delivery of microfinance services to the poor women.

Bandhan has been engaged in the delivery of microfinance service for the last 12 years. The model followed is individual lending through group formation.

All microfinance activities are carried under Bandhan Financial Services Private Limited (BFSPL), incorporated under the Companies Act, 1956 and also registered as a Non Banking Financial Company (NBFC) with the Reserve Bank of India (RBI).

The microfinance operations started from Bagnan, a small village which is 60 kms away from the city of Kolkata. In 12 years, Bandhan has travelled a wide geography of 22 States and Union Territories with special focus on eastern and underdeveloped states of North East.

Bandhan’s commitment towards triple bottom-line values is strongly asserted by its intervention in development activities. It believes that Microfinance is not the last word for development of the poor.

Aspiring to holistic development of the poor, Bandhan offers development activities in crucial fields of education, health, unemployment, livelihood and the like through its not-for profit entity. Besides, Bandhan also has a program exclusively for the hard core poor (generally believed to be bypassed by microfinance)

Here's all you need to know about one of India's newly minted banking institutions:

 • Bandhan Financial Services, the first microfinance institution in the country to win a bank licence, is also one of the youngest entities to be allowed to enter the banking space.

• The Economic Times reports that Bandhan is the biggest microfinance company in India, with a presence in 22 states. It is growing at 25-35 percent.

• Set up in 2001 by Chandra Shekhar Ghosh, Kolkata-based Bandhan began with a focus on working with "socially disadvantaged and economically exploited women," according to its website.

• Bandhan wants to reach 1 crore poor households by 2020, ET reports.

• In 2007, Forbes magazine ranked it #2 in its first ever list of the global top 50 microfinance institutions.

• According to ET, Ghosh will be the first private entrepreneur from Kolkata to set up a bank, post Independence

.

• With 2,016 branches across 22 states and Union territories, Bandhan had over 52.33 lakh borrowers as of February.

• It disbursed Rs 963 crore of loans in February and has total loans outstanding of Rs 5,704 crore.

• Bandhan's current net worth is Rs 1,100 crore, of which Rs 96 crore is pure equity with a capital adequacy ratio of 21 percent.

• ET estimates that Bandhan will need to keep Rs 1,420 crore as statutory liquidity requirement and Rs 246 crore as cash reserves with the RBI.

• The Business Standard reports that the International Finance Corporation bought an 11 percent stake in Bandhan in 2011 for about Rs 135 crore, with the micro-lender being valued at approximately Rs 1,227 crore.

• Sidbi (Small Industries Development Bank of India) is the only other institutional investor in Bandhan, with a 10 percent stake.

 • According to BS, Ghosh owns 1.8 percent while two trusts, the Financial Inclusion Trust and the North East Financial Inclusion Trust, hold the balance.

• The institution charges 22 percent interest for loans up to Rs 15,000. Ghosh had earlier told BS that, if granted a banking licence, the rates could come down by 6-7 percent.

• Bandhan said the award of the banking licence was a recognition of the microfinance sector and their hard work to reach unbanked areas and provide financial services. "We will be able to offer full-fledged banking services to the poor people," Bandhan Chairman and Managing Director Ghosh said.

• Bandhan has loan schemes such as Samriddhi for the MSME sector and Sushiksha for education, among others. It also runs the Bandhan School of Development Management.

08:33 - By Unknown 0

Banking Awareness: CASA

In continuation to our Banking Awareness series, today we are providing you a brief about CASA.

Casa Ratio: Casa is basically the current and savings account deposits. The CASA ratio shows how much deposit a bank has in the form of current and saving account deposits in the total deposit. 

If the CASA ratio is higher than it means that a higher portion of the deposits have come from current and savings deposit.

This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

Current and Saving Accounts are demand deposits and therefore pay lower interest rates compared to term deposits where the rates are higher.

In India, interest rates paid on current and savings account deposits is administered by banking regulator - the Reserve Bank of India.

Why are banks keen on gained a higher share of CASA?

Interest rate paid on Casa is much lower compared to other deposits like term deposits or recurring deposits. While banks do not pay any interest on current account, interest paid on savings account deposit is 4%.

Banks therefore make maximum effort to increase the share of Casa on their books to reduce their overall cost of deposits. HDFC Bank has the highest share of Casa to total deposits at 52%, followed by the State Bank of India at 48% and ICICI Bank at 45%.

