The RBI has highlighted that important forces boosting socio-economic growth are the financial activity of the banking industry. Rural development also means transformation of the rural population. It is a strategic move, in line with the government’s aim to double farmers’ income.
But is that happening? The answer is ‘No’ because banks, except State Bank of India, have hardly ventured into rural India because of reasons ranging from poor connectivity to lack of business growth.
Bankers say villagers are more keen on investing in real estate and commodities like gold and silver than putting cash in banks.
This imbalance in the rural credit system must end. Banks must be encouraged to open branches in villages. By providing financial services to rural areas, banks facilitate the growth of small businesses and spur economic development.
The shortage of bank branches and ATMs across the hinterland could hold back PM Narendra Modi’s financial inclusion efforts.In 2014, Modi had set a target to open abank account for every household to ensure welfare funds flow directly to the poor, while improving access to credit and insurance programmes. He pushed policies that helped bring 310 million people into the formal banking system in just four years, according to the World Bank.Claims of banks that they are penetrating the hinterland are not matching with their records. These services are often slow to reach the rural population. The government has been making efforts to rope in banking correspondents in rural areas. As of FY22, there were 1.32 million banking correspondents compared with 1.13 million in FY21 and 730,000 in FY20.
The finance ministry said last October that it plans to raise the number of female banking correspondents by a third of the total by 2027. This is a great move because women are considered better managers of household finances. The department of financial services is trying to raise the number of banking correspondents from less than 10% to over 30% in the next three years.
If banks go to the hinterland and rural areas are developed, they provide a conducive environment for economic activities and contribute to the GDP, leading to an increase in agricultural production, thereby helping the government address food insecurity.
What is distressing is that despite ahuge thrust on financial inclusion and high economic activity, several districts do not have any banking presence — a fact corroborated by Finance Minister Nirmala Sitharaman. She has directed lenders to open either a full-fledged branch or an outpost rendering banking services.
The minister told the Indian Banks’ Association (IBA) recently that there are many big panchayats which don’t have a physical bank. In many districts not even one banking institution is physically present.
IBA has been asked to digitally map all districts to find out low coverage areas and make provisions for a physical branch or an outpost.
If there is strong economic activity in a rural pocket, banks must set up their presence there. But, will this happen? Policymakers have been focusing on financial inclusion to ensure banking presence in every village with over 2,000 people. Let’s see the work done by the Pradhan Mantri Jan Dhan Yojana, in which millions of new accounts were opened. If a higher loan had to be given, the lenders have to move beyond looking at such regions as a source of low-cost deposits.
As many as 300 PSU branches will open in the hinterland. This is significant news. In India, 19% of the population still lacks access to the formal credit system.
The writer is Rajya Sabha MP and chairman, Parliamentary Standing Committee on Transport, Tourism and Culture.
(The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of The Economic Times.)