The Hindu Business Line : Workable plan for the unbanked

Every once in a while, along comes a set of data that serves to remind the policymaker that the sustained growth of nine per cent over the past four years hasn’t brought prosperity in quite the same way to people across the country. The latest evidence of the extent to which large sections have been bypassed by the growth process comes from the Reserve Bank of India’s statistics on deposits and credit of the top 100 centres of scheduled commercial banks for the quarter ended September 2007. Categorised by the size of aggregate deposits and gross bank credit, the share of the hundred top centres continued to dominate both credit and deposits.

The magnitude of that top-heavy business growth becomes evident from the fact that of the 34,337 centres of scheduled commercial banks across the country, just 0.003 per cent have a share of over 70 per cent of the credit and over 60 per cent of the deposit business, and those shares have been growing steadily since September 2005 — roughly the period that witnessed the economy’s overdrive into high growth. The RBI data suggest that the rhetoric of financial inclusion emanating from Mint Street and New Delhi has had few takers, even among nationalised banks that account for 47 per cent of the gross bank credit. A more revealing picture of the extent of just how limited formal credit markets have been was provided by Ms Usha Thorat, Deputy Governor of the RBI, in a speech in London last June. Against a national average of 59 per cent of the adult population, only 39 per cent of the adult rural population had a savings account, with the proportion of unbanked population being higher in the North-East. Of the 89 million farmer households in the country, 73 per cent had no access to the formal credit market. But the credit market is also regionally skewed, with the undeveloped States and the North-East suffering the worst consequences of under-banking. Last December, the Chief Ministers of the North-Eastern States brought home this point at the National Development Council, and the Planning Commission will hopefully look into this matter.

For policymakers, the need of the hour is to innovate; the formal banking system has made little headway in reaching out to the poorer areas, despite all the efforts since bank nationalisation in 1969. Co-opting the moneylender or using such intermediaries as the extensive postal services to reach farm households needs to be looked at to deepen the credit market; with just 2.6 per cent share in September 2007, the regional rural banks are clearly not enough.

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