What does Casa mean for customers?

Recently interest paid on savings account deposits is 4%. Banks pay interest on savings deposits on a daily basis rather than paying on the minimum balance maintained by them in six months.

As a result, savings account customers earn better returns compared to what they earned a year ago.

Further, interest earned on savings account deposits does not attract TDS (tax deduction at source). Interest income above 10,000 a year attracts TDS of 10% in case of term deposits. However, there is no major benefit for current account deposits, which is mainly maintained by corporates and traders.

What are the disadvantages of high CASA?

These deposits can move out of banks' books anytime, leading to asset-liability mismatches. While in case of term deposits, banks are almost certain that the depositor may not withdraw money before the maturity of the deposit and may also renew the deposit on maturity.

Further, to finance long-term projects, banks need to have long-term liabilities on their books to avoid mismatches. Banks cannot rely on Casa deposits to fund long-term loans.

05:19 - By Unknown 0

Banking Buzzwords Expected Questions for 14 and 15/Dec/2013 IBPS Clerk III exam

1. What is a Government Security?

Ans: A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.
Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).

2. Treasury Bills (T-bills)?

Ans: Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest.

3. What are the Open Market Operations (OMOs)?

Ans: OMOs are the market operations conducted by the Reserve Bank of India by way of sale/ purchase of Government securities to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis.

For Ex: When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, the RBI will buy securities from the market, thereby releasing liquidity into the market.

4. What are the various types of financial markets?

 The financial markets can broadly be divided into money and capital market.

A. Money Market: The money market provides investment avenues of short term tenor. Money market transactions are generally used for funding the transactions in other markets including Government securities market and meeting short term liquidity mismatches.

By definition, money market is for a maximum tenor of up to one year. Within the one year, depending upon the tenors, money market is classified into:

i. Overnight market or Call money - The tenor of transactions is one working day.

ii. Notice money market – The tenor of the transactions is from 2 days to 14 days.

Iii. Term money market – The tenor of the transactions is from 15 days to one year.

B. Capital Market: Capital market is a market for long-term debt and equity shares.

In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges.

5. Commercial Paper (CP)?

Ans: Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

Corporate, primary dealers (PDs) and the all-India financial institutions (FIs) that have been permitted to raise short-term resources under the umbrella limit fixed by the Reserve Bank of India are eligible to issue CP.

Period: CP can be issued for maturities between a minimum of 7 days and a maximum up to one year from the date of issue.

6. Certificate of Deposit (CD)

Ans: Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

Period: Banks can issue CDs for maturities from 7 days to one a year whereas eligible FIs can issue for maturities 1 year to 3 years.

7. What is EMV based card payments?

Ans: EMV stands for Europay, MasterCard and Visa, a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.

It is a joint effort initially conceived between Europay, MasterCard and Visa to ensure the security and global interoperability of chip-based payment cards

8. About BMB: Bhartiya Mahila Bank (BMB) is an Indian financial services banking company based in New Delhi, India.India's Prime Minister Manmohan Singh inaugurated the system on 19 November 2013 on the occasion of the 94th birth anniversary of former Indian Prime Minister Indira Gandhi.

Headquarter – New Delhi. Bank will get an initial capital of Rs 1,000 crore.

Usha Ananthasubramanian – The First CEO/Chairperson of Bhartiya Mahila Bank

9. Financial inclusion: Financial inclusion means providing sound and affordable financial services to the "unbanked”, those who do not have access to the formal financial system.

Financial inclusion is more than an economic issue - it is a legal and regulatory reform process.

10. The last 6 characters represent what in IFSC code?

Ans – Bank branch code.

The IFSC code contains 11 alphanumeric code and it facilitates - uniquely identifies a bank-branch participating in the NEFT system

11. About KYC norms?

Ans: The full form of KYC is – Know Your Customer

KYC guidelines was introduced by – RBI for all banks in the year - 2002

The components of KYC – Identity proof , address proof , photographs

The objective of KYC guidelines is – to prevent banks from criminal money laundering activities

KYC day is celebrated on – First working day of august every year

12. About BASE RATE – The minimum interest rate of a bank below which it cannot lend to public

The BPLR (Benchmark prime lending rate)was introduced in the year - 2003

The BPLR was converted into base rate on – july 2010

RBI made mandatory for all banks to introduced w.e.f. – 1July 2010

The minimum base rate is fixed by – RBI

13. About EDC : The full form of EDC – Electric Data Capture

EDS is a computerized system designed for - collection of clinical data in electronic format

14. About Bharat Nirman?

Ans: Bharat Nirman is Rural infrastructure plan which was implemented by the Government of India in order to provide some basic amenities to the rural India. launched in 2005.

