Inclusive Finance India Report 2018 Alok Misra Ajay Tankha An ACCESS Publication Inclusive Finance India Report 2018 Alok Misra Ajay Tankha Copyright © ACCESS ASSIST, 2018 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2018 by Copyright will be with ACCESS ASSIST 22, Ground Floor, Hauz Khas Village New Delhi 110016 Design by FACET Design D-9, Defence Colony, New Delhi-24 +91 9810330868 ISBN: 978-81-939075-0-4 Disclaimer: The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of ACCESS ASSIST. Cover photograph courtesy: ACCESS ASSIST Contents List of Tables, Figures, Boxes, Annexures, and Abbreviations v Foreword by Vipin Sharma xvii Preface and Acknowledgements xxi 1. Financial Inclusion: Progress and Challenges 1 2. The Banking System and Inclusive Finance 23 3. Financial Inclusion: Agents, Programmes and Institutional Support 59 4. The ‘Lost Middle’: Engine of Inclusive Growth 86 5. Microfinance Institutions: Recovery and Growth 127 6. SHG Banking and the NRLM Factor in Financial Inclusion 159 7. Small Finance Banks and Payments Banks: Struggle for Differentiation and Business Model Continues 197 8. Digital Finance: Progress and Challenges 229 Technical Partners 261 About the Authors 262 List of Tables, Figures, Boxes, Annexures, and Abbreviations Tables 1.1: India’s Key Parameters of Financial Inclusion 8 1.2: Credit Penetration Compared with Composite Inclusix Score at the Regional Level 11 2.1: Progress of Commercial Banking at a Glance 26 2.2: Achievement under PSL Advances by Categories of Banks, March 2017 27 2.3: Advances and NPAs of Domestic Banks by Priority and Non-Priority Sectors (in Rs billion) 28 2.4: Details of Credit to Small Borrowal Accounts over the Years 29 2.5: Purpose-wise Break-up of Small Borrowal Accounts as of 31 March 2017 31 2.6: Small (<Rs 25,000) Term Deposits from Customers over the Years 32 2.7: Branches of Scheduled Commercial Banks 33 2.8: Financial Inclusion—Summary of Progress 34 2.9: Performance Indicators of Regional Rural Banks (as of 31 March) (in Rs crore) 36 2.10: RRB Branch Network over the Years (According to Region) 36 2.11: RRB Branch Network over the Years (According to Location) 37 2.12: ATM Networks of RRBs 37 2.13: Performance of RRBs over the Years (Figures for March 31 of Each Year) 38 2.14: Purpose-wise Break-up of Credit Accounts of RRBs as of 31 March 2017 39 2.15: Details of Credit to Small Borrowal Accounts over the Years 40 2.16: Deposits of RRBs Classified According to the Location of Branches as of March 2017 40 2.17: Deposits of RRBs Classified According to Ownership as of March 2016 and March 2017 41 2.18: Number of PACS as of March 2017 (in ’000s) 45 2.19: Membership Details of PACS as of March 2017 (in million) 46 2.20: Position of Advances and Overdues from PACS as of March 2017 (in Rs billion) 46 2.21: Details of Performance of PACS and Physical Infrastructure, March 2017 46 2.22: Performance of State Cooperative Banks 47 2.23: Performance Indicators of DCCBs 48 3.1: BC Banking Outlets and Transactions, 2012 to 2018 63 3.2: BC Loan Portfolio and Category-wise Break-up for 2017–18 69 3.3: PMJDY Performance up to 15th August 2018 74 3.4: Performance of PMJJBY and PMSBY 75 3.5: Number of Subscribers to APY (15 May 2018) 76 3.6: Sanctions and Disbursements under NABARD’s Financial Inclusion Fund (in Rs crore) 80 4.1: Current Classification/Definition of MSMEs in India 91 4.2: MSMEs Distribution by Geography and Type 91 4.3: Share of MSMEs in India’s GDP over the Years 91 4.4: Agency-wise Share in Loans Disbursed (in per cent) 99 vi INCLUSIVE FINANCE INDIA REPORT 2018 4.5: PMMY Loans to Women, SCs, STs and OBCs (in per cent) 100 4.6: Refinance and Lending Rate of MUDRA as of June 2018 100 4.7: Percentage Share of Various Categories in Industry Credit (2010 to 2018) 103 4.8: On Balance-Sheet Commercial Credit Exposure 105 4.9: ICE Methodology of Aye Finance 110 4.10: Loan Products of Aye 110 4.11: Loan Portfolio Details as on 31 March 2018 111 5.1: Share of the Top Six States in NBFC-MFI Portfolio as of March 2018 131 5.2: Average Loan Outstanding per Client and Growth Rate 133 5.3: PAR >180 Days across Micro-lenders as of 31 March 2018 136 5.4: Presence of Micro-Lenders across Districts in India 145 5.5: District-wise Share in the Portfolio 146 5.6: Frequency Distribution of Lenders in the Top 100 Districts 147 6.1: Overall Progress under SHG-Bank Linkage for the Last Four Years 161 6.2: Progress of SHGs: Physical (Compound Annual Growth Rate) 163 6.3: Progress of SHGs: Financial (Compound Annual Growth Rate) 164 6.4: Agency-wise Status of SHG-BLP in 2017–18 168 6.5: Agency-wise Average Savings, Average