Financial Literacy Guide
User Manual:
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Trainer’s guide for conduct
of
Financial Literacy Camps
(Issued in terms of RBI’s circular No. RPCD.FLC.No.12452/12.01.018/2011-12 dated June 6, 2012)
The contents of this booklet have been developed by Reserve Bank of India, Rural Planning and Credit
Department, Central Ofce, Mumbai for use in Financial Literacy Camps to be organized by Financial
Literacy Centres and all the rural branches throughout the country at monthly intervals in terms of the
above guidelines. This guide is also availabe at www.rbi.org.in
Written By: Sushma Vij & Geetha Nair
Illustrations by: R.N.Rahate
First Edition - January 2013
Published by
Reserve Bank of India
Rural Planning and Credit Department
10th Floor, Central Ofce Building
Shaheed Bhagat Singh Marg
Fort, Mumbai- 400001
Copyright
Reproduction is permitted provided the source is acknowledged.
Acknowledgements
The inputs received from various sources including Accion India, Indian School of Micronance for
Women(ISMW), Parinam Foundation and Sanchayan Society are acknowledged.
FOREWORD
Financial Literacy creates demand for nancial products & services, thereby accelerating the
pace of nancial inclusion as it enables the common man to understand the needs and benets
of the products and services offered by the banks. All segments of the society need nancial
literacy in one form or the other. However, considering that a large segment of our society
is nancially excluded, nancial literacy programs, at present, should primarily focus on
the individuals who are vulnerable to persistent downward nancial pressures due to lack
of understanding in the matters relating to personal nance. On my visit to remote villages
under outreach programs, I found that the primary challenges in improving the effectiveness
of nancial literacy programs is the non availability of standardized basic curriculum to
be conveyed to the target group. This guide has been prepared to ensure consistency in the
messages reaching the target audience from various sources, thus making them more focused
and purposeful. I am sure that it will create huge demand for banking services from the common
man. The guide is meant to be used by branch managers of rural branches of banks and Lead
District Managers for their monthly nancial literacy camps. The guide can also be used
with suitable customization for educating various segments of urban excluded people. Banks
need to gear up their machinery for conduct of nancial literacy programs and simultaneously
provide their customers affordable and user friendly access. This is the time to upgrade our
nancial inclusion model as a sustainable, scalable and viable business opportunity which
would enable the transition from poverty to nancial empowerment, while ensuring protable
business opportunity to banks.
(K.C. Chakrabarty)
Deputy Governor
TABLE OF CONTENTS
SR CONTENTS PAGE No.
1. GUIDANCE NOTE FOR TRAINERS i - ii
2. CONDUCT OF FINANCIAL LITERACY
CAMPS - OPERATIONAL GUIDELINES
iii -v
3. MANAGE YOUR FINANCE 1 - 6
4. SAVINGS 7 - 9
5. SAVING WITH BANKS 10 - 16
6. BORROWINGS 17 - 18
7. BORROWING FROM BANKS 19 - 22
i
Financial Literacy - Guidance note for trainers
1. The objective of conduct of nancial literacy camps is to facilitate nancial inclusion
through provision of two essentials i.e. literacy and easy access. It should aim at
imparting knowledge to enable nancial planning, inculcate saving habits and improve
the understanding of nancial products leading to effective use of nancial services
by the common man. Financial literacy should help them plan ahead of time for their
life cycle needs and deal with unexpected emergencies without resorting to debt. They
should be able to proactively manage money and avoid debt traps. In order to ensure
that the knowledge provided through awareness results in inculcating banking habits,
literacy inputs need to be synchronized with access to nancial services so as to enable
the common man to use the information effectively to gain control over nancial
matters. It should also result in enhancement of their economic security aided by use
of banking services.
2. The banks as providers of nancial services, have an inherent gain in the spread of
nancial inclusion and nancial literacy, as it would help them capture the untapped
business opportunities. Small customer is the key and banks should harness the
business opportunities available at the bottom of the pyramid. Hence, banks must view
the nancial literacy efforts as their future investments. Banks must provide a bouquet
of banking services comprising of a small overdraft facility, variable recurring deposit
account, KCC, remittance facilities to the account holders in order to make the accounts
transactional. People should be encouraged to make transactions in these accounts so
that the cost of maintaining the accounts is recovered to make it a viable and protable
business of the banks. The provision of adequate credit is also important not only in
the interest of the customer, but also for the banks as the income earned through interest
would make the exercise a commercially viable proposition. Banks must provide credit
at a competitive though non exploitative rate but certainly not at a subsidised rate.
