The Reserve Bank of India (RBI) issued a directive on Monday, instructing all banks to provide sufficient incentives to their branches for financing Self Help Groups (SHGs) and establishing linkages with them, with a focus on simplifying procedures.
According to the RBI’s master circular to all banks, the working dynamics of SHGs should not be subject to regulation or formal structures imposed. The approach to financing SHGs should be hassle-free, even extending to consumption expenditures, to ensure effective linkage with the banking sector.
The circular emphasizes that no loan-related or ad hoc service charges should be imposed on priority sector loans up to Rs. 25,000. For eligible priority sector loans to SHGs or Joint Liability Groups (JLGs), this limit applies per member and not to the group as a whole.
Furthermore, the RBI clarifies that loans to SHGs are classified under Priority Sector Lending (PSL) categories such as Agriculture and MSME.
SHGs, whether registered or unregistered, promoting savings habits among their members are eligible to open savings bank accounts with banks, the circular notes.
Bank lending to SHGs should be included in various credit plans of the bank, with utmost priority accorded to the sector in their preparation. It should also be integrated into the bank’s corporate credit plan.
Highlighting the potential of SHGs to bridge the gap between the formal banking system and rural communities, the circular cites studies conducted by NABARD, revealing positive outcomes such as increased loan volume, a shift towards income-generating activities, and nearly 100% loan recovery performance. Notably, about 85% of the SHGs linked with banks were exclusively formed by women.
The RBI’s directive aims to streamline and incentivize the financing of SHGs, recognizing their role in empowering rural communities and fostering economic growth.