Bharat Nirman have been sub-divided into six sections which includes;

Waters

Roads

Housing

Telephone

Electricity

Irrigation

15. What is the maximum deposit amount insured by DICGC?

Ans: Rs. 1 lakh  per depositor across all banks

16. The price at which the government purchases crops from the farmers is called ________.

Ans–MSP

17. Expand ASHA. – Accredited Social Health Activities

18. RBI set up the committee to look into financial inclusion under the chairmanship of ?

Ans- Dr. C. Rangarajan

19. The Good Road' is related to which of the following state of India?

Ans: Gujarat

20. Cheque Truncation System has legal sanction under which of the act?

Ans: Negotiable Instruments Act, 1881

21. According to this survey, Which of the state is the most financially developed?

Ans: Himachal Pradesh

22. The banks with a view to achieving greater financial inclusion to make which account?

Ans: "no-frills" banking account.

23. Cobrapost is founded by whom?

Ans; Aniruddha Bahal

24.Who is the co-founder of Tehelka?

Ans: Tarun Tejpal

25. Against which team Sachin Tendulkar played his last test?

Ans: Team West Indies, played in Mumbai (Wankhade Stadium) India.

26. How many tests Sachin Tendulkar has played in his career?

Ans: 200

27. How many years did Sachin Tendulkar gave to his cricket career?

Ans: 24

28. Sachin Tendulkar represented which team in IPL?

Ans: Mumbai Indians

Note: Indian Cricket legend Sachin Tendulkar appointed as UNICEF's first brand ambassador for South Asia

29. Banccasurance is also known as ___?

Ans: Bank Insurance Model(BIM)

30.What is Banccasurance?

Ans: An arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base

31.Banccasurance is a partnership between whom?

Ans: The bank and the insurance company.

32. In which Banccasurance started in India?

Ans: year 2000.

33.Who is the new chief of Pakistan army?

Ans: Raheel Sharif

34.Which cyclone hit Andhra Pradesh?

Ans: Helen

35. Chairman of MCX’s board (Multi Commodity Exchange of India)?

Ans: Satyananda Mishra former (Chief Information Commissioner).

Note: Multi Commodity Exchange of India Ltd (MCX)  is an independent commodity exchange based in India. It was established in 2003 and is based in Mumbai.

36. Which personality selected for Indira Gandhi Prize for Peace, Disarmament and Development for the year 2013?

Ans: Dr. Angela Merkel, German Chancellor

Note: for 2012: President of Liberia Ellen Johnson Sirleaf

37. IMPS is a term related to Banking system. In IMPS , letter M denotes ____?

Ans: Mobile

Immediate Payment Service (IMPS) is an instant, interbank (similar to NEFT) electronic fund transfer service that can be initiated only through mobile phones and service introduced by National Payments Corporation of India (NPCI).

Note: About MMID? Mobile Money Identifier (MMID) is a random seven digit number issued by banks to their customers.

If you wish to send money using IMPS, you should have the mobile number and MMID of the beneficiary (person whom you wish to send money to).

If you wish to receive funds using IMPS, you should generate  an MMID for your account and share this with the remitter (person whom you wish to receive money from). You can generate only one MMID per account

38.Recently Megan Young was crowned Miss World 2013. The Miss World grand final was held in ___?

Ans: Bali

39. Which scheme is launched by the Govt. of India allows lakhs of poor people to open a Bank account?

Ans: Swabhiman

40. Which of the following will host “NATO” 2014 nearly after 20 years of hosting summit?

Ans: Britain

04:49 - By Unknown 0

The Untold Story & Understanding Article 370

Article 370 of the Indian Constitution is a 'temporary provision' which grants special autonomous status to Jammu and Kashmir. Under Part XXI of the Constitution of India, which deals with "Temporary, Transitional and Special provisions", the state of Jammu and Kashmir has been accorded special status under Article 370.