3. Creating awareness and knowledge about various products and providing these products
at their doorstep would be the rst step in capturing the accounts. The objective of the
Financial Literacy Guide is to create awareness and educate masses in a lucid manner
ii
about management of money, importance of savings, advantages of saving with banks,
other facilities provided by banks and benets of borrowing from banks. This guide is
a ready recknor for trainers involved in Financial Literacy and Financial Inclusion. It
should be used as a standard text to be imparted to nancially excluded people during
the monthly nancial literacy camps. In line with the objective of bringing the unbanked
people into the banking fold, the strategy of conducting the literacy programs should
also incorporate opening of accounts in camp mode followed by close monitoring of
usage of accounts. In addition, a granular review would help in identifying the factors
inhibiting the frequent use of accounts. The strategy should also include sorting out
all such issues at the earliest. Moreover, while organizing nancial literacy events, the
involvement of Local Government ofcials and other prominent persons in the villages
is also highly recommended. The banks may also consider associating NGOs with
proven track record in the eld of nancial literacy. However the contents of this guide
should be used as a standard text to be imparted to excluded people during the monthly
nancial literacy camps.
iii
Conduct of Financial Literacy Camps-
Operational Guidelines
All the Financial Literacy Centres and rural branches should prepare an annual calendar of
locations for conduct of outdoor Financial Literacy Camps. At every location, the program
should be conducted in three stages to be spread over a period of three months comprising
of three sessions of minimum two hours each plus a visit to ensure timely delivery of cards.
Suitable premises or open place for conduct of the program should be identied in advance.
Banks may customize the program depending upon the requirement of a particular location
and available resources. In all circumstances, the underlying objective of the conduct of
the program should be to bring the maximum number of participants into the banking fold.
First Session
The rst session would mainly focus on creating awareness on nancial concepts,
personal nance and management of money amongst the people. For this purpose,
the bank should organize a camp for a group of villagers. Advance publicity should be
given in the village about the conduct of the camp to ensure good attendance by the
villagers.
The work of organizing the camp should be taken up beforehand with the involvement
of prominent persons of the area like village sarpanch, school teachers or any other
person having good rapport with the villagers. Suitable arrangements may be made at
the place identied for the conduct of the program. All the charts should be in place
before the arrival of the participants.
Prepare a list of participants with details of name, age, occupation etc.
Topics to be covered should be nancial planning, budgeting, savings, how to
maintain nancial diary, advantages of saving with banks, the concept of a Business
Correspondent , difference between formal and informal sources of borrowing, purpose
and cost of borrowing, different types of borrowing etc, as given in the guide.
Distribute a nancial diary to each of the participants. Explain how to use the nancial
iv
diary for preparing the budget and maintaining periodical accounts. Reiterate the
advantages of maintaining the diary. Ask them to use diary at home for preparing their
budget and writing income and expenses for one month. Advise them to bring the
diary when they come for the next session.
At the end of the rst session, the date for holding the second session to be announced
and villagers to be informed that the Business Correspondent shall be introduced to
the villagers during the second session. The fact that accounts will be opened through
the BC should be conveyed to the villagers. The villagers must be made aware of the
documents required to open the accounts and they should be asked to bring all these
documents in the next session. Clear message should be that all the participants need
to attend the second session.
Paste all the charts for permanent reading at a suitable place like village panchayat or
sarpanch or school.
Second Session (Fortnight after holding of rst session)
Take attendance. Find out the reasons for absence of the participants, if any. Introduce
the Business Correspondent to the villagers and explain in detail the relationship of the
BC with the bank, advantages of operations through BC, details of deposit and credit
products and other services that would be available through the BC.
Give a demonstration of the working of the ICT device to the participants and explain
how each of the features work, e.g. how it works when a deposit/withdrawal is made, etc.
Check the nancial diary. Find out whether they had any difculty in writing the diary.
Advise them of corrections, if required. Advise them to write it regularly every month.
Explain the features of the account such as number of deposits/withdrawals that can
be made in a month, limits on deposit/withdrawal if any, the amount of applicable
charges, the modus operandi of crediting of social benets directly into the account,
types of remittances which can be made/received through the accounts.
