Executive Summary:
This Master Circular, updated as of April 1, 2024, consolidates existing guidelines and instructions from the Reserve Bank of India (RBI) regarding the SHG-Bank Linkage Programme. It aims to provide banks with a single reference point for all relevant directives on this subject, incorporating circulars issued up to March 31, 2024. Banks are expected to adhere to these guidelines to facilitate effective linkage of SHGs with the banking sector and promote financial inclusion. Banks must submit SHGBLP progress reports to NABARD quarterly, within 15 days of the due date.
Key Points / Main Content:
SHG Promotion and Financial Inclusion:
* SHGs can bridge the gap between formal banking and the rural poor.
* Banks should meet the entire credit requirements of SHG members, including income generation, social needs, and debt swapping.
* Banks should incentivize branches to finance SHGs, simplify procedures, and avoid regulating group dynamics.
Savings and Lending Guidelines:
* SHGs engaged in promoting savings can open savings bank accounts with banks, regardless of prior credit facilities.
* Simplified Customer Due Diligence (CDD) as per KYC guidelines should be followed.
* Bank lending to SHGs should be included in credit plans at various levels, prioritizing this sector.
* Savings-linked loans can be sanctioned with varying savings-to-loan ratios, with flexibility for matured SHGs.
Operational Aspects:
* Banks should minimize procedures and documentation, delegating sanctioning powers to branch managers.
* Interest rates on loans to SHGs are at the bank's discretion, subject to regulatory guidelines.
* No loan-related service charges should be levied on priority sector loans up to ₹25,000 per member.
Priority Sector Lending (PSL):
* Loans to SHGs can be classified under PSL categories (Agriculture, MSME, Social Infrastructure, etc.).
Managing Defaults:
* Defaults by individual SHG members should not prevent financing of the entire SHG, provided the group is not in default.
* SHG loans cannot be used to finance defaulter members.
Capacity Building and Monitoring:
* Banks should internalize the SHG linkage project, conduct training programs for staff, and raise awareness among officers.
* Financial literacy programs tailored for SHGs should be conducted.
* Progress should be monitored regularly and discussed at SLBC and DCC meetings.
Reporting:
* Banks must report SHGBLP progress to NABARD quarterly.
* Adhere to guidelines on credit information reporting for SHG members to CICs.
Impact Analysis:
Banks:
* Impact: Required to implement the updated guidelines, adjust lending practices, and enhance monitoring and reporting.
* Action Required: Review and update internal policies and procedures, train staff, and ensure compliance with reporting requirements.
Self Help Groups (SHGs):
* Impact: Benefit from streamlined access to credit, expanded loan purposes, and reduced transaction costs.
* Action Required: Adhere to bank requirements for opening accounts and applying for loans, ensure proper utilization of funds, and maintain good repayment behavior.
NABARD:
* Impact: Receives progress reports from banks and monitors the overall effectiveness of the SHG-Bank Linkage Programme.
* Action Required: Analyze reports, assess program impact, and provide feedback to banks and the RBI.
RBI:
* Impact: Oversees the implementation of the SHG-Bank Linkage Programme and ensures compliance by banks.
* Action Required: Monitor progress, review policies as needed, and issue further guidelines to promote financial inclusion.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system and monetary policy.
Self Help Group-Bank Linkage Programme: A program aimed at linking self-help groups (SHGs) with banks to provide financial services to the rural poor.
NABARD: National Bank for Agriculture and Rural Development, an apex development finance institution in India.
Union Budget: The annual financial statement of the Government of India, presented to the Parliament.
Total Financial Inclusion: A concept that aims to provide access to financial services to all individuals and businesses, regardless of their income or location.
Master Direction Know Your Customer KYC Direction, 2016: Regulatory guidelines issued by the Reserve Bank of India on Know Your Customer (KYC) norms for banks.
Priority Sector Lending: A scheme by Reserve Bank of India to ensure that banks provide a specified portion of their lending to certain sectors of the economy, such as agriculture and small businesses.
Mumbai, Maharashtra: City in Maharashtra where NABARD Micro Credit Innovations Department is located.
भारतीय �रज़व र् बक�
----------------------------------- RESERVE BANK OF INDIA -------------------------------------
www.rbi.org.in
RBI/2024-25/05
FIDD.CO.FID.BC.No.1/12.01.033/2024-25 April 01, 2024
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, 2024, 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 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
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 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”.
37. 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
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
4the 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 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. 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. RBI/2015-16/291 January 14, 2016 Credit information reporting in
DBR.CID.BC.No.73/20. respect of Self Help Group
16.56/2015-16 (SHG) members
14. 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 January 04, 2024) 2016
15. 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 October 26, 2023) Deposits) Directions, 2016
16. 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)
617. RBI/2015-16/424 June 16, 2016 Credit Information Reporting in
DBR.CID.BC.No.104/20 respect of Self Help Group
.16.56/2015-16 (SHG) members
18. FIDD.FLC.BC.No.22/12 March 02, 2017 Financial Literacy by FLCs and
.01.018/2016-17 rural branches – Policy review
19. Master Directions September 4, 2020 Master Directions – Priority
FIDD.CO.Plan.BC.5/04. (Updated as on July Sector Lending (PSL) – Targets
09.01/2020-21 27, 2023) and Classification
7