RBI directs banks to ease loan process for SHGs – Dainik Savera Times

RBI directs banks to ease loan process for SHGs – Dainik Savera Times


Mumbai: The Reserve Bank of India (RBI) on Monday directed all banks to simplify the loan process for self-help groups (SHGs) and encourage their branches for this. “There is no need to either regulate the group dynamics of the functioning of SHGs or impose or insist on formal structures,” the RBI said in its master circular issued to banks. The approach towards financing SHGs should be completely hassle free and can also include consumption expenses. Accordingly, guidelines should be followed to enable effective linkage of SHGs with the banking sector.”

The circular states that no loan-related and ad-hoc service charges or monitoring charges should be levied on priority sector loans up to Rs 25,000. In case of eligible priority sector loans to SHGs/JLGs, this limit will be applicable per member and not on the entire group. RBI has stated that loans given to SHGs are allowed to be classified under Priority Sector Lending (PSL) under related categories like agriculture, MSME etc. The circular further states that SHGs, registered or unregistered, which are engaged in promoting savings habits among their members, are eligible to open savings bank accounts in banks.

The circular said that bank credit to SHGs should be included in the branch credit scheme, block credit scheme, district credit scheme and state credit scheme of each bank. This sector should be given top priority in preparing these plans. It should also become an integral part of the corporate credit plan of the bank.

RBI has highlighted that SHGs have the potential to bring together the formal banking structure and the rural poor for mutual benefit. Studies conducted by NABARD in some states to assess the impact of the linkage project have revealed encouraging and positive features like increase in credit volume of SHGs, a definite shift in the credit pattern of members from non-income generating activities.

Apart from increased production activities, almost 100 per cent recovery performance, significant reduction in transaction costs for both banks and borrowers, etc., there was a gradual increase in the income level of SHG members. Another important feature observed in the linkage project was that about 85 percent of the groups linked to banks were formed exclusively by women.


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