Start enrollment for the opening of accounts.
v
At the end of the enrollment, advise them regarding the approximate time within
which the account would be opened and that they would get the cards for operating the
account. Advise them that they should start using the accounts for day to day needs
immediately after getting the cards.
After 15 days of the second session, branch ofcials should visit the village to ensure
delivery of cards to the villagers. They will also make sure that the BC has started
operations and villagers are able to make transactions.
Third Session ( 2 months after holding of second session)
Hold a meeting of villagers who had enrolled for account opening during the
previous session. Interact with the villagers and the BC.
Ask them about any difculty faced in the operation of the accounts or in using the ICT
based system and seek suggestions for improvement of the same.
Review the usage of accounts to nd out whether there are any issues impeding the
usage of accounts.
Subsequently, follow up the transaction levels through a regular reporting system.
What is income ?
Money earned from various sources
like salary, wages, earnings from
farming or business etc. is our
income.
What is expenditure ?
Money spent by us on various
items is our expenditure. It includes
spending money on essential as
well as non essential items. Let us
understand our expenses.
What is investment?
Deployment of money, say out of savings, with the expectation of
earning higher returns overtime is investment. e.g. purchase of land,
xed deposit in banks etc.
MANAGE YOUR FINANCE
INCOME
(Source of Money) Amount (`)
Salary or wages 2000
Earnings from Farming/
Business 3000
TOTAL 5000
EXPENSES
(Uses of money) Amount (`)
Food, shelter, Clothes 2000
Education 1000
Repayment loan 700
Sickness 300
Drink, drugs, Gutka 500
Gambling 400
Excessive expenses on
Marriage, Festivals, Pilgrimage etc 1100
Total 6000
GUTKA
TOBACCO
REFRIGERATOR
LIQUOR
ALCOHOL
TOBACCO
PILGRIMAGE
NATURAL
CALAMITIES
EDUCATION
HOUSE
CLOTHES
FOOD
SICKNESS
LUXURIOUS GOODS
MARRIAGE
GAMBLING
NON-ESSENTIAL
ESSENTIAL
INCOME
INCOME
1
What is saving?
When income is more than expenses,
then we have surplus money known as
savings.
What is debt ?
When expenses are more than the
income and we have no savings with us,
then there is shortage of money which
is covered through borrowing, creating
debt.
How to manage the debt?
If we have expenses more
than income in a particular
month, the savings of
previous months can be used
for meeting this shortfall. If
we do not have savings, we
have to borrow and incur a
debt at high cost.
GUTKA
TOBACCO
REFRIGERATOR
LIQUOR
ALCOHOL
TOBACCO
PILGRIMAGE
NATURAL
CALAMITIES
EDUCATION
HOUSE
CLOTHES
FOOD
SICKNESS
LUXURIOUS GOODS
MARRIAGE
GAMBLING
NON-ESSENTIAL
ESSENTIAL
INCOME
INCOME
INCOME
BANK BANK
INCOME EXPENSES RESULT ACTION
` 5000 `4000 Surplus of
` 1000 MOVE
`5000 ` 5000 No Surplus
No Shortage THINK
`5000 ` 6000 Shortage of
` 1000 STOP
2
This is similar to how we manage the use of water in our daily life.
Sometime the municipal water may come for the whole day and
sometime it may not come at all. Do we stop using water? No! We do
not stop using water, we store water when it is in plenty and use when
it is scarce. This act is called saving. Our nance is like a pitcher with
a tap for outow at the bottom of it. The water owing into the pitcher
is our income and the water owing out of the pitcher are our expenses.
Plug non essential expenses and increase your savings.
What is the difference between essential and non essential items of
expenditure?
Essential items of expenditure is money spent on basic needs.
Hence expenses on these items cannot be avoided e.g. food, shel-
ter, clothes, education of children, health, etc. Non essential items
of expenditure are our wants. We want these things because we
like or enjoy them but these are not necessary for our survival.
How can we manage our money?
We can manage our money efciently by doing nancial planning. As
a rst step of nancial planning, we should maintain a Financial Diary
to keep accounts of our income and expenses for a given period, say a
week or a month.
What is nancial planning?
