Rural ATMs to dispense smaller denomination notes: RBI

The Reserve Bank of India (RBI) is encouraging banks to set up 'rural ATMs' for dispensing currency notes of smaller denominations as part of the efforts at bringing about 100 per cent financial inclusion in the country, RBI deputy governor R Gandhi said on Monday.

"We have encouraged banks to find a solution for bringing in rural ATMs. Typically in city or urban centric ATMs, they will disburse high denomination notes (Rs1,000 and Rs500), whereas in rural areas, people will be requiring more of lesser denomination," he said in response to a query in Financial Sector Conclave (FINSEC - 2014) organised by FICCI.

"So, banks will have to find an appropriate technology solution for a different type of ATM to care for the needs of the rural people. Banks are working on that. Hopefully they will come forward to put ATMs in rural areas," he said.

The RBI has initiated a move to allow banks to mobilise all unclaimed and unused deposits to form a fund that would be utilised for educating customers about banking and other related aspects, he said

Speaking on the sidelines of the conference, the deputy governor said the banking regulator is also working on guidelines on licences to differentiated banks and payment banks which would be announced soon. Both the concepts exist in the developed markets wherein differentiated banks take up specific banking operations such as retail, rural and infrastructure banking, while payment banks deal with small deposits and offer transaction services but do not extend loans.

Besides bank-operated automated teller machines (ATMs) the country has white label ATMs that are owned and operated by non-banking companies such as Tata Communications, Muthoot Finance, Riddi Siddhi and Srei Infrastructure Finance.

The idea behind white label ATMs was to increase financial inclusion through spread of cash dispensing machines in semi-urban and rural areas.

On the microfinance industry in Andhra Pradesh and Telangana, Gandhi said he expects normalcy to return in future.

"To restore normalcy is not easy. We are struggling, even though the episode happened in 2008-09. It is more than five years still the normalcy has not been fully restored. Slowly, the MFIs are finding their way. Growth is there. But not to the extent you would have liked it to happen. Several regulatory supporting have been put in place," he opined.

The microfinance business in Andhra Pradesh (before bifurcation), which was considered the largest market for the sector, collapsed after the AP Microfinance Ordinance was implemented on 15 October 2010 and subsequently made into an Act in the wake of a spate of suicides by borrowers, allegedly due to coercive recovery practices by the MFI agents (See: Andhra turns MFI ordinance into act).

MFIs could not collect more than Rs5,000 crore microfinance loans given to individual borrowers due to some of the rules imposed in the Bill.

Earlier in his address, Gandhi said southern region tops in financing to Self-Help Groups (SHGs).

RBI has also allowed banks to engage NBFCs as business correspondents in rural areas, Gandhi pointed out. RBI had, since January 2006, permitted banks to engage Business Correspondents (BCs) and Business Facilitators (BFs) as intermediaries for providing financial and banking services.

Reserve Bank has also from time to time enlarged the list of eligible individuals / entities who can be engaged as BCs. The BC model allows banks to provide door step delivery of services especially cash in – cash out transactions at a location much closer to the population, thus addressing the last mile problem.

RBI, he said, has advised all public and private sector banks to put in place a board approved Financial Inclusion Plan (FIP) to achieve the target latest by March 2016.