Under-banked North-East

It is to the credit of Mr Deepak Mohanty, Executive Director, Reserve Bank of India, that he has highlighted financial exclusion in an area with strategic geo-political interests for the nation. When he pointed out recently that the north-eastern States lagged behind other parts of the country in development banking he was not saying anything new; but the timing is important. The Finance Ministry's emphasis in recent times on financial inclusion by setting targets for banks' penetration into a certain number of villages annually will have to take into account some of the distinctive features of the North-East that the Executive Director has stressed upon.

As a reference point to the situation as it exists in the North-East it might be appropriate to point out some comparative economic indicators that can become markers for financial inclusion. As in the rest of the country, sectoral contributions to State-level GDP are more or less the same, with services contributing more than industry and agriculture; the analysis, therefore, suggests the region is moving in alignment with the rest of the country. But there are significant variations that any campaign of financial inclusion must keep in mind. Growth in real per capita income has been fairly robust in the north-eastern States, at 57 per cent in the eight years to 2008. Equally significantly, income distribution over the same period has been more equitable. This is an important facet that explains, in part, Mr Mohanty's observation of the region's higher absorptive credit capacity than the rest of the country. As was evident in the 59th round of the National Sample Survey 45 per cent, against 42 per cent of farmer-households elsewhere, made use of the formal banking system; yet the credit-deposit ratio among the north-eastern States was virtually half that in the rest of the country. Greater industrialisation and urbanisation in the plains India explains the higher C-D ratio of 73 per cent; it also tells us something about the predilection of banks for heavily serviced, usually urban, centres. According to RBI data, this financial year, till last September, 200 top centres accounted for more than 80 per cent of gross bank credit; of the 200, just seven metros accounted for the predominant share.

What the data reveal is that despite the best intentions of policymakers, the under-banked areas are not a viable proposition for banks chasing profitable bottom-lines. The economic and income distribution profile of the North-Eastern States, apart from their rich natural endowments, however, reveal the potential for greater credit growth than many other financially underprivileged areas. And that is both a challenge and opportunity for banks.