Loan Disbursement during the Year and Average Loan Outstanding, 2016–17 and 2017–18 170 6.6: Region and Agency-wise NPAs 171 6.7: Details of Progress of SHG Programme under the NRLM, July 2018 174 6.8: Progress of Digitisation in the Identified 100 Districts under NABARD’s eShakti as of 15 June 2018 180 6.9: Financial Intermediaries in SHG Lending by Banks 183 7.1: Landscape of UCBs 201 7.2: CRAR-wise Distribution of UCBs, end-March 2017 202 7.3: Composition of Priority Sector Credit by UCBs, March 2017 202 7.4: Ujjivan’s MCLR w.e.f. 20 September 2018 205 7.5: Equitas’ Diversified Loan Products and Business Divisions 208 7.6: AU Deposits as of 31 March 2018 210 7.7: AU’s Asset Business Products 211 7.8: Fund Charges of Active PBs in India 221 8.1: Revisions in the MDR 231 8.2: Proposed Consumer Protection Standards for Digital Credit 234 8.3: Data on Technology Enabled Touchpoints and Transactions over the Years 238 8.4: Transactions during 2017–18 (in per cent) 239 8.5: Percentage Share of Different Retail Digital Payment Channels and Growth 241 8.6: *99# Transactions in 2017–18 243 Figures 1.1: Screenshot of UMANG app 3 1.2: Account Ownership (adults with an account) (in per cent)) 4 1.3: CRISIL Inclusix Score 5 1.4: Inclusion Index of CRISIL’s Inclusix 5 1.5: Growth in Mutual Funds Assets Under Management 6 1.6: Retail Investment Spread across Centres in India 6 1.7: and 1.8: Progress and Dormancy of Basic Banking Savings Accounts 9 1.9: Persistency under the Atal Pension Yojana as of 31 December 2016 9 1.10: Annual Growth in No. of Loan Accounts of Small Loan Sizes of SCBs (2012–17) (in per cent) 10 1.11: Annual Growth in Loan Outstanding under Small Loan Sizes of SCBs (2012–17) (in per cent) 10 List of Tables, Figures, Boxes, Annexures, and Abbreviations vii 1.12: State-wise Credit Penetration, 2016 12 1.13: The Three Pillars of Responsible Finance 15 1.14: Financial Literacy Survey Results 15 4.1: Business Landscape in Emerging Economies 88 4.2: Informal MSMEs—Location and Access to Credit 89 4.3: Credit Constrained MSMEs in Developing Countries (in per cent) 90 4.4: Employment in MSME Sector (in lakh) 92 4.5: Progress under Stand-Up India 93 4.6: Process Flow under the Udyamimitra Portal 95 4.7: SIDBI’s New Vision—V.2 95 4.8: MUDRA Offerings 97 4.9: Agency-wise Share in PMMY Disbursements during 2017–18 (in per cent) 98 4.10: Share of Shishu, Kishor and Tarun during 2017–18 in PMMY Disbursements (in per cent) 99 4.11: Top 10 States in PMMY Disbursements, 2017–18 (in per cent) 100 4.12: Share of Loan Categories in PMMY Loans, 2017–18 (in per cent) 100 4.13: PMMY Disbursements and MUDRA Refinance during 2017–18 (in rupees) 101 4.14: Annual Growth in Loans Outstanding to Industry (in per cent) 103 4.15: Share of MSMEs in Non-Food Credit (2007–8 to 2017–18) 103 4.16: Top 10 States with MSMEs and Their Share in Industrial Credit by Banks 104 4.17: NPA Rates of the MSME Segment (in per cent) 106 4.18: Fintech: Digital Applications through Loan Cycle 107 4.19: Market Segmentation for MSMEs as per Aye Finance 109 4.20: Key Findings across Clusters 109 4.21: Aye’s Outreach 111 4.22: A Screenshot of the mAye App 112 5.1: Share of Microfinance Lending as of March 2018 127 5.2: NBFC-MFI’s District Presence 130 5.3: Region-wise Share in NBFC-MFI Loan Portfolio, March 2016 131 5.4: Region-wise Share in the NBFC-MFI Portfolio as on 31 March 2018 131 5.5: Annual Portfolio Growth Rate across States with >500 Crore Portfolio in 2017–18 132 5.6: Growth Rate of the Top 10 NBFC-MFIs in 2017–18 (in per cent) 132 5.7: Annual Growth in Branches and Clients of the Top 10 NBFC-MFIs 133 5.8: Top 10 MFIs: Clients per Loan Officer and Growth Rate 134 5.9: Repayment Frequency of MFI Loans 134 5.10: NBFC-MFI Portfolio at Risk (in per cent) 135 5.11: Average Interest Rate for Major Portfolio of the Top 20 NBFC-MFIs 136 5.12: Average and Median Cost of Funds as of June 2018 137 5.13: Cashless Disbursement by MFIs (in per cent) 138 5.14: Cashless Disbursement across NBFC-MFIs (in per cent range) 138 5.15: Basics of Adult Learning 140 5.16: Route Mapping—An Overview 142 5.17: Screenshot of Online Training through Abhyas of Vaya 144 5.18: Districts’ Share in the Micro-Lending Portfolio (in per cent) 146 5.19: State-wise Distribution of the Top 25 Districts 147 5.20: Micro-Lending Heat Map as of March 2016 148 5.21: Micro-Lending Heat Map as of March 2018 148 5.22: NBFC-MFI Heat Map as of March 2018 149 5.23: Frequency Distribution of Clients with More than Two Lenders in the Top 50 Districts (in per cent) 150 5.24: Frequency Distribution of the Top 50 Districts with PAR 31–180 Days 150 viii INCLUSIVE