All the provisions of the Constitution which are applicable to other states are not applicable to J&K. For example, till 1965, J&K had a Sadr-e-Riyasat for governor and Prime Minister in place of chief minister.

The provision was drafted in 1947 by Sheikh Abdullah, who had by then been appointed Prime Minister of Jammu and Kashmir by Maharaja Hari Singh and Jawahar Lal Nehru. Sheikh Abdullah had argued that Article 370 should not be placed under temporary provisions of the Constitution. He wanted 'iron clad autonomy' for the state, which Centre didn't comply with.

According to this Article, except for defence, foreign affairs, finance and communications, the Parliament needs the state government's concurrence for applying all other laws. Thus the state's residents live under a separate set of laws, including those related to citizenship, ownership of property, and fundamental rights, as compared to other Indians. As a result of this provision, Indian citizens from other states can not purchase land or property in Jammu & Kashmir.

Under Article 370, the Centre has no power to declare financial emergency under Article 360 in the state. It can declare emergency in the state only in case of war or external aggression. The Union government can therefore not declare emergency on grounds of internal disturbance or imminent danger unless it is made at the request or with the concurrence of the state government.

The Untold Story 

It is often not realized that among the causes of Kashmir problem – inclusion of plebiscite in the Instrument of Accession, reference of Kashmir to UN, halting Indian offensive when it was poised to drive out the invaders from Kashmir, Article 370 has played no less a part in preventing J&K from becoming an integral part of the Indian Union. Not many people are aware as how and why this Article was formulated and included in the Indian Constitution despite grave misgivings of Sardar Patel and indeed a large number of the members of Congress Working Committee and Constituent Assembly.

Article 370 was worked out in late 1947 between Sheikh Abdullah, who had by then been appointed Prime Minister of J&K by the Maharaja and Nehru, who kept the Kashmir portfolio with himself and kept Sardar Patel, the home minister, away from his legitimate function. Hence Nehru is answerable to all acts of commission and omission, consequences of which we are suffering till date as far as J&K is concerned.

“Why should a state of the Indian Union have a special status? It conveys a wrong signal not only to Kashmiris but also to the separatists, Pakistan and indeed the international community that J&K is still to become integral part of India, the sooner Article 370 is done away is better.”

While it was Mountbatten who persuaded Nehru to take the J&K issue to the UN, it was Sheikh Abdullah, who, driven by his ambition to be ruler of an independent Kashmir and his hatred for the Maharaja, persuaded Nehru to give special status to J&K. Among his reasons were – occupation of one third of J&K by Pakistan, reference to the UN and plebiscite. The most sinister aspect of proposed Article 370 was the provision that any changes could be brought about in it only by the concurrence of J&K assembly. Nehru’s promise that Article 370 was a temporary provision and will get eroded over a period of time has turned out to be a chimera. The first thing that Sheikh Abdullah got done was to abolish hereditary monarchy and redesignate him as Sadar-e-Riyasat who was to be elected by the Assembly. The accession of J&K State into Indian Union was approved by J&K Assembly only in 1956.

Dramatis Personal

Jawahar Lal Nehru The handsome Harrow educated aristocrat who gave up a life of luxury to join the freedom movement. Babu’s choose heir and darling of the masses, he had a fatal flaw. He cared for personalities rather than issues and institutions, be it selection of Lord Mountbatten as the first Governor General of free India, retaining a senior British officer as the Commander-in-Chief of India Army or backing Sheikh Abdullah to the hilt – his choices were unfortunate. Finally the Chinese aggression of 1962 shattered his image of a world statesman.

Sardar Patel The Iron Man of India — silent, strong and pragmatic with a complete hold on congress party organization — rightly credited with creating a unified India by integrating 565 princely states in it — he would have included Kashmir also in it if allowed to do so by Nehru. The only blot on him was the insinuation that he failed to protect his beloved Bapu. The slur only hastened his end in Dec 1950.

Nehrus promise that Article 370 was a temporary provision and will get eroded over a period of time has turned out to be a chimera.

