Private sector ICICI Bank and Axis Bank would vie with the State Bank of India (SBI) and Central Bank of India as the government plans to create 50 million new bank accounts for the rural populace by the middle of next year and offer it to the banks under its ambitious financial inclusion project.
Private banks would piggyback on the pan-India project to rapidly expand their deposit base. For ICICI Bank, adding millions of new small deposit accounts makes strategic sense because it allows it to balance risky consumer loan assets with a robust portfolio of retail deposits.
With household savings projected to rise further in the coming years, the bank would have to diversify its deposit base to deal with any slowdown in consumer spending or investment slump.
According to sources, the financial inclusion project which is planned on an unprecedented scale would be kicked off from Jharkhand soon. Aided by the Unique Identification (UID) project, the government intends to create 100 million new bank accounts with full know-your-customer norms in the next five years.
Although the retail accounts commence with nominal amounts deposited in them, over the years, a sizeable number of these accounts are expected to grow manifold thanks to the high GDP growth. Therefore, the financial inclusion would enable private banks to penetrate in a cost-effective way into a large segment of potential customers who are outside their reach at present. So there is a complementarity between the government’s financial inclusion agenda and the private banks’ business strategies.
Of course, the banks are still undecided on how they would pan out their business plan in this segment.