The rural-urban banking divide in India

Many Hindi movies zoom in on an impressive shot of money-capital, Mumbai’s landmark railway station, (recently christened as CST) to showcase the wronged-hero’s migration from an oppressive village to the city of dreams, to make it big. Banks too have played a significant role in propelling population influx to urban centres by focusing on growth solely in cities. Only 32,500 villages out of 600,000 have banking facilities. Why are economies of scale so difficult to achieve in rural India, typically characterized by the post office as its most vital banking intermediary?

Take another instance: 600 mobile users in India waiting to be tapped. Supposing average revenue per user, is Rs 120, services will be charged at a premium for the telecom companies to recover their investments. Result? Elite users only. Will this change with RBI mandating that banks open 25% or their new branches in unbanked rural areas and offer priority sector lending? The dynamics of an urban model with its high staff cost will not work among people who believe their money will be safer with a moneylender. Instead of the brick-and-mortar branch, banks can hire local people to establish a comfort level or use business correspondents and mobile vans. SBI has tied up with Bharti Airtel and ICICI with Vodafone to provide mobile banking. While at the other end of the spectrum, convenience is defined by a citizen in the capital walking into a Standard Chartered or Citibank branch as late as 9pm and availing of facilities. While private players have pioneered internet banking they cannot match the PSU’s in terms of reach and access to low cost deposits. Mergers then seem to be the answer; like HDFC with Times Bank, Anagram Finance with Bank of Madura.

But how will banks tackle another kind of mindbloc, like the one widely prevalent in Tier II cities, where even  an educated populace will not opt for online shopping; and similarly would prefer traditional modes of banking too. Despite this, SBI, one of the few banking giants, is aggressively expanding its ATM presence in non-metros, according to an ASSOCHAM study. Even in rural areas, banks do not give step-motherly treatment, as is commonly believed. Regional Rural Banks (RRBs) have been sponsored by many commercial banks in several States. These banks, along with the cooperative banks, take care of the farmer-specific needs of credit and other banking facilities.

What steps have your bank taken to bridge the urban-rural divide? Share with us.