Executive Summary:
This Master Circular, updated as of June 30, 2020, consolidates and updates existing Reserve Bank of India (RBI) guidelines and instructions regarding the SHG-Bank Linkage Programme. It aims to provide banks with a single reference point for all instructions on this subject, promoting financial inclusion and streamlining lending to Self Help Groups (SHGs). Banks are expected to adhere to these guidelines for effective linkage of SHGs with the banking sector.
Key Points / Main Content:
Savings Bank Accounts:
* SHGs engaged in promoting savings are eligible to open savings accounts.
* Simplified KYC norms apply: CDD is sufficient for office bearers only, not all members.
Lending to SHGs:
* Bank lending to SHGs should be included in credit plans at all levels (branch, block, district, state, corporate).
* Loans can vary from a 1:1 to 1:4 savings-to-loan ratio, but can exceed this for mature SHGs at the bank's discretion.
* Banks should simplify procedures, minimize documentation, and delegate sanctioning powers to branch managers for expeditious credit disbursal.
Interest Rates & Charges:
* Banks have discretion to set interest rates on loans to SHGs.
* No loan-related or ad-hoc service charges/inspection charges should be levied on priority sector loans up to ₹25,000 per SHG member.
Priority Sector Reporting:
* Lending to SHGs for on-lending to members should be reported as 'Advances to SHGs' under priority sector lending, specifically under the Weaker Sections category.
SHG Member Defaults:
* Defaults by individual SHG members should not impede financing to the SHG, provided the SHG itself is not in default, but the bank loan may not be utilized by the SHG for financing a defaulter member to the bank.
Capacity Building & Training:
* Banks should conduct programs for field staff and awareness programs for middle and senior management on SHG linkage.
* Banks shall refer to instructions on Financial Literacy by FLCs and rural branches Policy review vide Circular FIDD.FLC.BC.No.2212.01.018201617 dated March 02, 2017 conducting tailored programs targeting SHGs.
Monitoring & Review:
* Banks must regularly monitor SHG lending progress at various levels.
* SHG bank linkage programs should be a regular agenda item at SLBC and DCC meetings and reviewed quarterly at the highest corporate level.
* Progress reports must be submitted to NABARD quarterly in the prescribed format within 15 days of the due date.
Reporting to CICs:
* Banks are advised to adhere to the guidelines issued by Department of Banking Regulation on Credit information reporting in respect of Self Help Group SHG members dated June 16, 2016 and Credit information reporting in respect of Self Help Group SHG members dated January 14, 2016.
Impact Analysis:
Scheduled Commercial Banks:
Impact: Banks are required to implement the updated guidelines for SHG-Bank Linkage Programme. This includes streamlining procedures, adjusting reporting mechanisms, and prioritizing lending to SHGs within their credit plans.
Action Required: Banks must review and update their internal policies and procedures to align with the master circular. They need to train staff, monitor progress, and submit reports to NABARD.
Self Help Groups (SHGs) and their Members:
Impact: SHGs benefit from simplified access to banking services and credit, promoting financial inclusion. The focus on hassle-free lending and meeting the entire credit requirements of SHG members enhances their economic opportunities.
Action Required: SHGs should be aware of the simplified procedures and the availability of credit for income generation, social needs, and debt swapping.
NABARD:
Impact: NABARD is responsible for monitoring the SHG-Bank Linkage Programme.
Action Required: NABARD will receive quarterly progress reports from banks and use this data to assess the effectiveness of the program.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which has issued guidelines and instructions to banks on SHG-Bank Linkage Programme.
SHG-Bank Linkage Programme: A program focused on linking Self Help Groups (SHGs) with banks to facilitate financial inclusion and provide credit to the rural poor.
NABARD: National Bank for Agriculture and Rural Development, an apex development financial institution in India that plays a role in the SHG-Bank Linkage Programme.
Union Budget: The annual financial statement of the Government of India, which includes announcements and policies related to financial inclusion and SHG lending.
Self Help Groups (SHGs): Small groups of individuals, typically women, who pool their resources and access credit for income generation and social needs.
Master Direction Know Your Customer (KYC) Direction, 2016: A regulatory document issued by the Reserve Bank of India providing guidelines on customer identification and due diligence for banks.
Priority Sector Lending: A category of bank lending that includes lending to SHGs and other sectors considered important for economic development.
Micro Credit Innovations Department, Mumbai: A department of NABARD located in Mumbai, Maharashtra, responsible for monitoring and reporting on the SHG-Bank Linkage Programme.
