Executive Summary:
This Master Circular consolidates existing guidelines and instructions issued by the Reserve Bank of India (RBI) to banks on the SHG-Bank Linkage Programme up to March 31, 2022. It aims to provide banks with a single reference point for all instructions related to this program, which facilitates financial inclusion by linking self-help groups (SHGs) with the formal banking system. The circular emphasizes hassle-free procedures and encourages banks to meet the entire credit requirements of SHG members. Banks should report progress under SHGBLP to NABARD on a quarterly basis within 15 days from the due date.
Key Points / Main Content:
Savings Account Opening:
* SHGs engaged in promoting savings among members are eligible to open savings accounts with banks, irrespective of prior credit facilities.
* Banks must adhere to simplified Customer Due Diligence (CDD) guidelines as prescribed in the Master Direction on Know Your Customer (KYC).
Lending to SHGs:
* Bank lending to SHGs should be included in branch, block, district, and state credit plans, and given utmost priority.
* Banks may sanction savings-linked loans to SHGs with a savings to loan ratio of 1:1 to 1:4, with discretion to exceed this limit for matured SHGs.
* Banks should simplify procedures and documentation for expeditious credit sanction and disbursement, delegating adequate sanctioning powers to branch managers.
Interest Rates and Charges:
* Banks have the discretion to determine interest rates on loans to SHGs and their members, subject to RBI's regulatory guidelines.
* No loan-related and ad hoc service charges/inspection charges should be levied on priority sector loans up to ₹25,000 per member for SHGs/JLGs.
Priority Sector Lending:
* Loans to SHGs are classified under Priority Sector Lending (PSL) under categories like Agriculture, MSME, Social Infrastructure, etc., as per extant guidelines.
Defaults:
* Defaults by a few SHG members or their families should not impede financing to the SHG, provided the SHG itself is not in default. However, SHG loan should not be used to finance a defaulting member.
Capacity Building and Training:
* Banks should internalize the SHG linkage project and conduct short-duration programs for field-level functionaries.
* Awareness/sensitization programs may be conducted for middle-level controlling and senior officers.
* Banks shall refer to instructions on Financial Literacy by FLCs and rural branches by conducting tailored programs targeting SHGs.
Monitoring and Review:
* Banks shall regularly monitor progress at various levels and review the program quarterly at the highest corporate level.
* Monitoring of SHG bank linkage program shall be a regular agenda for discussion at SLBC and DCC meetings.
* Progress reports should be submitted quarterly to NABARD within 15 days from the due date.
Reporting to CICs:
* Banks must adhere to guidelines on credit information reporting for SHG members.
Impact Analysis:
Banks:
* Impact: Banks are required to implement the guidelines outlined in the circular to promote and support the SHG-Bank Linkage Programme.
* Action Required: Update internal policies and procedures, train staff, monitor progress, and submit reports to NABARD.
Self Help Groups (SHGs) and their Members:
* Impact: SHGs will benefit from streamlined access to credit and financial services, promoting financial inclusion and economic empowerment.
* Action Required: SHGs should adhere to banking procedures, maintain good credit discipline, and utilize loans effectively for income-generating activities and social needs.
NABARD:
* Impact: NABARD is responsible for overseeing the implementation of the SHG-Bank Linkage Programme and monitoring its progress.
* Action Required: Receive and analyze progress reports from banks, assess the impact of the program, and provide support to banks and SHGs as needed.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which has issued guidelines and instructions on the SHG-Bank Linkage Programme.
SHG-Bank Linkage Programme: A program aimed at linking Self Help Groups with banks to facilitate financial inclusion and provide credit to the rural poor.
NABARD: National Bank for Agriculture and Rural Development, an apex development finance institution in India, involved in studies and operational guidelines for SHGs.
Union Budget: The annual financial statement of the Government of India, which included announcements related to financial inclusion and SHG credit requirements.
Self Help Groups (SHGs): Small groups of individuals, typically women, who pool their savings and provide loans to members, often linked to banks for credit facilities.
Master Direction Know Your Customer KYC Direction, 2016: Regulatory guidelines issued by the Reserve Bank of India on Customer Due Diligence for banks, applicable to SHGs opening savings bank accounts.
