Debates on the growing rural-urban divide in India have provoked many a government department and regulator to issue exhortations of inclusive growth. So too in banking. Unfortunately, for all the high-minded talk about inclusive banking, its rural penetration appears to have seen a reversal in recent years. Look up the RBI?s just published Statistical Tables Relating to Banks in India in 2006-07. This decade has seen the shutting down of some 2,292 commercial bank branches in the rural sector?defined as centres with under 10,000 people. As a result, the share of rural branches in the country?s commercial bank network has fallen from 48% to 41%. And it is not as if more business is being done on a smaller network. The share of deposits in rural areas has gone down, too, from 14.7% to 9.9%, while that of credit has fallen from 10.1% to 7.9%. Though the poorer states account for the bulk of the reduction in the commercial bank network, the surprising part is that the phenomenon is noticeable even in states with relatively narrow rural-urban gaps such as Punjab and Haryana.
India?s commercial banks are preoccupied with the metros. Centres with populations above 10 lakh have seen the network share rise from 14% to 18%, even as their deposit share went up from 43% to 56% and credit share from 61% to 66%. Such a pronounced dependence on metropolitan India is startling, despite all the signs that Indian wealth is undergoing a phenomenon of intense concentration at the top. The perplexing part, still, is that several studies suggest that banking decentralisation is becoming viable. In fact, most of the inclusion drives have used the premise that rural banking need not be seen as charitable activity, as during the outreach programme that followed large-scale bank nationalisation in 1969. Talk has remained just that?talk. This continued neglect of rural India, which accounts for only a quarter of the GDP but two-thirds of the population, does not augur well. As several bottom-of-the-pyramid market theorists have argued, there must be some low-cost, easy-access business model that is viable in rural India. After all, everyone needs a banking facility, and microfinance initiatives have already shown some innovative possibilities. Regulatory flexibility could help regular banks rebuild their rural networks.