It is an exercise of estimating our nancial needs as also ways to meet
them during the entire life cycle, e.g., birth of child, education, purchasing
house, marriage, purchasing seeds, etc., or to meet emergency situations
like illness, accident, death, natural calamities like ood, drought, etc.
3
Why should we do nancial planning?
Financial planning enables
us to plan in advance our
likely expenses keeping in
mind our level of income.
Thus it helps in two ways,
one- we can save regularly
a portion of our income
for meeting future needs
and two- we can cut down
expenses on non essential
items with a view to save for
future needs. So we should
start nancial planning
today so that we are in a
better position to pay off
our debt and build savings to buy a house or nance higher education
with our own money. Attain your goals with nancial planning.
How to do nancial planning?
Assess current nancial position (Where are we today).
Identify our nancial needs - [(What do we want to achieve in
short term ( 1 Year), medium term (1-5 years ) and long term (more
than 5 years)]
Estimate the cost of each item and the date we want to achieve it.
Calculate how much we need to save each week/month.
Maintain a nancial diary - Write down weekly/monthly income
and expenses.
Curb expenses- spend sensibly.
Review savings regularly-Whether it is as per plan? If not, look at
4
expenses for opportunity areas to cut back spending and increase
savings.
Determine the amount saved at the end of each week/month.
Deposit savings in a bank account.
Why to maintain a Financial Diary?
A Financial diary helps us
to do nancial planning. We
would know how much money
is being spent on essential and
non essential items during a
given month. This helps us
to identify the items on which
the expenses can be avoided or
reduced. Once we know it, we
can regulate these expenses.
We can save this money and
break the cycle of poverty.
Always think twice before
spending.
For example our monthly income is ` 5000. By maintaining a Financial
Diary we have come to know our expenses i.e. food, shelter and clothes
(` 2000), education of children (` 1000), Rent (`700) and sickness (`
300) and expenses on WANTS like festivals, pilgrimage (` 500) and
expenses on drinks, gambling, etc, (` 500). We can reduce expenses
on festivals, pilgrimage from ` 500 to ` 200 and avoid the expenses
of ` 500 on drinks, gambling. The excess of ` 800 can now be saved.
Thus by maintaining a nancial diary, we have saved money. Without
the diary, we will just spend all the money in our hand.
VICES
NEEDS
WANTS
LIQUOR
GUTKA
TOBACCO
REFRIGERATOR
ALCOHOL GAMBLING TOBACCO
PILGRIMAGE LUXURIOUS GOODS
HOUSE FOOD CLOTHES
EDUCATION
FESTIVAL
WANTS ARE UNLIMITED - REDUCE
NEEDS ARE LIMITED - SPEND
VICES ARE RISKY - AVOID
5
How can we reduce expenses?
We can reduce expenses on some of the extra items by spending
judiciously. This saved money becomes our additional income for
spending on essential items without earning more. It is very easy to
understand.
For example, if we are taking
4 cups of tea every day, then in
the past 30 days (1 month) we
have taken 120 cups of tea. Say
each cup of tea costs us ` 5 then
the total cost is ` 600. Just pause
and think whether we need to
drink 4 cups of tea in a day. Had
we taken 2 cups of tea every day
then the expense would have
been `300 and we would have
saved an equal amount of ` 300.
Here, 4 cups of tea is what we
wanted but basically our need
may be fullled with 2 cups of
tea. In a way, our earning has
increased by ` 300 in a month
and in a year we have saved `
3600.
Money saved is money earned
6
Why should we save?
We should save regularly so
that it can be used in times
when our expenditure is more
than our income and we need
more money.
To meet higher expenses
on birth, education,
marriage, purchasing
farm seeds, purchasing
own house, etc.
To meet expenses on
account of unexpected
events like illness,
accident, death, natural calamity. During the emergencies, savings
can come to rescue.
Money is needed for lean periods i.e. when we are not able to earn.
Money is needed for our old age.
Money is needed to buy something which we cannot afford from
regular income.
In short, when we have to spend more money than we earn, we can
meet these expenses from our own money if we have enough savings.
How to save?
We can save either by cutting expenses or by increasing our income.