Priority Sector Lending (PSL): A category of lending that banks are required to allocate a certain portion of their funds to, including loans to SHGs under specific categories like Agriculture, MSME and Social Infrastructure.
Micro Credit Innovations Department, Mumbai: A department of NABARD in Mumbai to which progress reports on SHGBLP should be sent quarterly
RBI/2022-23/02
FIDD.CO.FID.BC.No.1/12.01.033/2022-23 April 01, 2022
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 March
31, 2022, as indicated in the Appendix.
Yours faithfully
(Sonali Sen Gupta)
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.
4. 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
2accounts. The instructions on simplified Customer Due Diligence (CDD) applicable to SHGs
as prescribed in Part 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 Self Help Groups/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 amended from time to time”.
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.
38. Separate Segment under priority sector
Loans to SHGs are allowed to be classified under Priority Sector Lending (PSL) under the
respective categories viz Agriculture, MSME, Social Infrastructure and others, subject to
extant guidelines of Master Directions – Priority Sector Lending (PSL) – Targets and
Classification issued vide Master Directions FIDD.CO.Plan.BC.5/04.09.01/2020-21 dated
September 4, 2020, as amended from time to time.
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.
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 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.
412. 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 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.
5Appendix
List of Circulars consolidated in the Master Circular
Sr. Circular No. Date Subject
No.
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.120/04.09 April 2, 1996 Linking of Self Help Groups with
.22/95-96 banks- Working Group on NGOs
and SHGs- recommendations –
Follow up
3. RPCD.PI.BC/12/04.09.22/9 July 24, 1998 Linking of Self Help Groups with
8-99 Banks
4. RPCD.No.PLAN.BC.94/04. April 24, 1999 Loans to Micro Credit
09.01/98-99 Organizations- Rates of Interest
5. RPCD.PL.BC.28/04.09.22/9 September 30, Credit delivery through Micro
9-2000 1999 Credit Organizations/ Self Help
Groups
6. RPCD.No.PL.BC.62/04.09. February 18, 2000 Micro credit
01/99-2000
7. RPCD.No.Plan.BC.42/04.09 November 03, Micro Finance
.22/2003-04 2003
8. RPCD January 09, 2004 Credit flow to the unorganized
No.Plan.BC.61/04.09.22/20 sector
03-04
9. RBI/385/2004-05, March 03, 2005 Submitting progress report under
RPCD.No.Plan.BC.84/04.09 micro credit
.22/2004-05
10. RBI/2006-07/441 June 20, 2007 Microfinance-Submission of
RPCD.CO.MFFI.BC.No.103 progress reports
/12.01.01/2006-07
11. RPCD.MFFI.BC.No.56/12.0 April 15, 2008 Total Financial inclusion and
1.001/2007-08 Credit Requirement of SHGs.
12. FIDD.FID.BC.No.56/12.01.0 May 21, 2015 SHG-Bank Linkage Programme
33/2014-15 – Revision of progress reports
13. RBI/2015-16/291 January 14, 2016 Credit information reporting in
DBR.CID.BC.No.73/20.16. respect of Self Help Group
56/2015-16 (SHG) members
14. Master Direction February 25, 2016 Master Direction - Know Your
DBR.AML.BC.No.81/14.01 (Updated as on Customer (KYC) Direction,
.001/2015-16 May 10, 2021) 2016
15. Master Direction DBR. Dir. March 03, 2016 Master Direction - Reserve
No.84/13.03.00/ 2015-16 (Updated as on Bank of India (Interest Rate on
November 11, Deposits) Directions, 2016
2021)
16. Master Direction March 03, 2016 Master Direction - Reserve
DBR.Dir.No.85/13.03.00/2 (Updated as on Bank of India (Interest Rate on
015-16 June 10, 2021) Advances) Directions, 2016
617. RBI/2015-16/424 June 16, 2016 Credit Information Reporting in
DBR.CID.BC.No.104/20.1 respect of Self Help Group
6.56/2015-16 (SHG) members
18. FIDD.FLC.BC.No.22/12.01 March 02, 2017 Financial Literacy by FLCs and
.018/2016-17 rural branches – Policy review
19. Master Directions September 4, Master Directions – Priority
FIDD.CO.Plan.BC.5/04.09. 2020 (Updated as Sector Lending (PSL) – Targets
01/2020-21 on October 26, and Classification
2021)
7