RBI/2020-21/02
FIDD.FID.BC.No.02/12.01.033/2020-21 July 01, 2020
The Chairman/Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
Madam/Dear Sir
Master Circular on SHG-Bank Linkage Programme
The Reserve Bank of India has, from time to time, issued a number of
guidelines/instructions to banks on SHG-Bank Linkage Programme. In order to enable
banks to have instructions at one place, the Master Circular incorporating the existing
guidelines/instructions on the subject has been updated and enclosed. This Master
Circular consolidates the circulars issued by Reserve Bank on the subject up to June
30, 2020, as indicated in the Annex.
Yours faithfully
(Gautam Prasad Borah)
Chief General Manager-in-Charge
Encl: As aboveMaster Circular on SHG-Bank Linkage Programme
Self Help Groups have the potential to bring together the formal banking structure and the
rural poor for mutual benefit. Studies conducted by NABARD in a few states to assess the
impact of the linkage project have brought out encouraging and positive features like
increase in loan volume of the SHGs, definite shift in the loaning pattern of the members
from non-income generating activities to production activities, nearly 100 per cent recovery
performance, significant reduction in the transaction costs for both the banks and the
borrowers etc., besides leading to a gradual increase in the income level of the SHG
members. Another significant feature observed in the linkage project is that about 85 per
cent of the groups linked with banks were formed exclusively by women.
2. Recognizing the importance of SHG Bank linkage, banks have been advised to meet the
entire credit requirements of SHG members, as envisaged in Paragraph 93 of the Union
Budget announcement for the year 2008-09, made by the Honorable Finance Minister,
wherein it was stated as under: "Banks will be encouraged to embrace the concept of Total
Financial Inclusion. Government will request all scheduled commercial banks to follow the
example set by some public sector banks and meet the entire credit requirements of SHG
members, namely, (a) income generation activities, (b) social needs like housing, education,
marriage, etc. and (c) debt swapping". Linking of SHGs with banks has thus been
emphasized in the Monetary Policy Statements of Reserve Bank of India and Union Budget
announcements from time to time and various guidelines have been issued to banks in this
regard.
3. Banks should provide adequate incentives to their branches in financing the Self Help
Groups (SHGs) and establish linkages with them, making the procedures simple and easy.
The group dynamics of working of the SHGs need neither be regulated nor formal
structures imposed or insisted upon. The approach to financing of SHGs should be totally
hassle-free and may also include consumption expenditures. Accordingly, the following
guidelines should be adhered to enable effective linkage of SHGs with the banking sector.
24. Opening of Savings Bank A/C
a) The SHGs, registered or unregistered, which are engaged in promoting savings habits
among their members are eligible to open savings bank accounts with banks. These
SHGs need not necessarily have already availed of credit facilities from banks before
opening savings bank accounts. The instructions of the Department of Banking
Regulation in the Master Direction - Know Your Customer (KYC) Direction, 2016
pertaining to SHG members (Chapter VI-Paragraph 43) shall be adhered to, while
completing Customer Due Diligence (CDD)1 process.
b) Accordingly, the current instructions under Simplified norms for Self Help Groups
(SHGs) mention that CDD of all the members of SHG as mentioned in the above
Direction shall not be required while opening the savings bank account of the SHG.
CDD of all the office bearers shall suffice. No separate CDD of the members or office
bearers shall be necessary at the time of credit linking of SHGs.
5. Lending to SHGs
a) Bank lending to SHGs should be included in branch credit plan, block credit plan, district
credit plan and state credit plan of each bank. Utmost priority should be accorded to the
sector in preparation of these plans. It should also form an integral part of the bank’s
corporate credit plan.
b) As per operational guidelines issued by NABARD, SHGs may be sanctioned savings
linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). However, in
case of matured SHGs, loans may be given beyond the limit of four times the savings as
per the discretion of the bank.
c) A simple system requiring minimum procedures and documentation is a precondition for
augmenting flow of credit to SHGs. Banks should strive to remove all operational
irritants and make arrangements to expeditiously sanction and disburse credit by
delegating adequate sanctioning powers to branch managers. The loan application
forms, procedures and documents should be made simple. It would help in providing
prompt and hassle-free credit.
1 Customer Due Diligence - means identifying and verifying the customer and the beneficial owner
36. Interest rates
The banks would have the discretion to decide on the interest rates applicable to loans
given to Self Help Groups/member beneficiaries.
7. Service/Processing charges
No loan related and ad hoc service charges/inspection charges should be levied on priority
sector loans up to ₹ 25,000. In the case of eligible priority sector loans to SHGs/JLGs, this
limit will be applicable per member and not to the group as a whole.
8. Separate Segment under priority sector
In order to enable the banks to report their SHG lending without difficulty, it is decided that
the banks should report their lending to SHGs for on-lending to members of SHGs under
the respective categories, viz. 'Advances to SHGs' irrespective of the purposes for which
the loans have been disbursed to the SHG members. Priority Sector loans to SHGs are
considered under “Weaker Sections” category.
