Importance of SHG-Bank Linkage
Linking the SHG with the bank is an essential pre-requisite for promoting financial inclusion. Unless SHGs access repeat doses of bank credit, the members will not be able to meet their consumption and production credit requirements at affordable interest rates. Apart from providing access to credit, bank linkage enables SHGs to utilize other services such as remittances of Mission and other government funds such as interest subvention and insurance services. Bank linkage also promotes the financial literacy of the members and contributes to prudent utilization of funds. The two key steps in promoting SHG-bank linkage are:
- Opening of SHG Saving Bank Account; and
- Facilitating Credit Linkage of SHG.
The following processes should be adopted in facilitating opening of bank accounts and credit linkage of SHGs.
Opening of Savings Bank account for SHG
Opening of savings bank account is the first step towards financial inclusion of SHG. The saving bank account provides the following advantages to the SHGs and its members:
- Savings bank account gives recognition to the SHG as a customer of the banking system and provides potential access to different financial services;
- SHG can keep surplus cash with the bank for safe custody, which in turn contributes to trust building among members;
- An account provides an opportunity for the SHG to undertake financial transactions with the bank and contributes to the financial literacy of the members; and
- It facilitates introduction of all individual members of the SHG to the bank who could eventually become individual customers of the bank.
SHG should open a SB A/c with the nearest Bank branch, ideally within two months of formation of the Group.
The followings steps should be observed in opening of the Savings Bank Account:
Step-1: SHG Resolution
The first step is to facilitate passing of a resolution by SHG to open a bank account in the service area bank branch/nearest bank branch. All members should subscribe their signatures to the resolution (See sample resolution for opening SB A/c for SHGs).
Step-2: Office Bearers
As part of the resolution, the SHG should authorize three Office Bearers to operate the saving bank account with a condition that any two Office Bearers can transact with the bank.
Step-3: Application for Opening of Bank Account
The next step is to guide the SHG in preparing an application to the branch manager with a request to open a savings bank a/c at the branch. The application should be signed by office bearers of the SHG.
Step-4: SHG Seal and Photographs of OBs
It is important to ensure that each SHG gets a stamp (seal) made. Also the SHG needs to be guided to arrange for color photographs of 3 Office Bearers (passport size-3 copies each). Photocopies of the supporting identity and address proof documents of office bearers should also be prepared as part of the KYC norms (See RBI Circular on KYC – 28 Mar 2013 & 01 Apr 2013).
The following documents are required for the SHG to comply with the KYC norms
Proof of Identity of Office bearers (Any one of the documents to be submitted)
- Voter IDCard
- Aadhar Card
- MGNREGS Job Card
- Artisan Card
- Any other ID card with photograph, issued by A Government Department as ID card is accepted by the banks
Proof of Address of office bearers (Any one of the documents to be submitted)
- Voter IDCard
- Aadhar Card
- MGNREGS Card
- Electricity Bills
- Artisan Card
SINGLE DOCUMENT FOR PROOF OF IDENTITY AND ADDRESS
Earlier, as part of the KYC process, one had to submit separate proofs for address and identity. The RBI has done away with this. Now, a single document with photograph and address of the applicant will suffice. Among the documents approved for KYC include passport, driving license, voter ID card,, Aadhar and job card.
Step-5: Visit to the Bank
The SHG office bearers should visit the bank branch along with following items for opening of Saving Bank account
- A copy of the resolution to open bank account for the SHG;
- Application to the Branch Manager with a request to open a savings bank A/c;
- Photocopies of identity and address proof documents of office bearers (Original documents also should be carried for verification);
- Colour photographs (passport size-3 copies each) of 3 office bearers; and
- Seal of the group.
Step-6: Opening Form
The SHGs should be guided to filling in the requisite SB account opening form and attach all supporting documents correctly. See point 6.2
Step-7: Basic Saving Bank Deposit Account
The SHGs may also open ‘Basic Saving Bank Deposit Account’ or may deposit some amount if they choose to. Preference should be given to open account with some amount to avoid any confusion/ misunderstanding at later stage.
Step-8: Regular Banking
SHG should be encouraged to regularly transact with the bank to maintain good rapport with bank branch manager.
Precautionary Measures for Promoting Transparency
The following precautionary measures should be taken to promote transparency in the transactions and downward accountability of the members
- The SB A/c shall be opened in name of the group and not in the name of any office bearer or member;
- Only members of the group should become the signatories to the bank A/c. No one other than a member should become a joint signatory of the group A/c;
- The SHG should collect the saving A/c pass book& cheque Book from the bank on the same day of opening of bank account or within the time period specified by the bank;
- The SHG should get the pass book updated regularly;
- While operating the bank account, the group members should depute at least one member along with the office bearers for ensuring transparency and development of trust among the office bearers and other members; and
- The pass book along with the cheque book, if any, should be kept in safe custody in a manner decided by the SHG.
Tips for the Facilitator
- Before opening of SB a/c, the facilitator should orient the SHGs on the importance of opening saving bank account;
- The opening of bank a/c should be done in batches of few SHGs;
- The facilitator should meet the bank branch manager in advance and finalize the date on which opening of SHG accounts would be taken up in a week/month;
- The facilitator may ensure collection of the bank a/c opening form and specimen signature card from the bank in advance;
- The facilitator should ensure that all groups have the requisite documents, seal and photographs before visiting the bank branch for a/c opening; and
- As a best practice, the facilitator could also make efforts for opening of individual SB A/Cs by members of the SHG, at the nearest Bank branch to promote universal financial inclusion
- As a best practice, the facilitator could also make efforts for opening of individual SB A/Cs by members of the SHG, at the nearest Bank branch to promote universal financial inclusion.
Source : National Rural Livelihoods Mission