## Report on RBI Master Circular on SHG-Bank Linkage Programme
**1. Executive Summary:**
This report analyzes the Reserve Bank of India's (RBI) Master Circular on the SHG-Bank Linkage Programme, dated April 01, 2025. This circular consolidates existing guidelines aimed at fostering financial inclusion by linking Self Help Groups (SHGs) with the formal banking structure. The core purpose is to streamline and encourage bank lending to SHGs, facilitating income generation, social needs fulfillment, and debt swapping for SHG members. Key findings include an emphasis on hassle-free lending procedures, prioritization of SHG lending in bank credit plans, flexibility in interest rate determination, classification of loans to SHGs under Priority Sector Lending, and the importance of capacity building and monitoring.
**2. Introduction:**
This report aims to provide an informative overview of the RBI's Master Circular on the SHG-Bank Linkage Programme, based solely on the text provided. The report outlines the policy's core objectives, background, key provisions, target audience, implementation aspects, and expected outcomes.
**3. Policy Overview:**
This is a Master Circular consolidating previous circulars on the subject of the SHG-Bank Linkage Programme.
* **Core Objectives (as inferred from the text):**
* To promote financial inclusion by linking SHGs with the banking sector.
* To encourage banks to meet the entire credit requirements of SHG members, covering income generation activities, social needs, and debt swapping.
* To simplify lending procedures and reduce transaction costs for both banks and SHGs.
* To prioritize lending to SHGs within the banking sector.
**4. Background and Rationale:**
As this is a master circular consolidating previous instructions, the policy addresses the ongoing need for a structured and accessible framework for SHG-Bank linkages. The Master Circular provides a consolidated reference point for banks, ensuring clarity and consistency in their dealings with SHGs. The initiative builds upon positive impact assessments of previous SHG linkage projects, which demonstrated increased loan volumes, a shift towards productive activities, high recovery rates, and reduced transaction costs.
**5. Key Provisions:**
The Master Circular establishes the following key provisions for banks:
* **Opening of Savings Bank Accounts:** SHGs engaged in promoting savings habits are eligible to open savings bank accounts with banks. Simplified Customer Due Diligence (CDD) procedures, as per the KYC guidelines, must be followed.
* **Lending to SHGs:** Banks should include lending to SHGs in their branch, block, district, and state credit plans, and prioritize this sector. Loans may be sanctioned based on a savings-to-loan ratio (typically 1:1 to 1:4), with discretion to exceed this limit for mature SHGs. A simplified lending system with minimum procedures and delegated sanctioning powers is required.
* **Interest Rates:** Banks have the discretion to determine interest rates on loans to SHGs, subject to regulatory guidelines.
* **Service Processing Charges:** Service charges applicable to priority sector loans to SHGs should adhere to the guidelines prescribed in the relevant Master Directions.
* **Priority Sector Lending Classification:** Loans to SHGs are eligible for classification under Priority Sector Lending (PSL) under relevant categories, subject to Master Direction guidelines.
* **Defaulters:** Defaults by individual SHG members should not impede financing to the SHG as a whole, provided the SHG is not in default. However, bank loans cannot be used to finance defaulting members.
* **Capacity Building and Training:** Banks are encouraged to internalize the SHG linkage project by conducting training programs for field staff and awareness programs for management. Banks must conduct financial literacy programs targeting SHGs.
* **Monitoring and Review:** Banks shall closely monitor the SHG lending progress at various levels, with SHG BLP monitoring a regular item on the agenda for discussion at SLBC and DCC meetings. Progress is to be reviewed quarterly at the highest corporate level and reported to NABARD quarterly.
* **Reporting to CICs:** Banks must adhere to credit information reporting guidelines for SHG members.
**6. Target Audience and Stakeholders:**
Based on the text, the primary target audience and stakeholders are:
* All Scheduled Commercial Banks (including Chairmen, Managing Directors, and Chief Executive Officers).
* Self Help Groups (SHGs) and their members.
* NABARD (for reporting purposes).
**7. Implementation Aspects (Inferred):**
* **Responsible agency/bodies:** The Reserve Bank of India (RBI) is the issuing and regulating authority. Scheduled Commercial Banks are responsible for implementing the guidelines. NABARD plays a role in monitoring and receiving progress reports.
* **Timelines and Procedures:** Banks are required to report progress to NABARD on a quarterly basis, within 15 days from the due date. The Master Circular consolidates existing guidelines up to March 31, 2025, indicating an immediate effective date for implementation.
**8. Expected Outcomes / Impact:**
The likely intended outcomes of the SHG-Bank Linkage Programme, as outlined in the Master Circular, include:
* Increased access to formal banking services for SHG members.
* Enhanced financial inclusion of the rural poor, particularly women.
* Improved income-generating activities within SHGs.
* Reduction in transaction costs for both banks and borrowers.
* Improved credit discipline and higher loan recovery rates.
