What changed
RBI issued a master circular consolidating all existing guidelines on SHG-Bank Linkage Programme as of March 31, 2021. It reiterates that banks are advised to meet the entire credit requirements of SHG members covering income generation, social needs, and debt swapping, as per the Union Budget announcement. The circular also emphasizes simplified customer due diligence for SHGs and hassle-free lending procedures.
What it means for you
Banks should treat SHG lending as part of priority sector classification under existing PSL guidelines and include it in all credit plans from branch to corporate level. Lending procedures must be simple with minimal documentation, and loans can exceed the 1:4 savings-to-loan ratio for matured SHGs at bank discretion. This reinforces financial inclusion goals and reduces transaction costs for both banks and borrowers.
What you must do
- Adhere to the consolidated master circular on SHG-Bank linkage.
- Ensure SHG lending is included in branch, block, district, state, and corporate credit plans.
- Implement simplified KYC procedures for SHGs as per Master Direction on KYC.
- Train branch staff on hassle-free lending procedures and documentation for SHGs.
- Review loan sanction limits for matured SHGs to allow beyond 1:4 savings-to-loan ratio at bank discretion.
Who it affects
All Scheduled Commercial Banks, Branch managers handling SHG accounts, Rural and semi-urban banking operations, Credit planning departments
Are unregistered SHGs eligible to open savings bank accounts?
Yes, both registered and unregistered SHGs engaged in promoting savings habits can open savings bank accounts, even if they haven't availed credit facilities yet.
What is the maximum loan-to-savings ratio for SHGs?
For matured SHGs, loans can be given beyond the limit of four times savings at the bank's discretion. For others, the ratio varies from 1:1 to 1:4 as per NABARD guidelines.
Does this circular introduce new lending norms?
No, it consolidates existing guidelines up to March 31, 2021, into a single master circular for easier reference and compliance.