L T Finance Financial Inclusion A panacea for

L&T Finance Financial Inclusion : A panacea for sustainable Economic Growth By N Sivaraman L&T Finance Holdings Limited October 5 th 2012 Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance What is Financial Inclusion • It is not just about – Opening of no frill bank accounts – Providing micro-credit to the under privilieged • It is about – Getting the underserved population to experience the benefit of broader financial services • Savings • Investments • Credit • Insurance • Remittances Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Who needs to be covered in Financial Inclusion • Under-privileged in urban areas • Rural Households, which are underserved as bank branches are farther Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Poor reach of organised financial services • Large part of India’s population do not have access to organised financial services: – More than 60% of India’s population is in the rural areas – 40% of population does not enjoy banking services – Only 30, 000 of 600, 000 habitations have bank accounts Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Impact is limiting rural economic growth • Uncovered populations retains a large part of their earnings in cash – Cash remains outside the system, contributing to leakages – Economy deprived of capital – Cash holders lose an opportunity to earn on idle cash • Lack of credit flows – Drives the populace to money lenders, at exorbhitant rates – Limits entrepreneurial ambition – Rural economic activity at a lower levels • Saving not channelised into productive investments • Assets and lives under covered by insurance Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Rural India. . The low productivity trap • According to the 2011 Census, Rural India has a pop. of 833 million • 70% of the Rural population is employed in Agri. & allied activities • These activities however contribute to less than a fifth of the GDP This low productivity is the result of a vicious trap Lack of Skills Low Productivity Low Income Low Savings Low Investment Lack of Opportunities It is imperative that for Rural India to grow sustainably, this cycle has to be broken Sources- Census India 2011, Ministry of Statistics and Program Implementation, Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Financial Inclusion: Boosting Growth Skill Enhancement Buy Productive Assets Income Generation Provide Credit Working Capital for services Savings Products Additional Savings Protection Wealth Insurance Liquidity Increase Consumption It is hoped that over time, this will help in • Improving the productivity of people employed in agriculture and allied activities • Shift people into more productive sectors and be gainfully employed Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Financial Inclusion: Channeling Savings • According to a NCAER Survey*, about 45% of Rural Households do not use any saving or investment products Lack of knowledge about products Proximity of Institutions Reasons for Not Saving Lack of skills to evaluate products Concern on Safety of Capital • The quantum of M 3 stands at Rs. 78 trillion as of Sept 2012 • Out of this, Currency held accounts for Rs. 10. 6 trillion. • Tapping these cash assets can provide the system with a huge pool of low cost funds * - How Households Save and Invest- NCAER Survey ; Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance This focus on Financial Inclusion has resulted in… 147, 534 BCs/BC Agents 95767 105. 5 No Frills Accounts (in millions) 75. 4 Banking Outlets in villages 100, 183 57329 33042 Mar 2010 50. 3 54, 258 Mar 2011 Mar 2012 An additional 60 k BC and BC Agents Mar 2010 Mar 2011 Mar 2010 Mar 2012 A 170% growth in Banking outlets Mar 2011 Mar 2012 A 2 -fold increase in No Frills A/Cs Source : RBI But we are still behind the curve… PARAMETER INDIA (%) WORLD (%) % Adults with an account at a Formal Financial Institution 35 50 % Adults in the poorest 20% with an account at a Formal Institution 21 38 % Adults with a Credit Card 2 15 % Adults with an Outstanding Mortgage Loan 2 7 % Adults paying for a Health Insurance 7 17 % Adults using Mobile Money in the past year 17 7 Source : RBI Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Key Challenges for Financial Inclusion to succeed Reaching Out • Geographically dispersed ( Over 6. 4 lakh villages) Targeted beneficiaries are : • Have low Income • Are under banked (Only 1. 47 lakh villages have banking outlets) Product Design • Be Simple to facilitate better understanding of risks Product Design should be • Be Transparent to inspire trust and confidence • Consider unique Cash flow and financing needs of target segments Awareness Lack of Awareness results in Business Risks Key Business Risks : • Low understanding of the benefits and risks of Financial products • Risk of mis-selling of products to uninformed customers • Ignorance about Grievance Redressal Mechanisms • Credit Risk - Lack of adequate data on consumers • Operational Risk on account of high reliance on Cash transactions Sustainability • Generate adequate returns to justify risks involved Financial Inclusion initiatives • Constantly innovate to reduce Costs should • Look at new ways of Increasing Revenues Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Benefits of financial inclusion • Preventing leakage of income and capital – Increases overall capital available in the economy • Increases income levels of the underserved – Consumption increases, resulting in economic growth • Large market drives innovation in products and services and delivery – Benefits other segments of society as well – Efficiency within the economy goes up Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Given these benefits, Financial Inclusion is a key focus area “Financial inclusion is a key determinant of sustainable and inclusive growth, which in turn is essential for building an equitable society. " Pranab Mukherjee, President of India and Former Finance Minister "Financial inclusion should be separate from the idea of getting credit. . . It means that everybody should have bank accounts, should be able to transact through them and also receive other benefits through them, ” Montek Singh Ahluwalia, Dep. Chairman Planning Commission “Financial Inclusion programmes should be implemented on commercial lines and not on a charity basis. It is important that banking with the poor is perceived and pursued as a sustainable and viable business model, ” KC Chakrabarty, RBI Deputy Governor Source : Various news reports Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance Developments in the country • RBI has been pushing opening of new branches • Use of BCs for extending banking services to rural areas • NREGA remittances through banking channels • Development of MFIs as a credit and services delivery • Draft Micro-Finance bill • Mobile payment services Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution

L&T Finance THANK YOU Corporate Finance Construction Equipment Commercial Vehicle Rural Finance Micro Finance Distribution