Master Circular on SHG-Bank Linkage Programme

RBI/2025-26/01 FIDD.CO.FID.BC.No.4/12.01.033/2025-26 April 01, 2025 The Chairman/ Managing Director/ Chief Executive Officer All Scheduled Commercial Banks Madam/ Dear Sir Master Circular on SHG-Bank Linkage Programme The Reserve Bank of India has, from time to time, issued a number of guidelines/instructions to banks on SHG-Bank Linkage Programme. The enclosed Master Circular consolidates the circulars issued by Reserve Bank on the subject up to March 31, 2025, as indicated in the Appendix . Yours faithfully (Nisha Nambiar) Chief General Manager-in-Charge Encl: As above Master Circular on SHG-Bank Linkage Programme Self Help Groups (SHGs) have the potential to bring together the formal banking structure and the rural poor for mutual benefit. Studies conducted by NABARD in a few states to assess the impact of the linkage project have brought out encouraging and positive features like increase in loan volume of the SHGs, definite shift in the loaning pattern of the members from non-income generating activities to production activities, nearly 100 per cent recovery performance, significant reduction in the transaction costs for both the banks and the borrowers etc., besides leading to a gradual increase in the income level of the SHG members. Another significant feature observed in the linkage project is that about 85 per cent of the groups linked with banks were formed exclusively by women. 2. Recognizing the importance of SHG Bank linkage, banks have been advised to meet the entire credit requirements of SHG members, as envisaged in Paragraph 93 of the Union Budget announcement for the year 2008-09, made by the Honorable Finance Minister, wherein it was stated as under: "Banks will be encouraged to embrace the concept of Total Financial Inclusion. Government will request all scheduled commercial banks to follow the example set by some public sector banks and meet the entire credit requirements of SHG members, namely, (a) income generation activities, (b) social needs like housing, education, marriage, etc. and (c) debt swapping". Linking of SHGs with banks has thus been emphasized in the Monetary Policy Statements of Reserve Bank of India and Union Budget announcements from time to time and various guidelines have been issued to banks in this regard. 3. Banks should provide adequate incentives to their branches in financing the SHGs and establish linkages with them, making the procedures simple and easy. The group dynamics of working of the SHGs need neither be regulated nor formal structures imposed or insisted upon. The approach to financing of SHGs should be totally hassle-free and may also include consumption expenditures. Accordingly, the following guidelines should be adhered to enable effective linkage of SHGs with the banking sector. 4. Opening of Savings Bank A/C The SHGs, registered or unregistered, which are engaged in promoting savings habit among their members are eligible to open savings bank accounts with banks. These SHGs need not necessarily have already availed of credit facilities from banks before opening savings bank accounts. The instructions on simplified Customer Due Diligence (CDD) applicable to SHGs as prescribed in Chapter VI of the Master Direction - Know Your Customer (KYC) Direction, 2016 (as updated from time to time) shall be adhered to. 5. Lending to SHGs a) Bank lending to SHGs should be included in branch credit plan, block credit plan, district credit plan and state credit plan of each bank. Utmost priority should be accorded to the sector in preparation of these plans. It should also form an integral part of the bank’s corporate credit plan. b) As per operational guidelines issued by NABARD, SHGs may be sanctioned savings linked loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). However, in case of matured SHGs, loans may be given beyond the limit of four times the savings as per the discretion of the bank. c) A simple system requiring minimum procedures and documentation is a precondition for augmenting flow of credit to SHGs. Banks should strive to remove all operational irritants and make arrangements to expeditiously sanction and disburse credit by delegating adequate sanctioning powers to branch managers. The loan application forms, procedures and documents should be made simple. It would help in providing prompt and hassle-free credit. 