At a time when banks are struggling to get customers outside urban areas, Indian Overseas Bank (IOB) has successfully managed to deepen financial services in the rural and unbanked areas. For the last two years, IOB has been offering agriculture and entrepreneurial credit to the rural poor through a network of self-help groups and business correspondents. IOB, unlike other banks, has directly appointed business correspondents (BCs) who are helping the bank extend the whole gamut of financial services to the rural poor. The Chennai-headquartered bank has also appointed a battalion of 500 rural development officers responsible for overseeing the BC operations and gauging customer’s requirement.

In an interview with Pratap Vikram Singh at the bank headquarters in Chennai, M Narendra, chairman and managing director of IOB, talks about the successes and the road ahead.

What is the most significant change that you have come across in financial inclusion? How has your bank's approach towards FI changed over the years?

Initially financial inclusion was attempted only by banks with the policy push of regulators. In recent days, a large number of players from various segments are getting involved in FI. This is a positive change which would help further the FI initiative.

In the initial phase, banks generally concentrate on opening bank accounts and covering unbanked villages. Now the focus has shifted to multiple products like credit delivery, insurance, pension and social security payments. This approach facilitates a deepening of FI efforts. Temporary overdraft, KCC, GCC, housing, retail loans etc. are provided through our business agents to meet the growing demand among rural customers.

Last year, then RBI governor Dr D Subbarao had said that banks still see FI as obligation than a business opportunity. Do you agree?

In recent days, banks’ perspective on FI is changing; it is seen more as potential business opportunity. IOB has opened around 60 lakh basic savings bank accounts under FI. This large-scale customer acquisition would provide enough scope for improving low-cost expansion of credit and selling of para-banking products like micro insurance. Our bank has so far covered 3,361 centres under FI.

We felt this strategic presence would offer ample scope for business in near future. The low-cost funds help improve net interest margins and thereby profits. Hence, FI is not an obligation but indeed a great opportunity for the bank to increase volumes.

Statistically speaking, banks have come a long way in opening accounts in remote pockets. But what about transactions in these accounts? Have they taken off yet?

Transactions can only indicate the usefulness and usage of having a bank account. Over a period of three years the transaction volume has increased significantly. In our bank, the number of transactions in 2011 was 60,000, which rose to 70 lakh in 2013. Yet, a large number of accounts remain inactive.

Could you tell us about cases where you have employed a unique model for FI and the bank is doing really well?

As part of the CSR initiative, our bank is implementing IOB Sampoorna, a project which aims at overall development of the village through credit and non-credit inputs. Currently it is being implemented in 100 villages across the country. We are also implementing a special FI programme for tribals of Nilgiris hills (in) Tamil Nadu. Banking outlets have been opened in seven tribal inhabited villages; we have set up rural self-employment training institutes and financial literacy centres for providing entrepreneurship training and to impart financial literacy respectively.

Our smartcard banking has also reached Khani, a tribal village of Tirunelveli district of Tamil Nadu, near Papanasam dam on the Western Ghats. In this village basic facilities like electricity, drinking water and transport are still not available, but we have provided banking.

Recently, we have set up three special FI branches exclusively for catering to the needs of BCs operating in a cluster comprising many branches. This is a unique concept, first of its kind by banks, and would further our inclusion efforts.

Apart from branches, your bank also employs individual BCs to reach out to the unbanked areas. How has your experience been? Why have you stayed away from using the existing common service centre (CSC) network for kiosk banking the way, say, SBI has?

Many banks had engaged corporate BCs for implementing FI, whereas we have adopted the individual BC model. This model conceived by our bank has proved to be successful, and has turned the BC operations sustainable and robust. Selection of BCs directly by branch inculcates a sense of belongingness, emotional attachments to the bank rather than being deployed through a BC network company. BCs identify themselves as an arm of the bank and serve with dedication. We provide an assured income of '4,000 a month to the BCs and because of these reasons our BC attrition rate is just around 2-3 percent. 

For using the CSC model, technology integration is required. Realigning technology to accommodate kiosk model would be costly. We may take up kiosk banking with CSCs as and when we find inadequacies in the existing BC model. 

The new bank licences are just round the corner. How easy or difficult is it going to be for the new banks in reaching out to the unbanked?

In a country like India, where excluded segments of households is high, enough space is available for the new entrants in banking.

How realistic is the 2016 target set by the Nachiket Mor panel for achieving full FI? Are we anywhere close to it?

The objective of opening accounts of all individuals above the age of 18 in the country is an excellent suggestion. But the target of January 1, 2016 is on the assumption that accounts may be opened based on details received at the time of Aadhaar enrollment.

While opening of accounts electronically seems easy, it is difficult to contact the customers for completing account-opening procedures of banks in line with the guidelines of RBI, ministry of finance, etc. The timeline seems too early to achieve the desired target.

The panel also talks about financial deepening. How much work has been done on that front?

For further deepening of financial services, financial literacy camps are conducted by all rural branches in their service areas every month. More credit disbursal under the general purpose credit card (GCC), kisaan credit cards (KCC) and temporary overdraft (TOD) ensures deeper penetration of financial services.

Inclusive process was facilitated through a branch network of 3,122 branches across the country of which 933 are in rural areas and 228 are in unbanked rural villages. IOB has additionally set up 1,271 ultra-small branches (USBs), where FI is being undertaken through the business correspondent model.
We have engaged about 2,400 BCs to reach out to the people. They provide banking services through point-of-sale (PoS) machines and smartcards. IOB has also come out with the special scheme for financing purchase of two-wheelers by BCs, which would improve their mobility and facilitate effective delivery of services in villages. This is a unique measure adopted by our bank.

Formation of SHGs is another area we have been working on passionately. Every year we form 40,000 SHGs and have so far formed 5.11 lakh SHGs. We have given cumulative credit of Rs 5,200 crore.

We have also appointed 500 rural development officers (RDOs) in the past two years who oversee the work of BCs. They also have a direct contact with the customers of basic savings and credit accounts. They are able to gauge the rural requirement.

The BCs have facilitated Rs 63 crore of agricultural and entrepreneurial loans which were given to 4,300 people in the last two years.

The RBI and the finance ministry have been stressing on the importance of ensuring ease of credit access to SMEs. Has your bank taken any measures to reach out to this sector?

IOB has brought out several specialised schemes for lending to SMEs. Our bank has achieved the year-on-year growth of 20 percent in lending to SMEs during 2011-12 and 2012-13 as mandated by RBI. We have also won a special prize in lending to this sector for the year 2011-12 from the president. Recently, our bank has set up SME help desks at all 59 regional offices in the country to cater to the credit, restructuring  and rehabilitation needs, one-time settlement (OTS) proposals, etc., of the SME clients.

Your bank recently submitted the financial inclusion plan (FIP) for 2013-2016 to the RBI. What is the kind of feedback you have got on your future roadmap? Could you also share some of your future plans and strategies?

Our bank proposes to open banking outlets in 600 villages between 2013-16. Under urban financial inclusion, banking outlets will be opened at 20 centres by the end of 2016: 18 lakh basic savings bank deposit accounts, 1.8 lakh KCC accounts and 3.6 lakh GCC accounts will be opened in the next three years. All account holders should have access to credit for consumption, setting up micro enterprises, farming and housing.

(This interview first appeared in the magazine's March 16-31, 2014 print edition)