The Hindu Business Line : Grassroots banking

The editorial on "Grassroots banking" (Business Line, June 8) clearly brought out the importance of banking at the bottom of the pyramid of the economy. Agriculture, rural industries, rural non-farm sector, and self-help groups in the rural areas will no doubt open ample business opportunities for banks. Diversified lending for the short- and medium-term in the rural economy must gain preference over long-term, concentrated lending of the last few years.

In the last decade, banks have not only reduced rural network expansion but actually scaled down their presence in Rural India. Real financial inclusion is indispensable for widespread growth. For this banks must increase their presence in the hinterland. Opening savings bank accounts at the rate of one account per household by the nearest town branch will be of no use from the point of view of achieving meaningful financial inclusion. It is essential to open a branch in the village itself to cultivate the banking and saving habit and promote use of credit in a remunerative and profitable manner. As rightly stated in the edit, the telecom sector has displayed how network can be expanded without affecting earnings and profitability.

Banks can draw useful lessons from this. For the banking industry also, lowering the entry barriers to competition will help. The Reserve Bank of India and the government must adopt a policy of promoting competition in rural banking. Suitable incentives can also be given to banks to promote rural banking. Opening of rural branches must be given priority.

K. K. Ammannaya

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Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in

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