Monday, April 14, 2008

Gramin banks to get bigger role

The government is planning to bring changes in the portfolios of the gramin banks for rural finance. It is planning to use potential of gramin banks at its fullest by giving them a bigger role. The gramin banks will be given the responsibility of selling other financial products like mutual funds and insurance policies and develop them into micro-finance institutions (MFI).

Already some of the progressive gramin banks are dealing into MFIs. Besides lending small amounts of credit and encouraging savings by collecting small deposits, many of these banks are also selling other financial products like insurance and mutual funds. An official spokesman said, “Quite a few of the annual reports of these banks reveal details relating to efforts made by them through cross-selling such product”.

The official added, “Rural banking being their core-competence, they could be major players in this arena in the future banking scenario. Recognizing their strategic position, it is desirable to make them the kingpin in the micro finance movement”.

The planned advantages that these banks have, makes them perfect micro finance institutions. These banks are already having a readymade rural base, intended to handle the credit delivery system, favorable for small lending. These banks have easy access to low-cost funds, organized through savings bank deposits from rural households.

The increased share of micro-finance is definitely going to improve the portfolio quality of these banks as the repayments under micro finance are generally above 90%. Since its existence for the past three decades, the number of gramin banks has gone down to around 133 from about 196, but their operational centers have widened.

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