Presuming income is same, we spend money for purchasing either
essential or non essential items. Essential items are those things we
really cannot do without, such as food, clothing, house repair, seeds and
SAVINGS
7
farming tools, children’s education and healthcare. We need these things
every day for survival, whereas, non essential items are ‘extras’ in life
which we need because we enjoy them. Expenses on such items can be
either avoided or reduced or postponed, e.g, spending money on drinks,
drugs, gutka, gambling can be avoided whereas excessive expenses on
marriage, festivals, pilgrimage can be reduced and expenses on TV,
scooter, car, jewellery, etc, can possibly be postponed. The less we spend
on non essential items, the more we will be able to save for essential
things.
How can we save when we do not have enough money even to meet
our regular expenses ?
The common refrain is that we do not earn enough so we cannot save.
The truth is that everyone needs saving and can save. We should keep
aside a portion of our earnings as saving from day one of our earning life.
The important thing is that we should start saving early and regularly
in our life, even if it is a small amount. And if we get some unexpected
prot/earning, we should save all or most of it. This will reduce our
worries of future nancial needs and help us in dealing with unexpected
expenses.
If we earn ` 100, we can save ` 20 and if
we earn ` 10, we can save ` 2. If we keep
aside ` 20 out of ` 100 we earn, then in
5 earning days, we would have saved
one day’s earning. In 100 earning days
this would mean savings equivalent to
20 earning days plus interest. Is it not
amazing !!!!
Income per day `100
Expenses per day ` 80
Saving per day ` 20
Saving in a month 20x30=
` 600
Saving in a year 600x12=
` 7200
Interest at 8% per annum ` 318
Saved amount at the end of
the year ` 7518
This amount is equal to 75 days income
8
For how long should we save?
The longer we save, the more
our savings will grow. The
more we save, the more we will
be prepared for emergencies
and non working old age and
not dependent on others for
meeting our needs. As our
savings grow, we will not have to borrow to meet our needs.
When we save for longer periods, our savings will multiply many times
as it earns interest.
Amount saved every
year(`)1000 1000 1000
No. of years saved 40 30 20
Amount of Oursaving
(`)40000 30000 20000
Interest earned at 10%
per annum (`)422878 142033 39900
Total amount at the
age of 65 (`)462878 172033 59900
9
Where to Save?
We might be keeping our
savings under the pillow or in
the Gullak. But what happens?
We would always be worried
about its safety. Sometimes
rats or pest may eat our hard
earned money. Someone may
steal it or we may be tempted
to use the money or others
may be tempted to borrow.
Also money saved at home
does not grow. The best way
to save is to deposit the money in a bank account. While small amounts
can be kept in a Gullak, it is wiser to keep our savings in a bank.
Do not lose your hard earned money, always save in a bank account.
Why save in a bank?
Money kept in a bank is safe as banks are regulated and pool the
savings for nation-building. Apart from safety, banks do not charge
fee for depositing the money. On the other hand, they pay us interest
on our deposits, so our money grows in bank. Putting our money in a
bank means we can also use it whenever we need it. The transactions
with the banks are transparent. Banks offer lots of other useful services.
When we have a deposit account with banks, we can easily get many
facilities like loans and remittance facilities at reasonable cost. We can
even nominate a person who can claim the money after our death.
What is nomination?
Nomination is a facility that enables a deposit holder to designate an
SAVING WITH BANKS
10
individual, who can claim the amount lying in the bank account in case
of death of the account holder. It is always advisable to make nomination
in a bank account so that the nominated person can get the amount easily.
What are the advantages of having a bank account?
A Bank account gives us an
identity which is recognised
by other government agencies.
Transactions are transparent
in a bank account i.e. we know
all the details of deposits,
withdrawals, interest etc.
Banks are non discriminatory
i.e. rules are same in the bank
for similar type of customers.
Our money in a bank account
is safe.
Banks open savings, recurring and xed deposit accounts according
to our needs and pay interest on deposits.
We can get our wages/salary directly credited to the bank account.
We can get all social benets like MGNREGA wages, pensions etc.
directly credited to bank account through EBT.
We can deposit or withdraw our money from the bank whenever we
need.
We can take loan from the bank in case of necessity. Banks give
loans for productive purposes at reasonable interest rates. If we
have a bank account, sanctioning of loans becomes easier.
We can send remittance through the bank.
Savings account in a bank is the key to all other services.
