Financial Blog

Shri Jayant Sinha suggests financial literary for beneficiaries, loans in the name of women

Reiterating the Governments top priority of eliminating poverty, Minister of Housing Urban Poverty Alleviation Shri M.Venkaiah Naidu today urged the commercial banks to shed their reluctance in lending to the urban poor. In his inaugural address at the National Conference on Deendayal Antyodaya Yojana-National Urban Livelihoods Mission organized in the national capital, Shri Naidu stressed the need for enhanced credit flow to the Self-Help Groups and for self- employment through individual and group enterprises under the Mission.

Shri Venkaiah Naidu asserted that loan repayment by Self-Help Groups is 98% and hence, were most bankable and eligible for lending. He expressed concern over inadequate credit linkages to such groups in the States in the Northern and Eastern regions of the country with the Southern states accounting for 62% of total credit linkage of Rs.3,173 groups advanced during the last two years under DAY-NULM. He highlighted the importance of supporting Self-Help Groups that are in the forefront of addressing poverty by taking up various economically productive activities through internal lending among the members.

The Minister said that with several initiatives being taken to promote domestic and Foreign Direct Investment in various sectors, there is a vast scope for employment generation leading to increased demand for skilled manpower.

Shri Naidu said that the Government is committed to eliminating poverty by skilling the unskilled, funding the unfunded and reaching the unreached. The Minister stressed on the need for convergence in implementation of skill development programmes and scaling them up in a convergence mode. He said 25% of people still living Below Poverty Line is clearly unacceptable when the country is aspiring for a lead role in the comity of nations. Concerted efforts need to be mounted to eliminate poverty. Due emphasis needs to be given on training to catch the fish instead of giving fish all the time. While banks should scale up financing, loans need to be repaid.

Minister of Skill Development and Entrepreneurship Shri Rajiv Pratap Rudy said that an integrated eco-system is being put in place for skilling of 30 crore people while 24 ministries were involved in handling 70 skill development programmes. He expressed concern over skills not being given due recognition as a result of which in our country there are no Professors of Carpentry or Plumbing. Referring to what he called the paradox of people with 15 years of formal education and not finding jobs being promised jobs after a 15 week training, Shri Rudy said this needs to be resolved with proper course content and certification. He urged the banks to accept skill certification issued by approved agencies for advancing loans to skilled people.

Minister of State for Finance Shri Jayant Sinha suggested promotion of financial literacy among the beneficiaries as part of skill certification under skill development programmes to enable them with better management of money and enterprises for further growth in chosen area of career development. He favoured credit lending in the name of women stating that they proved to be more adept in managing finances. He also called for lending higher amounts under anti-poverty programmes. This suggestion assumes significance in the context of average loan amount sanctioned so far for setting up individual micro-enterprises under DAY-NULM being Rs.75,000/- against the permissible limit of Rs.2.00 lakh per beneficiary and Rs.3.11 lakh as against the ceiling of Rs.10 lakhs under group enterprises.

Shri Sinha said that under Prime Ministers MUDRA Yojana, Loan Origination System has been introduced under which credit history of beneficiaries would be tracked to help them develop further by extending all necessary support. He informed that lending target under MUDRA for the current financial year has been increased by Rs.50.000 cr from the Rs.1.30 lakh cr advanced to 3.40 cr beneficiaries during the last fiscal.

The National Conference on Deendayal Antyodaya Yojana-NULM is being organized by the Ministry of Housing and Urban Poverty Alleviation to discuss ways of scaling up skills training and credit flow to self-employment programmes and Self-Help Groups.


June 27,2016

UP MSMEs warming up to credit rating for growth

UP MSMEs warming up to credit rating for growth Union Budget 2016-17 has hiked support to credit rating scheme by 600% to Rs 200 cr compared with merely Rs 28 cr during 2015-16

The beleaguered Micro, Small and Medium Enterprises (MSME) in Uttar Pradesh are slowly warming up to the idea of getting credit rating for their units.

Credit rating by an accredited institution helps a unit get easier credit terms from banks and financial institutions, while evoking confidence amongst its various stakeholders, including vendors, customers and peers.

The Union Budget 2016-17 has significantly increased support to the Performance Credit Rating Scheme (PCRS) by over 600 per cent to Rs 200 crore compared with merely Rs 28 crore during 2015-16. This indicates the priority accorded by the Centre to encourage MSMEs get the credit rating umbrella.

PCRS is administered by the National Small Industries Corporation (NSIC) under the aegis of the union MSME ministry.

In this regard, apex MSME body Indian Industries Association (IIA) has signed a Memorandum of Understanding (MoU) with CRISIL facilitate credit rating amongst the MSMEs.

IIA president Manish Goel said access to formal credit and lack of creditability had been the biggest obstacles for the MSMEs.

One way to overcoming these shortcomings is getting a credit rating. The MoU signed between IIA and CRISIL will facilitate credit rating easily and cost effectively, he added.

