What changed
RBI issued a master circular consolidating all existing guidelines on the SHG-Bank Linkage Programme up to March 31, 2022. It reiterates that banks should meet the entire credit requirements of SHG members as per the 2008-09 Union Budget announcement, covering income generation, social needs, and debt swapping. The circular also emphasizes simplified customer due diligence for SHGs and hassle-free lending procedures.
What it means for you
Banks must now treat SHG lending as a priority in all credit plans, from branch to state level, and include it in corporate credit plans. Lending can be savings-linked up to a 1:4 ratio, with discretion for higher loans to mature SHGs. This reinforces the shift from non-income to production activities, with near 100% recovery and lower transaction costs for both banks and borrowers.
What you must do
- Update internal policies to align with the consolidated master circular on SHG-Bank linkage.
- Ensure SHG lending is included in branch, block, district, and state credit plans as a priority sector.
- Simplify loan procedures and documentation for SHGs, avoiding formal group structures or regulations.
- Train branch staff on simplified customer due diligence for SHGs as per KYC Master Direction.
- Monitor SHG loan portfolios to maintain high recovery rates and support income-generating activities.
Who it affects
All Scheduled Commercial Banks, Branch managers handling rural and SHG lending, Credit planning departments at state and district levels, NABARD and other rural financial institutions
Can unregistered SHGs open savings bank accounts?
Yes, both registered and unregistered SHGs can open savings bank accounts, even if they have not availed credit from banks, subject to simplified customer due diligence as per KYC norms.
What is the maximum loan-to-savings ratio for SHGs?
Banks can sanction loans from 1:1 to 1:4 of savings. For mature SHGs, loans beyond four times savings may be given at the bank's discretion.
Does this circular change any existing lending norms?
No, it consolidates all previous guidelines up to March 31, 2022, without introducing new requirements. Banks must continue to meet the entire credit needs of SHG members as per the 2008-09 Budget announcement.