BANK
PASS BOOK
GCC
123456
ABCDEFGH
KCC
14567
ABCDEFGH
BC
NK
BANK
BANK
NAME: XXXXXX
VILLAGE:XXXXX
ADDRESS:XXXX
XYZ
87453478995553489577
KLJFUG KFUDFJ
BIOMETRIC SMART CARD
SJJ JSD JN
HJJDJ
3434
3
34566T
SJJ JSD JN
HJJDJ
3434
3
34566T
NK
BC
TOTAL
INTEREST
+
SAVING
=
BANK
BC
BANK
BA
P
A
R
S
E
N
N
A
C
R
Y
T
I
N
T
E
R
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S
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D
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K
C
C
C
C
G
E
C
N
A
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I
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R
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B
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BANK
11
What is EBT ?
EBT means Electronic Benet Transfer for credit of social security
benets like MGNREGA wages, old age pension, widow pension, cash
transfers in lieu of LPG subsidy, etc. The amount due to us gets credited
to our bank account timely and efciently without involvement of
intermediaries. Thus it avoids the delays and leakages involved in the
existing manual system. We can withdraw the money from our bank
account as and when we want. We can also avail of other facilities from
the bank.
What is remittance?
We can send money to other people staying at distant places throughout
the country through the bank. Banks transfer our money from one place
to another and from person to person safely, speedily and efciently. So,
if we have a bank account, we can easily transfer money to our child’s
account if he is studying in another city. We can also receive money in
our bank account from our relatives working at distant places.
What is interest?
Interest is the amount our money earns when we save our money or it
is the amount we have to pay when we borrow money in addition to the
borrowed amount. The money which we keep with banks is not kept
idle. The banks lend this money to other people. Those who borrow
money from banks pay some interest.
Say, we deposit ` 1000 with a bank. The bank lends that amount to
another person. He pays, say ` 100 as a charge to the bank at the end
of 1 year. The bank gives us a share of it, say ` 40. This extra income
which we get from keeping ` 1000 for 1 year with the bank is known
as interest.
12
The interest charged by money lender is also stated to be 3-5 %, then
how is it that we have to pay more interest to them as compared to
banks?
The rate of interest notied by banks is on a yearly basis whereas the
money lenders describe the interest rates on per month basis. So, if a
money lender mentions 3% interest rate, it means 36% per year. (3*12)
whereas if a bank mentions 12% interest rate, it means 12% per year.
Thus the interest charged by banks is lesser as compared to money
lenders and hence we end up paying higher interest to the money lenders.
What are different types of deposit accounts?
Banks offer three types of deposit accounts- Savings deposit, Term
deposit & Recurring deposit as explained below:
Savings deposit account is for depositing our day to day surplus.
We can withdraw our money whenever we need it. We can also get
an overdraft (Loan for emergency needs) in our saving account.
Term deposit account is for depositing our money for a xed
period suitable to our needs. This may earn interest at higher rate
than saving account, as we deposit money for a pre decided xed
period. We can also withdraw before the due date but in that case
we will get less interest.
Recurring deposit account is for depositing an amount periodically
say every day or every week or every month for a certain period.
This can be used for depositing regular savings.
How can we open a saving bank account?
We can open an account by lling up the account opening form with
a latest photograph and submitting documents to comply the “Know
Your Customer” (KYC) norms, i.e., proof of our identity and residence.
13
How do we open account when we have no money in hand?
Now we do not require money to open an account. Reserve Bank has
advised all banks to open saving accounts with NIL balance. It is called
a Basic Savings Bank Deposit Account which can be opened by any
person without the requirement of maintaining a minimum balance.
What are the features of a Basic Savings Bank Deposit Account?
Basic Savings Bank Deposit Account is a saving bank account with NIL
balance. Banks will not charge fee for deposit of money any number of
times. In addition, banks will not charge for 4 withdrawals during a
month. We will also get a Passbook and an ATM/Smart card without
any fee. We can use this account for our day to day needs like deposit,
withdrawal, remittances, direct credit of social benets, etc.
What is Know Your Customer (KYC)?
Banks are required to know our particulars before opening of the
accounts as per KYC regulations. Hence we need to submit necessary
KYC documents, i.e., a photograph, proof of identity and proof of
residence to the bank along with account opening form. The account
can also be opened on the basis of the Aadhar Card. Persons not having
above documents may open the account under relaxed KYC procedure
based on MGNREGA job card or self certication. The accounts opened
under relaxed procedure will be treated as small accounts and will be
subject to certain limitations.
