Shriram Mashkule, a farmer in Hoshangabad district of Madhya Pradesh, keeps all his cash in a dabba (box) at home. For the 48-year-old farmer, the thought of keeping his money in a bank has never occurred, as he is unaware such a facility exists.

His village is a good 5 km from one of the junctions on National Highway 69 that connects Hoshangabad with Obedullaganj near Bhopal. Either he or his wife makes a trip to Bhoura, a town on the other side of the highway, on Fridays when the weekly bazaar comes to life.

Bhoura has a branch of the Punjab National Bank, which caters to the needs of people from at least six adjoining villages.

This situation, however, is likely to change as the Government is planning to route payments for most social security schemes, such as pensions, scholarships and subsidies, through the banking channel.

The Reserve Bank of India has mandated that all new banks will have to open 25 per cent of their branches in un-banked rural areas.

The central bank is also pushing existing banks to open more branches in rural centres.

Rural India has only 36 branches for every 10 lakh people, compared with over 100 branches in urban areas.

Till recently, this shortage has not posed much of a problem as not many people in rural areas access banking services.

However, once the direct benefits transfer scheme of the Government goes full steam there will be a big surge in the number of people frequenting bank branches.

According to a survey of 38 public and private sector banks by the Boston Consulting Group, even if banks open 25 per cent of their branches a year in rural areas, the number of branches per 10 lakh persons in rural areas will reach only 70 by 2020.

Metro bias

Banks, however, continue to focus on big cities to mobilise much of their deposits as well as to grant credit.

RBI Deputy Governor K.C. Chakrabarty has termed this model of banks as “metropolitan-oriented banking.”

The ratio of rural branches to the total number of branches has come down from about 57 per cent in the mid-1990s to 37 per cent now, he observed.

Despite the fact that some of the rural areas might have got reclassified as towns and semi-urban centres, this is a significant drop, he said.

Financial Services Secretary Rajiv Takru, in a banking event this week, urged banks to aggressively add more branches in rural areas.

“The extension of banking and financial services in un-banked areas is completely non-negotiable,” he said.

To prevent people in rural areas from borrowing at usurious rates from moneylenders and parking money with non-established chit funds, he said banks must use business correspondents as a temporary measure to bridge the banking divide.

> satyanarayan.iyer@thehindu.co.in

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