**9. Conclusion:**
The RBI's Master Circular on the SHG-Bank Linkage Programme consolidates and clarifies existing guidelines, reinforcing the importance of SHG-Bank linkages for promoting financial inclusion and empowering vulnerable communities. The emphasis on simplified procedures, prioritized lending, and capacity building aims to facilitate effective implementation by banks and ensure the continued success of the SHG movement in India. This Master Circular is a key document for the banking sector, guiding their engagement with SHGs and contributing to the broader goals of financial inclusion and poverty reduction.
Key Entities Referenced
RESERVE BANK OF INDIA: The central bank of India, the issuer of this circular.
RBI20252601: Reference number for the circular issued by the Reserve Bank of India.
FIDD.CO.FID.BC.No.412.01.033202526: Another reference number for the circular issued by the Reserve Bank of India.
April 01, 2025: Date of the circular.
The Chairman Managing Director Chief Executive Officer All Scheduled Commercial Banks: Addressees of the circular.
SHGBank Linkage Programme: The subject of the master circular; a program linking Self Help Groups with banks.
Nisha Nambiar: Chief General Manager-in-Charge at Reserve Bank of India, the signatory of the circular.
March 31, 2025: Date until which circulars have been consolidated in this Master Circular.
NABARD: National Bank for Agriculture and Rural Development, an organization that conducted studies on the SHGBank Linkage Programme.
Union Budget announcement for the year 200809: A budget announcement made by the Honorable Finance Minister, relevant to financial inclusion.
Total Financial Inclusion: Concept encouraged in the Union Budget announcement for the year 2008-09.
Monetary Policy Statements of Reserve Bank of India: Statements where linking of SHGs with banks has been emphasized.
Customer Due Diligence CDD: Due diligence to be followed as per KYC guidelines.
Master Direction Know Your Customer KYC Direction, 2016: A document specifying guidelines on Customer Due Diligence.
block credit plan: A type of credit plan where bank lending to SHGs should be included.
district credit plan: A type of credit plan where bank lending to SHGs should be included.
state credit plan: A type of credit plan where bank lending to SHGs should be included.
Master Direction Reserve Bank of India Interest Rate on Advances Directions, 2016: A document containing regulatory guidelines on interest rates on advances.
DBR.Dir.No.8513.03.00201516: Reference number for the Master Direction Reserve Bank of India Interest Rate on Advances Directions, 2016.
March 3, 2016: Date of issue of Master Direction Reserve Bank of India Interest Rate on Advances Directions, 2016.
Master Directions Reserve Bank of India Priority Sector Lending Targets and Classification Directions, 2025: Directions pertaining to service charges applicable to priority sector loans to SHGs.
FIDD.CO.PSD.BC.1304.09.001202425: Reference number for the Master Directions Reserve Bank of India Priority Sector Lending Targets and Classification Directions, 2025.
March 24, 2025: Date of issue of Master Directions Reserve Bank of India Priority Sector Lending Targets and Classification Directions, 2025.
Priority Sector Lending PSL: Classification for loans to SHGs under respective categories viz Agriculture, MSME, Social Infrastructure and others.
Circular FIDD.FLC.BC.No.2212.01.0182016 17: Circular regarding financial literacy programmes targeting SHGs.
March 02, 2017: Date of issue of Circular FIDD.FLC.BC.No.2212.01.0182016 17 regarding financial literacy programmes.
SHG BLP: Abbreviation for SHG bank linkage programme.
SLBC: State Level Bankers' Committee
DCC: District Consultative Committee
RBI letter FIDD.CO.FID.No.338712.01.033201718: RBI letter regarding the reporting of progress under SHGBLP.
April 26, 2018: Date of issue of RBI letter FIDD.CO.FID.No.338712.01.033201718.
NABARD Micro Credit Innovations Department, Mumbai: The department to which the progress under SHGBLP should be reported.
Master Direction Reserve Bank of India Credit Information Reporting Directions, 2025: Directions regarding credit information reporting in respect of SHGs members.
DoR.FIN.REC.No.5520.16.056202425: Reference number for the Master Direction Reserve Bank of India Credit Information Reporting Directions, 2025.
January 06, 2025: Date of issue of Master Direction Reserve Bank of India Credit Information Reporting Directions, 2025.
RPCD.No.Plan.BC.13PL: Circular number related to improving access of rural poor to banking.
July 24,1991: Date of circular RPCD.No.Plan.BC.13PL
भारतीय �रज़व र् बकैं
----------------------------------- RESERVE BANK OF INDIA -------------------------------------
www.rbi.org.in
RBI/2025-26/01
FIDD.CO.FID.BC.No.4/12.01.033/2025-26 April 01, 2025
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. The enclosed Master
Circular consolidates the circulars issued by Reserve Bank on the subject up to March
31, 2025, as indicated in the Appendix.
Yours faithfully
(Nisha Nambiar)
Chief General Manager-in-Charge
Encl: As aboveMaster Circular on SHG-Bank Linkage Programme
Self Help Groups (SHGs) 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 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
The SHGs, registered or unregistered, which are engaged in promoting savings habit 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 on simplified Customer Due Diligence (CDD) applicable to SHGs
as prescribed in Chapter VI of the Master Direction - Know Your Customer (KYC) Direction,
2016 (as updated from time to time) shall be adhered to.
