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RBI Governor Shaktikanta Das, while delivering the inaugural address at the Economic Conference in Ahmedabad University, recalled the status of banking before nationalisation: “Five cities in the country, viz., Ahmedabad, Mumbai, Delhi, Kolkata and Chennai, accounted for around 44 per cent of the bank deposits and 60 per cent of the outstanding bank credit in1969. This led to the widespread political perception that, left to themselves, the private sector banks were not sufficiently aware of their larger responsibilities towards society.”
Quoting the RBI’s History of Banking Vol III , he said: “Nationalisation of banks was thought of as a solution for greater penetration of banking, that excluded 617 towns out of 2,700 in the country. And, even worse, out of about 6,00,000 villages, hardly 5,000 had banks. The spread, too, was uneven...”
In the last 50 years, banks strived to increase their reach through technology, expansion of branches, competition by entry of private banks, and banking correspondents. But after five decades of nationalisation and competition, the figures in 2018 speak for themselves as to how banking is still metro-centric. Metro centres (53) had a share of less than 20 per cent in branches but saw 51 per cent of deposits and lent 64 per cent of the total advances at the end of December 2018. Urban areas seemed to be the worst affected: with 18 per cent of the branches, they had a share of just 21.5 per cent deposits and a mere 15 per cent of the total advances (see Table).
While the credit-deposit (CD) ratio of metros is 96.5 per cent, it is just 54.8 per cent in urban areas. Taking away the SLR and CRR, the metros enjoy high a CD ratio, as well as all the benefits of banking, at the expense of rural and semi-urban areas. While the reach in rural and semi-urban areas together is 62 per cent, their share in deposits is 10.5 per cent and 16 per cent respectively. With regard to advances, the corresponding share is 8.5 per cent and 12.4 per cent.
There is a diversion of rural, semi-urban and urban savings to metro centres, with a national CD ratio of 75 per cent. So, banking has come a full circle after 50 years of nationalisation, though the industry itself has expanded by leaps and bounds. Inclusive banking is still a challenge.
All the centres are classified in to four groups based on their population in the 2011 Census. These groups are: ‘rural’ centres, with a population of less than 10,000; ‘semi-urban’ centres, between 10,000 and 1,00,000; ‘urban’ centres, 1,00,000 and above but less than one million; and ‘metropolitan’ centres, one million and above.
Banks have been selling third-party products with much greater zeal than crucial banking products. Branch banking has fast emerged as a mere post office — to make a hackneyed comparison — and the branch manager has lost his identity. Regional credit processing centres and SME central cells sanction credit marketed by a relationship manager, and agents are appointed for recovery.
Earlier, fixing accountability was imperative, from the grassroots to the highest authority. Today, the ‘system’ is blamed. Even acknowledging an aggrieved customer’s complaint takes 24 hours, and the customer would be lucky if any action is taken on it.
Sans business ethics, corporate governance would run the very risk of becoming an apparition. Sometimes, investors (as well as some boards) take a short-term view of business ethics. But the fact that investors do not rock the boat here does not mean that bottomline can be treated with the same indifference. Reputation, norms and low employee turnover (not relevant for PSBs) are all dependent on good business ethics which also have a substantial influence on the bottomline.
The RBI Governor should now see how financial inclusion, even with Jan Dhan, PMMY, etc., may be ensured in the current situation; as well as how the agriculture and manufacturing MSMEs can get their due share of credit at rural, semi-urban and urban centres. Governance in PSBs and the private sector must be improved. The metro-centric concentration of banks needs a relook, and the problem of accountability and hierarchy in branches must be addressed.
Raju is an economist and risk management specialist. Jaganmohan is a former MD of AP State Cooperative Bank, Chairman of RRB and MD of Coastal Local Area Bank. Views are personal
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