The people-profit balance

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Wednesday, April 09, 2008 at 0333 hrs The theme of this year’s Best Banks survey by The Financial Express couldn't have been more appropriate, timely and relevant. “Banking for the Billion” has found strong resonance in headline financial news. The State Bank of India has opened its 10,000th branch—it’s now the world’s second largest bank by branch numbers. And millions of farmers are supposed to benefit from, as American and European trade negotiators are muttering, a $15 billion (that’s globalization-speak for Rs 60,000 crore) subsidy (we are calling it bank loan waiver). Inclusive banking, the topic this collection explores extensively, with some of the best banking brains contributing, could have hardly found a better news context.

Indeed, the two stories — SBI’s 10,000 branches and the bank loan waiver for farmers — catch the tension that defines, energizes and complicates Indian banks’ attempted transition to global scale modernity: how many people can banks reach out to and what, in cold financial terms, are the effects of inclusion on asset quality.

When the question comes up can people and profits be served together by banks, the answer cannot ignore the data that access to non-institutional credit is on the uptick since 1991. That is, roughly from the time India started liberalizing, moneylenders and other non-banking credit sources are lending more and more. This is almost counterintuitive; you would expect banks to replace non-banking agents as the economy modernizes. Therefore, banking for billions, aka, financial inclusion, is a project invested with the special urgency — a trillion-dollar economy can’t really be playing host to increasing number of moneylenders. But pell-mell branch expansion may not serve the purpose either. If only because the addition to staff strength is a big, immediate cost item when profitability of new branches is an uncertain medium term possibility. Is technology — internet banking, mobile banking, ATMs — an answer? But how do you use technology in India’s 600 rural districts?

We hope this collection of analyses, put together on the occasion of FE’s Best Bank awards, identifies the right questions and provides at least a few pointers to how banks can viably reach a billion people.