Sheikh Mohammed Abdullah Charismatic Kashmiri leader who never let go of his dream of ruling an independent Kashmir even while masquerading as a secularist — architect of Article 370 along with Nehru. He must share with Nehru the grave consequences. Lion of Kashmir brought Nehru under his spell from 1938 onwards to the extent that in May 1947 when he was arrested by the Maharaja for sedition, Nehru represented Sheikh as his lawyer and was even arrested in Jun 1947 by the Maharaja while trying to enter J&K. Finally Nehru had to eat the humble pie by arresting Sheikh Abdullah for sedition on 9 Aug 1953.

Maharaja Hari Singh The Maharaja saw an opportunity at the end of British Raj to keep Kashmir as the Switzerland of the East. Trying to repeat history when his ancestors – Maharaja Gulab Singh and Ranbir Singh gained handsome dividends by keeping aloof during the Sikh War and Great Mutiny, Hari Singh tried to sign a standstill Agreement with India and Pak at the time of independence, Pakistan signed, India declined. Maharaja died a lonely man, forced to abdicate and exiled from his beloved land.

The Drama Unfolds

Having finalized the text of Article 370 with Sheikh Abdullah, Nehru brought in Gopalaswamy Ayyangar, IAS, as a minister without portfolio to help him deal with Kashmir portfolio and plead the case of Article 370 in the Constituent Assembly. Gopalaswamy Ayyangar had been prime minister of Kashmir for six years with Maharaja Hari Singh. When Sardar Patel expressed his misgivings, this is what Nehru had to say on Dec 27, 1947.

“Gopalaswamy Ayyangar has been especially asked to help in Kashmir matters. Both for this reason and because of his intimate knowledge and experience of Kashmir, he had to be given full latitude. I really do not know where the States Ministry (Sardar Patel’s ministry) comes into the picture except that it should be kept informed for the steps taken. All this was done at my instance and I do not propose to abdicate my functions in regard to matters for which I consider myself responsible. May I say that the manner of approach to Gopalaswamy was hardly in keeping with the courtesy due to a colleague.”

It speaks volumes of Patels loyalty to a colleague that despite his own and others misgivings, he managed to convince the members of Constituent Assembly and Congress Party Executive. But to V Shankar he said “Jawaharlal Royega”.

The Sardar thereupon resigned and the matter fell in Gandhiji’s lap to bring the two colleagues together. During this period, V Shankar, IAS was the personal secretary to Patel and had maintained a record of all events. It is clear from these records that Nehru finalized the draft of Article 370 alongwith Sheikh Abdullah without even informing Patel. Thereafter it fell to Gopalaswamy Ayyangar to get the draft passed in the Constituent Assembly discussions. The proposal was torn to pieces by the Constituent Assembly and also Congress Party Executive.

Nehru, who was abroad at the time, swallowed his pride and rang up Patel and requested him to get the Article 370 approved It speaks volumes of Patel’s loyalty to a colleague that despite his own and others misgivings, he managed to convince the members of Constituent Assembly and Congress Party Executive. But to V Shankar he said “Jawaharlal Royega”. V Shankar, in his record has described the meeting of the Congress Executive Committee “The meeting was one of the stormiest I have ever witnessed barring the party meeting which discussed the proposition relating to Rajaji becoming the first President of Indian Republic. The opinion in opposition to Gopalaswamy’s formula was forcefully and even militantly expressed and the issue even brought in the sovereignty of the Constituent Assembly to draw up the Constitution without being tied down to the apron-strings of the Kashmir State Constituent Assembly. In such a situation even Maulana Azad was shouted down.

The Party was in uproar. The Sardar had to plead that because of the international complications, a provisional approach alone could be made leaving the question of final relationship to be worked out according to the exigencies of the situation and mutual feelings and confidence that would have been by then created. Once the Sardar had taken charge, all opposition to the draft was silenced” And how Nehru responded to this great act of loyalty on part of Sardar? On 24 July 1952, after Sardar was no more, Nehru made a detailed statement on Kashmir in the Parliament on slow integration of Kashmir into India Union and mentioned that “Sardar Patel was all the time dealing with these matters.” Even Gopalaswami Ayyangar was dismayed at this blatant lie and mentioned to V Shankar “It is an ill return to the Sardar for the magnanimity he had shown in accepting Panditji’s point of view against his better judgment.”

05:21 - By Unknown 0

Role of Aadhar in Banking System

About AADHAR: The Unique Identification Authority of India (UIDAI) was established by Government of India with an objective to implement Multipurpose National Identity Card or Unique Identification Card (UID Card)in India.

