MICROCAPITAL BRIEF: Reserve Bank of India (RBI) to Encourage Banks to Deploy Rural Automatic Teller Machines (ATMs), Use Unclaimed Funds for Financial Education

The Reserve Bank of India (RBI), the country’s central banking authority, reportedly has initiated a program under which banks are requested to install an unspecified number of automatic teller machines (ATMs) in rural areas that will dispense bank notes in relatively small denominations.

RBI’s Deputy Governor, Mr Rama Subramaniam Gandhi, reportedly said that “typically in city or urban centric ATMs, they will disburse high denomination notes (with a value between INR 1,000 (USD 16) and INR 500 (USD 8)), whereas in rural areas, people will be requiring more of lesser denomination. […] Banks will have to find an appropriate technology solution for a different type of ATM to care for the needs of the rural people”[1].

RBI reportedly also announced that the institution is planning to amend its current regulations to allow banks in India to create a fund of “unclaimed and unused deposits”[1] for the purpose of financing programs to educate their customers about banking practices.

Mr Gandhi reportedly has also commented on the development of the microfinance sector in the Indian states of Andhra Pradesh and Telangana following the bifurcation of the two states as of June 2, 2014, as well as in light of the repayment dropoff that occurred in 2010 in Andhra Pradesh. Mr Gandhi stated that “to restore normalcy is not easy. […] 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 [measures] have been put in place”[1].

RBI reported total reserves of USD 263 billion as of February 14, 2014.

By Alíz Crowley, Research Associate

About Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the outfit, RBI owns a 0.5-percent stake in NABARD as of March 31, 2013. RBI reported total reserves of USD 263 billion as of February 14, 2014.

Sources and Additional Resources

[1] MoneyControl.com, Banks working on setting up ‘Rural ATMS’: RBI

MicroCapital, July 7, 2014, Reserve Bank of India (RBI) Allows Non-banking Finance Companies (NBFCs) to Work as Agents for Banks

MicroCapital, July 2, 2014, Reserve Bank of India Simplifies “Know Your Customer” Requirement for Establishing Bank Accounts

MicroCapital, May 27, 2014, Reserve Bank of India (RBI) Gives 2-Year Extension to Share, Asmitha, Spandana Sphoorty to Meet Capital Requirements

MicroCapital Universe Profile: Reserve Bank of India (RBI)

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