6. Interest rates The banks would have the discretion to decide on the interest rates applicable to loans given to SHGs/member beneficiaries, subject to regulatory guidelines on interest rate on advances contained in Master Direction - Reserve Bank of India (Interest Rate on Advances) Directions, 2016 issued vide DBR.Dir.No.85/13.03.00/2015-16 dated March 3, 2016 , as updated from time to time. 7. Service/ Processing charges The instructions on service charges applicable to priority sector loans to SHGs as prescribed in the Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025 issued vide FIDD.CO.PSD.BC.13/04.09.001/2024-25 dated March 24, 2025 (as updated from time to time) shall be adhered to. 8. Priority Sector Lending classification Loans to SHGs are eligible for classification under Priority Sector Lending (PSL) under the respective categories viz Agriculture, MSME, Social Infrastructure and others, subject to the provisions of Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025 issued vide FIDD.CO.PSD.BC.13/04.09.001/2024-25 dated March 24, 2025 (as updated from time to time). 9. Defaulters in SHGs Defaults by a few members of SHGs and/or their family members to the financing bank should not ordinarily come in the way of financing SHGs per se by banks, provided the SHG is not in default. However, the bank loan may not be utilized by the SHG for financing a defaulter member to the bank. 10. Capacity Building and Training a) Banks may initiate suitable steps to internalize the SHGs linkage project and organize exclusive short duration programmes for the field level functionaries. In addition, suitable awareness/sensitization programmes may be conducted for their middle level controlling officers as well as senior officers. b) Banks shall adhere to the instructions on conducting tailored financial literacy programmes targeting SHGs issued vide Circular FIDD.FLC.BC.No.22/12.01.018/2016-17 dated March 02, 2017 . 11. Monitoring and Review of SHG Lending Considering the potential of SHGs, banks shall closely monitor the progress regularly at various levels. In order to give a boost to the ongoing SHG bank linkage programme (SHG-BLP) for credit flow to the unorganized sector, monitoring of SHG BLP shall be a regular item on the agenda for discussion at the SLBC and DCC meetings. It should be reviewed at the highest corporate level on a quarterly basis. Further, progress of the programme may be reviewed by banks at regular intervals. The progress under SHG-BLP, as prescribed vide RBI letter FIDD.CO.FID.No.3387/12.01.033/2017-18 dated April 26, 2018 shall be reported to NABARD (Micro Credit Innovations Department), Mumbai, on a quarterly basis, in the prescribed format within 15 days from due date. 12. Reporting to CICs Banks are advised to adhere to the guidelines on credit information reporting in respect of SHGs members contained in Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025 issued vide DoR.FIN.REC.No.55/20.16.056/2024-25 dated January 06, 2025 (as updated from time to time). Appendix List of Circulars consolidated in the Master Circular Sr. No. Circular No. Date Subject 1. RPCD.No.Plan.BC.13/PL-09.22/91/92 July 24,1991 Improving Access of Rural poor to Banking- Role of Intervening Agencies- Self Help Groups 2. RPCD.No.PL.BC.120/04.09.22/95-96 April 2,1996 Linking of Self Help Groups with banks- Working Group on NGOs and SHGs- recommendations –Follow up 3. RPCD.PI.BC/12/04.09.22/98-99 July 24, 1998 Linking of Self Help Groups with Banks 4. RPCD.No.PLAN.BC.94/04.09.01/98-99 April 24,1999 Loans to Micro Credit Organizations- Rates of Interest 5. RPCD.PL.BC.28/04.09.22/99-2000 September 30, 1999 Credit delivery through Micro Credit Organizations/ Self Help Groups 6. RPCD.No.PL.BC.62/04.09.01/99-2000 February 18, 2000 Micro credit 7. RPCD.No.Plan.BC.42/04.09.22/2003-04 November 03, 2003 Micro Finance 8. RPCD No.Plan.BC.61/04.09.22/2003-04 January 09, 2004 Credit flow to the unorganized sector 9. RBI/385/2004-05, RPCD.No.Plan.BC.84/04.09.22/2004-05 March 03, 2005 Submitting progress report under micro credit 10. RBI/2006-07/441 RPCD.CO.MFFI.BC.No.103/12.01.01/2006-07 June 20, 2007 Microfinance-Submission of progress reports 11. RPCD.MFFI.BC.No.56/12.01.001/2007-08 April 15, 2008 Total Financial inclusion and Credit Requirement of SHGs. 12. FIDD.FID.BC.No.56/12.01.033/2014-15 May 21, 2015 SHG-Bank Linkage Programme – Revision of progress reports 13. Master Direction DBR.AML.BC.No.81/14.01.001/2015-16 February 25, 2016 (Updated as on November 06, 2024) Master Direction - Know Your Customer (KYC) Direction, 2016. 14. Master Direction DBR. Dir. No.84/13.03.00/ 2015-16 March 03, 2016 (Updated as on June 07, 2024) Master Direction - Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 15. Master Direction DBR.Dir.No.85/13.03.00/2015-16 March 03, 2016 (Updated as on September 12, 2023) Master Direction - Reserve Bank of India (Interest Rate on Advances) Directions, 2016 16. FIDD.FLC.BC.No.22/12.01.018/2016-17 March 02, 2017 Financial Literacy by FLCs and rural branches – Policy review 17. DoR.FIN.REC.No.55/20.16.056/2024-25 January 06, 2025 Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025 18. Master Directions FIDD.CO.PSD.BC.13/04.09.001/2024-25 March 24, 2025 Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025