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.
6. Interest rates
The banks would have the discretion to decide on the interest rates applicable to loans given
to SHGs/member beneficiaries, subject to regulatory guidelines on interest rate on advances
contained in Master Direction - Reserve Bank of India (Interest Rate on Advances) Directions,
2016 issued vide DBR.Dir.No.85/13.03.00/2015-16 dated March 3, 2016, as updated from
time to time.
37. Service/ Processing charges
The instructions on service charges applicable to priority sector loans to SHGs as prescribed
in the Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and
Classification) Directions, 2025 issued vide FIDD.CO.PSD.BC.13/04.09.001/2024-25 dated
March 24, 2025 (as updated from time to time) shall be adhered to.
8. Priority Sector Lending classification
Loans to SHGs are eligible for classification under Priority Sector Lending (PSL) under the
respective categories viz Agriculture, MSME, Social Infrastructure and others, subject to the
provisions of Master Directions - Reserve Bank of India (Priority Sector Lending – Targets
and Classification) Directions, 2025 issued vide FIDD.CO.PSD.BC.13/04.09.001/2024-25
dated March 24, 2025 (as updated from time to time).
9. 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 adhere to the instructions on conducting tailored financial literacy
programmes targeting SHGs issued vide Circular FIDD.FLC.BC.No.22/12.01.018/2016-
17 dated March 02, 2017.
11. 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 (SHG-
BLP) for credit flow to the unorganized sector, monitoring of SHG BLP shall be a regular item
4on 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, in the
prescribed format within 15 days from due date.
12. Reporting to CICs
Banks are advised to adhere to the guidelines on credit information reporting in respect of
SHGs members contained in Master Direction – Reserve Bank of India (Credit Information
Reporting) Directions, 2025 issued vide DoR.FIN.REC.No.55/20.16.056/2024-25 dated
January 06, 2025 (as updated from time to time).
5Appendix
List of Circulars consolidated in the Master Circular
Sr. No. Circular No. Date Subject
1. RPCD.No.Plan.BC.13/PL July 24,1991 Improving Access of Rural poor
-09.22/91/92 to Banking- Role of Intervening
Agencies- Self Help Groups
2. RPCD.No.PL.BC.120/04. April 2,1996 Linking of Self Help Groups with
09.22/95-96 banks- Working Group on NGOs
and SHGs- recommendations –
Follow up
3. RPCD.PI.BC/12/04.09.2 July 24, 1998 Linking of Self Help Groups with
2/98-99 Banks
4. RPCD.No.PLAN.BC.94/0 April 24,1999 Loans to Micro Credit
4.09.01/98-99 Organizations- Rates of Interest
5. RPCD.PL.BC.28/04.09.2 September 30, 1999 Credit delivery through Micro
2/99-2000 Credit Organizations/ Self Help
Groups
6. RPCD.No.PL.BC.62/04.0 February 18, 2000 Micro credit
9.01/99-2000
7. RPCD.No.Plan.BC.42/04 November 03, 2003 Micro Finance
.09.22/2003-04
8. RPCD January 09, 2004 Credit flow to the unorganized
No.Plan.BC.61/04.09.22/ sector
2003-04
9. RBI/385/2004-05, March 03, 2005 Submitting progress report under
RPCD.No.Plan.BC.84/04 micro credit
.09.22/2004-05
10. RBI/2006-07/441 June 20, 2007 Microfinance-Submission of
RPCD.CO.MFFI.BC.No. progress reports
103/12.01.01/2006-07
11. RPCD.MFFI.BC.No.56/1 April 15, 2008 Total Financial inclusion and
2.01.001/2007-08 Credit Requirement of SHGs.
12. FIDD.FID.BC.No.56/12.0 May 21, 2015 SHG-Bank Linkage Programme
1.033/2014-15 – Revision of progress reports
13. Master Direction February 25, 2016 Master Direction - Know Your
DBR.AML.BC.No.81/14. (Updated as on Customer (KYC) Direction,
01.001/2015-16 November 06, 2016.
2024)
14. Master Direction DBR. March 03, 2016 Master Direction - Reserve
Dir. No.84/13.03.00/ (Updated as on Bank of India (Interest Rate on
2015-16 June 07, 2024) Deposits) Directions, 2016
15. Master Direction March 03, 2016 Master Direction - Reserve
DBR.Dir.No.85/13.03.0 (Updated as on Bank of India (Interest Rate on
0/2015-16 September 12, Advances) Directions, 2016
2023)
16. FIDD.FLC.BC.No.22/12 March 02, 2017 Financial Literacy by FLCs and
.01.018/2016-17 rural branches – Policy review
617. DoR.FIN.REC.No.55/20 January 06, 2025 Master Direction – Reserve
.16.056/2024-25 Bank of India (Credit
Information Reporting)
Directions, 2025
18. March 24, 2025 Master Directions - Reserve
Master Directions
Bank of India (Priority Sector
FIDD.CO.PSD.BC.13/0
Lending – Targets and
4.09.001/2024-25
Classification) Directions, 2025
7