There is no bank branch in the village, how do we open a bank
account?
Now we do not need to have a bank branch in our area to avail of
banking facilities, banks are appointing Business Correspondents (BC)
14
who work as agents of the banks. They are local persons who have roots
and economic interest in the area. They will provide us all the banking
services in our village/ nearby villages. At the time of appointment of
BC, the bank ofcials would introduce the BC to the villagers. We can
also get the information about BC from Gram Panchayat.
What is BC? How does a BC function?
Banks have been allowed to appoint local individual persons and others
as BC to work as agents of the banks. The BC uses Information and
Communication Technology (ICT) based devices such as handheld
machines, smartcard based devices, mobile phones, etc. to carry out the
banking transactions.
Bank is now available at your door step.
Whether our money is safe if we deposit with BC?
BC is a mode of providing banking
service at our doorstep as bank branch
is far off from our area. Depositing our
money with BC is as good as depositing
with a bank branch. The transactions
are done through the ICT based devices
and accounted in the books of the
banks. The customers get immediate
verication of their transactions as cash
deposited/withdrawn by customers
through the BC is acknowledged by
issue of a receipt on behalf of the bank.
Additionally, transactions through BCs
are done on the basis of our biometrics or a PIN number and thus no one
else can do the transactions in our account.
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What are the services provided through BCs?
BCs will provide the facility of saving deposit accounts with inbuilt
overdraft, xed deposit and recurring deposits. They will also allow
remittance of funds from our accounts and receipt of funds into our
account. Besides, they will provide credit for income generating
activities through Kisan Credit Cards for farming activities and General
Credit Card for non farm based activities.
What is OVERDRAFT, how is it different from other loans?
Small Overdraft is inbuilt in the saving bank account to take care of the
our emergent miscellaneous needs. We can withdraw the amount upto
the limit of overdraft without going through separate documentation
for availing small amount. Thus, it facilitates timely availability of
money in cases of emergencies. We are required to pay the interest on
the amount of overdraft as it is a loan given by the bank. Other loans
like KCC and GCC are provided by the banks for a specic purpose of
income generating activities.
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What is the difference between income and credit?
Every credit or a loan needs to be paid back. It is not to be treated
as money earned or income. When we earn the money from salary or
wages, etc. it is our income whereas credit or loan is not our income. On
the other hand, repayment of the installments of credit is the expense.
When do we borrow?
We borrow money when our expenditure is more than our income or
when there are emergencies. We also borrow when we need money for
undertaking some business activities.
Should we always borrow whenever short of money?
Do not borrow for meeting
consumption expenses like
celebrating festivals, lavish
wedding, buying jewellery
or costly consumer durables.
If we have to spend money
on these items, spend it from
our income or accumulated
savings. Use our current
income or savings for
consumption expenses. If we
are forced by circumstances
to borrow for consumption, rst assess how much we can repay out of
our current income. Consumption expenses do not give any income,
then how will we repay the loan? On the other hand, we would be
borrowing again and again from different sources for repaying earlier
loans and would fall into the debt trap.
Learn to
manage your debt, otherwise debt will damage you.
BORROWINGS
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Why it is advisable to borrow only for income generating
activities?
It has to be kept in mind that
when we take a loan, it has to
be repaid back with the interest.
So while borrowing, we should
always assess our repaying
capacity. When we borrow
for undertaking some business
activities it will enhance our
income, then we can repay the
loan out of income generated,
e.g., when we borrow ` 1000
from a bank to buy seeds,
which will give us crop that
can be sold for‚ ` 10000, we
can repay ` 1000+ ` 100 as
interest, i.e., ` 1100 to the bank and the remaining amount of ` 8900
is our additional income. We should borrow for an activity which gives
earnings more than the amount of interest payable, otherwise we may
have to borrow again to repay earlier loans.
Borrow for undertaking an activity which enhances your income.
Why borrow within limits?
Any loan taken by us has to be repaid back with the interest. Make sure
we are earning enough to pay back the loan. A simple way to check
is look at our income, expenses and saving every month. The saving
should be more than our monthly installment of repayment of loan.
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Why take a loan from a bank when informal sources like money
lenders are readily available in the village?
