[This post offers updated guidelines/instructions on SHG-Bank linkage programme at one place based on various circulars issued by Reserve Bank of India on the subject up to June 30, 2020]
The Self Help Group-Bank Linkage Programme (SBLP) was started in 1992 at the initiative of NABARD. The basic idea of the SBLP is to link the unorganized sector of our population to the formal banking sector. Typically this segment of the population is from the lower-income that used to meet its financial needs through limited informal sources such as money lenders, traders, family, and friends, etc. So it was a major effort of the Government to provide banking services to the weaker and unorganized population that lacks access to formal banking.
Formation of the self-help group:
Self-help groups are the groups formed by 10-20 commonly women from lower-income segments involved in livelihood activities like making candles, artificial jewellery, pavement vendors, hawkers, tailoring jobs, retail shops, livestock rearing, etc. Another significant feature observed in the linkage project is that about 85 percent of the groups linked with banks were formed exclusively by women.
Once the group is formed, the members of the group are encouraged to contribute to a common fund of the group from the amount conveniently saved out from their earnings. The fund so created by the members is used to lend internally for meeting their income generation activities and emergent credit needs at such a rate of interest, the period of the loan, and other terms as the group may decide.
SHG Bank linkage programme:
Banks are encouraged to embrace the concept of Total Financial Inclusion and all scheduled commercial banks asked 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.
Opening of Savings Bank A/C
Under Simplified norms for Self Help Groups (SHGs) mention that Customer Due Diligence (CDD) of all the members of SHG as mentioned in the Know Your Customer (KYC) Direction, 2016 shall not be required while opening the savings bank account of the SHG. CDD of all the office bearers shall suffice. No separate CDD of the members or office bearers shall be necessary at the time of credit linking of SHGs.
Lending to SHGs:
Under SBLP, SHGs so formed get linked to banks via NGOs commonly known as Self Help Promoting Institutions (SHPI), by opening a savings account. As per operational guidelines of NABARD, SHGs may be sanctioned savings linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). Nevertheless, in the case of well-developed SHGs, banks may grant loans beyond the limit of four times the savings as per the discretion of the bank. The limits are sanctioned by the banks on appraisal of the activities of the concerned group in respect of regularity of meetings, savings, rotation of funds vis-à-vis recovery of money internally lent, income generation, maintenance of books of accounts, etc. Each bank lending to SHGs will have a state credit plan, district credit plan, block credit plan, and branch credit plan as an integral part of the bank’s corporate credit plan.
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.
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.
Monitoring achievement of SHG credit status:
The lead banks in their respective forum like Block Level Bankers’ Committee (BLBC), District Consultative Committee (DCC), State Level Bankers’ Committee (SLBC), discuss the problem in all aspects of SHG-bank linkage with the other financial institutions and monitors branch wise achievement of SHG credit status of each bank. For SHG-bank linkage, SLBCs will have a sub-committee consisting of members from all banks operating in the State, RBI, NABARD, CEO of SRLM, representatives of State Rural Development Department, Secretary-Institutional Finance and Representatives of Development Departments. The subcommittee meets once in a month with a specific agenda of review, implementation, and monitoring of the SHG-Bank linkage and the issues/ constraints in the achievement of the credit target.
Separate Segment under priority sector:
In order to enable the banks to report their SHG lending without difficulty, it is decided that the banks should report their lending to SHGs for on-lending to members of SHGs under the respective categories, viz. ‘Advances to SHGs’ irrespective of the purposes for which the loans have been disbursed to the SHG members. Priority Sector loans to SHGs are considered under the “Weaker Sections” category. The interest rate applicable to loans given by banks to Self Help Groups/member beneficiaries would be left to their discretion.