Crisil Director Salil Chaturvedi informed the Centre offered subsidy to the MSME units for getting rated under PCRS. The subsidy is 75 percent of the cost of credit rating of the individual MSME unit.

Goel appealed to the MSMEs in UP to get themselves credit rated. The benefits of this are multifoldyou get loans at lower interest rates, gain creditability in business, and ultimately get a chance to scale up. Credit rating is the first step in this direction, he said.

MSME sector is the backbone of the UP industrial base. It is estimated to contributing 60 percent to the state industrial output, employing 40 million and generating economic activity worth Rs 1,20,000 crore annually. It contributes 50 percent to the Gross State Domestic Product (GSDP).

UP is home to almost 4.4 million MSMEs, which includes 4.2 million unregistered units.

Bandhan Bank straddles the urban-rural divide

Bandhan Bank straddles the urban-rural divide The transition from a MFI to a universal bank has meant that the West Bengal-based major has had to shed its conservative approach to advertising amp; marketing

Before Chandra Shekhar Ghosh, founder, MD and CEO, Bandhan Bank, became a household name in banking, his microfinance institution (MFI) needed little introduction. It had the distinction of being the leading MFI in the country and the largest player in its home state of West Bengal.

With little or no branding, Bandhan achieved this success using its personal connect with rural consumers, who in turn, recommended it to more people in the community. Bandhan#39;s rural consumer base today is estimated to be over six million.

But what worked for it as an MFI, may not necessarily cut ice as a universal bank. While its rural reach was instrumental in getting Bandhan its banking licence, that, say executives, could no longer give it incremental numbers as a universal bank.

Bandhan became a universal (in common parlance a regular) bank in August 2015.

There was debate within the company on whether Bandhan#39;s rural image should be preserved or not as we were transitioning to a universal bank. We decided that it would be prudent to retain the rural connect even as we expanded our horizons, targeting urban consumers, Ghosh said.

As an MFI, Bandhan#39;s tagline was #39;Hope for the Poor#39;. The launch campaign, conceptualised and executed by Ogilvy Mather, fused the past and the present using the tagline #39;Aapka Bhala, Sabki Bhalai#39;. The rationale, explains Ghosh, was that if you did good, you could help the poor. It was a message to urban customers to try out the bank#39;s services, and consequently, help the poor.

A series of six short television commercials were launched as part of the campaign. #39;Marksheet#39;, for instance, shows a young girl proudly showing off her exam results at her new school. She gathers all her friends to say thank you to a Bandhan account holder who made it possible for her to attend a good school. #39;Cricket#39; shows a young boy boasting about his skill in cricket and thanking a Bandhan customer for enabling him to attend a school that has a good cricket programme. The campaign was also taken to the digital medium.

Strategy pays off
Bandhan#39;s branding strategy, which aims to attract urban customers for deposits, while continuing focus on rural consumers for loans, has paid off, executives say. Bandhan, they say, has been aggressive in garnering deposits from urban areas, even as its rural base continues to grow.

To put things in perspective: In 2015-16, Bandhan collected about Rs 12,000 crore as deposits. Out of this, nearly a third came from corporate clients and more than 60 per cent from urban centres. At the same time, gross advances for the period under review stood at Rs 15,500 crore. Of this, close to 99 per cent of the credit was given to customers in rural and semi-urban centres as microfinance.

At a broader level, Bandhan#39;s brand campaign has positioned it as a banker for all rather than a banker for the poor, executives say.

Public sector banks delay plans to raise capital

Public sector banks delay plans to raise capital RBI data show during Jan-March quarter bank credit of PSBs grew by a mere 1.4%

Public sector banks (PSBs), which are starved for equity capital, are refusing to tap the markets to raise funds, despite having all the necessary approvals in place. State Bank of India (SBI), Bank of India, United Bank, Oriental Bank of Commerce, Union Bank and IDBI Bank have had the permissions for more than a year or more but they have refrained from raising capital via the qualified institutional placement (QIP) route.

Arun Tiwari, chairman and managing director of Union Bank, points out that even though they have the approvals to raise Rs 1,386 crore via QIP, they havent done it as yet because they do not need the funds now. The credit growth in the system has been low and the areas that we are growing in dont require as much capital. Therefore, the need for capital-raising hasnt come yet, he said.

The credit growth in the banking system has been in the range of 8.5-11 per cent for almost two financial years now. And the PSBs, excluding SBI, seem to be the worst affected. According to Reserve Bank of India data, during the January-March quarter, bank credit of PSBs excluding SBI and its associates grew by a mere 1.4 per cent, compared with 7.8 per cent in the corresponding period in FY15.

Another reason, experts point out, which is stopping the lenders from approaching the market is the stress on the balance sheet, which may deter potential investors. In fact in the last one year, the quantum of bad loans on the book of PSBs has close to doubled, with the tally of bad loans for the listed PSBs (including SBI associates) at Rs 5.81 lakh crore at the end of March 2016, compared with about Rs 3 lakh crore at the end of March 2015.

Bankers also admit that all this combined with the volatility in the market has also deterred them from entering the capital markets.

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