Bank is a better source
of nance than money
lenders and other informal
sources even if, at times,it
may take little longer to
borrow from them. It is a
safe, reliable, transparent
institution which can help
us by lending money on
suitable terms. Banks are
regulated by Reserve Bank
of India. Best thing is that
banks charge lesser interest
than informal sources,
viz., relatives, friends,
moneylenders, vishi,
mukhiya etc. Besides, banks
create full documentation of
the loan before disbursing
loan amount. In case of dispute, Grievance Redressal Mechanism is
also available.
Banks are transparent and charge less interest.
What is the Grievance Redressal Mechanism of banks?
Banks are regulated entities. Every bank has a Grievance Redressal
Ofcer, the details of which is published in all branches and also on
their website. In case of any dispute, we can le our complaint with the
BORROWING FROM BANKS
19
Grievance Redressal Ofcer of that bank. In case we are not satised
with the resolution of the dispute by them, we can le our complaint
with the Banking Ombudsman of the Reserve Bank of India.
Is similar Grievance Redressal Mechanism available in case of in-
formal sources?
There is no grievance redressal mechanism in case of informal sources as
they are not regulated entities. That is why there is lack of transparency
in the terms and conditions and also in the record of transactions in case
of informal sources.
Why banks may at times take little longer time in giving loans as
compared to Money Lenders?
The banks collect deposits from public and lend this depositors’ money
as loans to the people who need it. In order to protect the depositors’
money, they are expected to ensure the proper utilization of the money
by the borrower. Hence banks undertake detailed scrutiny of the loan
proposals before sanctioning the loans. Though it may take a longer
time, the benet to the borrowers is that they cannot be cheated since
everything is documented. It is actually in the interest of the depositors
as well as the borrowers.
What are the types of loans offered by
the banks?
Banks give loans for various purposes
like housing, education, agriculture and
related activities, starting a business
enterprises, consumption loans, etc. Thus
banks meet all types of loan requirements.
A bank meets all your loan
requirements.
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How can I get a loan from a bank?
We have to submit a loan application to the bank indicating the purpose.
The bank will verify the details, evaluate our repaying capacity and
then sanction us the loan which we will have to repay along with the
interest in installments as indicated by the bank.
What is the cost of borrowing from banks?
The interest charged on the money borrowed is the cost of borrowing.
Understand the interest cost we are paying on our loan. Banks normally
notify the interest rate per year, e.g., annual interest of 12% means 1%
interest per month. Frequency of compounding is also important in the
price of a loan. Unlike other informal sources who do not tell us the real
cost of borrowing, the interest rates and other charges levied by banks
for various purposes are displayed to the public and it is uniform for all
customers/purposes. Banks publicly declare how much they charge and
they charge uniformly to similar customers for similar purposes again
unlike other sources.
Do we have to offer some guarantee for the loan?
This depends upon the type and purpose of loan we take. Generally for
small loans no guarantee will be necessary. But for higher amounts we will
have to offer some guarantee. This can be in the form of the asset which
we will be creating with our bank loan or in the form of other collateral
securities like land, house etc., depending upon the type of loan.
Why should we repay the loan?
The banks use depositors’ money for lending. If we do not repay, the
nancial condition of the banks would become weak. It will affect the
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bank’s capacity to repay the depositors’ money in time. If all the bank
borrowers do this, in such an eventuality, money deposited by us and our
relatives in the bank might be at risk. Further, the bank needs the money
to be paid back by us to lend it to yet another person. Additionally, only
if we repay, loans will be sanctioned to us in future.
What if we do not repay the loan taken from the bank?
In case we do not repay the loan, the bank will have the right to take
possession of the security we have offered as guarantee for the loan and
can initiate legal proceedings against us for recovering the loan amount
along with the interest.
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Notes
23
Notes
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Notes
Reserve Bank of India
Disclaimer
Financial education initiatives of the Reserve Bank of India are for providing general information and guidance to the common
person. The concepts of banking explained in the publication are only for easy understanding of people and do not give legal
or technical explanations. Users of this information may exercise their own care and judgement while using it. Every effort
has been made to avoid errors or omission in this publication. Nevertheless, any mistake, error or discrepancy noted may be
brought to the notice at address mentioned therein, which shall be rectied in the next edition. It is notied that the publisher
will not be responsible for any damage or loss to anyone, of any kind, in any manner from use of this material.
