The Hindu Business Line : `Rural banking faces twin challenges

BANKING in rural India is faced with the twin challenges of regulation and distribution. Regulation with respect to banking has been designed for delivery in urban India and distribution required more manpower to be deployed in rural areas, observed Mr Nachiket Mor, Executive Director, ICICI Bank Ltd, while speaking at the National Conference of Rural Markets, organised by the Confederation of Indian Industry.

Initiatives like cheque truncation — where the electronic image and not the actual cheque is sent — have in mind the urban customer, he said. "About 500-600 million people in India still do not have bank accounts. For the rural segment, one needs to design no-frills products and deliver hard core value," he said.

The other handicap was that while Rs 1-crore business in microfinance required 30 people in terms of manpower, the same volume of business in other portfolios required only one person. Also, contract farming and supply chain integration has not gone the way they should have, he said.

ICICI Bank has an exposure of about Rs 6,000 crore in terms of rural business, which is growing at 70-80 per cent every year, he said. The bank is currently running five pilots for introducing biometric smart cards.

While Mr Mor preferred to depict the rural-urban divide in financial services as black and white, Mr Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, said the divide was more in the shade of grey.

Power, telecommunications, banking and transportation had reduced the urban-rural divide, he said. Besides traditional banking services, people in the rural and semi-urban areas are expressing interest in liability and investment products. He said, "Rural India is fast transforming a nation of savers into a nation of investors".

Talking of the way ahead in terms of rural business, Mr Kotak said that partnerships would be a key factor.

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