This project is part of the Planning Commission and headed by Mr. Nandan Nilekani, a former co-chairman of Infosys Technologies. 

A budget of `3000 crores is allotted for implementation of the ambitious project with an objective to cover 60 crore residents by 2014

It is aimed to issue a unique identification number to all Indian residents with intent:

i. to eliminate duplicate/fake identities

ii. to put hassle-free, cost effective verification/authentication system in place thereby

iii. to save considerable resources of various User Departments as well as beneficiaries at large.

Basics of UID (AADHAR)

i. It will be a randomly generated twelve digit number for every resident of India. Example:2653 8564 4663.

ii. The number will be unique, which means, no two residents will have the same number.

iii. No resident can have two numbers because AADHAAR is based on a combination of standard information like name, address, age and biometric information which is unique to every person.

iv. AADHAR will be used to prove identity not citizenship.

v. It will not be compulsory to get an AADHAAR number

Benefits to the users:

1. The AADHAAR will become the single source of identity verification. Once residents enroll, they can use the number multiple times.

2. The large number of residents, who currently don’t have any identity documents and are therefore  ‘excluded’ from beneficiary lists, can also get an ‘identity’ through the' Introducer' system.

Role of AADHAAR in Banking System:

Aadhaar Enabled Payment System or AePS is an Indian payment system developed by National Payments Corporation of India. Its working is based on unique identification number for individuals called Aadhaar.

The system allows an Aadhaar-holder to carry out financial transaction on a micro-ATM provided by the banking correspondent. It is an initiative towards providing improved social security benefits and financial inclusion of the under-privileged people.

AADHAAR Project - Role of Banks: Public Sector Banks already started entering MOU with UIDAI to act as Registrars for AADHAAR project. Banks are likely to play beyond the role of enrolling agents.

1. KYC compliance: Today, the major constraints faced by the banks while opening of accounts is the absence of valid identity and address proof of the prospective customers and it is causing inconvenience to the public and operational problems to the banks thereby unable to achieve the desired financial inclusion.

Once the project comes to live, AADHAAR number may be treated as substitute for KYC compliance which enables the banks to open accounts with a greater speed and accuracy besides saving of considerable resources.  

2. Micro ATMs: As a step towards financial inclusion, RBI has allowed banks to engage intermediaries i.e. Business Correspondents (BC) to carry out specified financial transactions through Public Call Office operators, Kirana Stores, Medical Shop owners and Fair Price Shop dealers etc.

The intermediaries would be provided mobile phone and fingerprint reader and would act as a Micro ATM where a person could go to any BC across the country to withdraw/deposit money.

AADHAAR could emerge as a payment card linked to a savings account and function as a pre-paid / smart card where the government credits the amount to the accounts directly.

On implementation of the project, banks would have immediate access to many more potential customers at the bottom of the pyramid through Branchless Banking; however, this requires substantial investment in technology.

What are Micro ATMS?  Micro-ATMs are biometric authentication enabled hand-held device (also known as a Point of Transaction [PoT] terminal) .

Micro-ATMs will primarily perform following functions:

1. Cash withdrawal

2. Cash deposit

3. Balance enquiry

4. Remittances

Note: i. These devices will be operated by the Business Correspondents (BCs) appointed by the banks.

ii. The physical currency would be handled by this BC and not a machine like a regular ATM.

iii. All transactions will require online biometric authentication with the UIDAI authentication server in order to be processed.

3. Mobile Banking: The Aadhaar project enables the mobile industry to create a Low-Cost High-Volume ubiquitous transaction platform to penetrate into remote rural areas of the country.

Under this every transaction point will have a mobile phone and a fingerprint reader. The resident having Aadhaar number simply walk in to any point and complete his financial transaction with ease since the service provider gets the authentication from UID online.

Advantages:

1. Brings down the costs of cash management for  banks.

2. Supports physical cash transactions at the local  level.

3. Substantially reduces the risk to the bank, since  the cash transacted at the local level is already paid-up by the BC (Business Correspondents).

Once this model is stabilized, the distribution of financial products and services can be opened up to whoever is willing to invest in a mobile phone and a fingerprint reader. Millions of financial correspondents could be enrolled. The AADHAAR platform enables the banks to provide Virtual Banking.

05:11 - By Unknown 0