9. Presence of defaulters in SHGs
Defaults by a few members of SHGs and/or their family members to the financing bank
should not ordinarily come in the way of financing SHGs per se by banks, provided the SHG
is not in default. However, the bank loan may not be utilized by the SHG for financing a
defaulter member to the bank.
10. Capacity Building and Training
a) Banks may initiate suitable steps to internalize the SHGs linkage project and organize
exclusive short duration programmes for the field level functionaries. In addition, suitable
awareness/sensitization programmes may be conducted for their middle level controlling
officers as well as senior officers.
b) Banks shall refer to instructions on Financial Literacy by FLCs and rural branches –
Policy review vide Circular FIDD.FLC.BC.No.22/12.01.018/2016-17 dated March 02,
2017 conducting tailored programs targeting SHGs.
411. Monitoring and Review of SHG Lending
Considering the potential of SHGs, banks shall closely monitor the progress regularly at
various levels. In order to give a boost to the ongoing SHG bank linkage programme for
credit flow to the unorganized sector, monitoring of SHG bank linkage programme shall be a
regular item on the agenda for discussion at the SLBC and DCC meetings. It should be
reviewed at the highest corporate level on a quarterly basis. Further, progress of the
programme may be reviewed by banks at regular intervals. The progress under SHG-BLP,
as prescribed vide RBI letter FIDD.CO.FID.No.3387/12.01.033/2017-18 dated April 26,
2018 shall be reported to NABARD (Micro Credit Innovations Department), Mumbai, on a
quarterly basis, and the returns in the prescribed format shall be submitted within 15 days
from due date.
12. Reporting to CICs
Recognizing the importance of credit information reporting in respect of the SHG members
for financial inclusion, banks are advised to adhere to the guidelines issued by Department
of Banking Regulation on Credit information reporting in respect of Self Help Group
(SHG) members dated June 16, 2016 and Credit information reporting in respect of Self
Help Group (SHG) members dated January 14, 2016.
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5Annex - List of Circulars consolidated in the Master Circular
Sr. Circular No. Date Subject
No.
1. RPCD.No.Plan.BC.13/PL-09.22/91/92 July 24,1991 Improving Access of Rural poor to
Banking- Role of Intervening
Agencies- Self Help Groups
2. RPCD.No.PL.BC.120/04.09.22/95-96 April 2,1996 Linking of Self Help Groups with
banks- Working Group on NGOs and
SHGs- recommendations –Follow up
3. RPCD.PI.BC/12/04.09.22/98-99 July 24, 1998 Linking of Self Help Groups with
Banks
4. RPCD.No.PLAN.BC.94/04.09.01/98-99 April 24,1999 Loans to Micro Credit Organizations-
Rates of Interest
5. RPCD.PL.BC.28/04.09.22/99-2000 September 30, 1999 Credit delivery through Micro Credit
Organizations/ Self Help Groups
6. RPCD.No.PL.BC.62/04.09.01/99-2000 February 18, 2000 Micro credit
7. RPCD.No.Plan.BC.42/04.09.22/2003-04 November 03, 2003 Micro Finance
8. RPCD No.Plan.BC.61/04.09.22/2003-04 January 09, 2004 Credit flow to the unorganized sector
9. RBI/385/2004-05, March 03, 2005 Submitting progress report under
RPCD.No.Plan.BC.84/04.09.22/2004-05 micro credit
10. RBI/2006-07/441 June 20, 2007 Microfinance-Submission of progress
RPCD.CO.MFFI.BC.No.103/12.01.01/2006-07 reports
11. RPCD.MFFI.BC.No.56/12.01.001/2007-08 April 15, 2008 Total Financial inclusion and Credit
Requirement of SHGs.
12. FIDD.FID.BC.No.56/12.01.033/2014-15 May 21, 2015 SHG-Bank Linkage Programme –
Revision of progress reports
13. RBI/2015-16/291 January 14, 2016 Credit information reporting in respect
DBR.CID.BC.No.73/20.16.56/2015-16 of Self Help Group (SHG) members
14. RBI/2015-16/424 June 16, 2016 Credit Information Reporting in
DBR.CID.BC.No.104/20.16.56/2015-16 respect of Self Help Group (SHG)
members
15. Master Direction February 25, 2016 Master Direction - Know Your
DBR.AML.BC.No.81/14.01.001/2015-16 (Updated as on April Customer (KYC) Direction, 2016
20, 2020)
16. Master Direction DBR.Dir.No.84/13.03.00/2015-16 March 03, 2016 Master Direction - Reserve Bank of
(Updated as on India (Interest Rate on Deposits)
February 22, 2019) Directions, 2016
6