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.

Empowering India with Innovations in Banking

The urban Indian has never had it so good. Locate closest ATM on mobile, before leaving home for work or use a 19-inch touch screen to portray the transaction at hand. Most banks in India utilize biometric smart cards and POS devices for authentication and transaction which also connect rural masses. These technological marvels in banking empower the semi-literate farmer who merely tells the amount of transaction to acquire the money he needs; without the hassle of obtaining or maintaining a checkbook, which in today’s digital age appears prehistoric.

However, Harish K Murthi, Chairman, HMA STARware, the first company in India to sell ATMs to public sector banks, maintains that, “In technology, we have a lot of catching up to do.” He adds, “Korea hs over 2,00,000 POS terminals versus a mere 50,000 in our country.”

Almost 12 million users in Kenya, withdraw cash through their mobiles thanks to M-PESA. 

 In another part of  the world,  NFC Payments capability like Visa PayWave, Mastercard PayPass built right into the handset could be revolutionary for our 21st century, spelling the end of checks and possibly even cash. Whereas the most recently launched Square makes people and organizations, become instant merchants through their iPhone OS.

Banking towards a digital future

Welcome to the digital era where developing economies like India can leapfrog; using mobiles as technology springboards like their Singapore counterparts with their CashCard TopUp; simply a combination of a dual slot mobile phone, smart ATM card, and a HomeNETS PIN. The mobile has also been an instrument for women empowerment, like in Bangladesh, with the Grameen Bank & Grameen Phone project, providing credit to the poorest of the poor. Similarly, Pride Africa, a financial institution, provides access to credit to more than 80,000 entrepreneurs with its virtual information and services network and smart cards for SME’s.  Or take the case of ACCION International, one of world’s leading microfinance organizations which uses Palm Pilots to cut costs and time to make a microloan.

E-finance has also made inroads in the securities market especially retail where online trading has captured large market share. This rapid spread suggests e-brokerage is easy to introduce and market to users and cost reductions are quickly passed on to consumers. In Denmark, Netherlands, Norway, e-cards have replaced existing financial services. Venezuela, Ghana and Turkey have a similar story to tell with Mondex e-cash, a multifunctional purse that allows upto 5 currencies to be held at a time and can be used across open networks like telephony or internet.

 

Digitalised insuance? Asia’s fully online insurance product from DollarDEX helps DollarDex.com’s participating banks know more about what other banks are offering and also reduce cost of customer acquisition. Consumers now are at the epicenter of a digital finance revolution and can quickly discern which dust-gathering options add much value as social media or mobile applications. Many are disillusioned by their banks’ lack of real time support on their websites. In fact tech initiatives like Google Wallet have already begun to change the finance game. According to Brett King, digitalization implies banks have to rebuild marketing teams, define new metrics and deliver true 1:1 propositions. Or like co-operative banks in Poland discovered to their horror, be left out in the cold.

Financial inclusion, when will it be priority?

In 2010, RBI Governor Duvvuri Subbarao and Deputy Governor Kamalesh Chandra Chakrabarty had taken bankers head on when the latter adopted the stance that financial inclusion is unviable.  “Commerce for the poor is always more viable, more profitable than commerce for the rich.” Mr Chakrabarty is quoted as saying.

What is it that makes Indian banks shy away from extending technology to rural markets and capitalizing on vast untapped potential of rural India? With 70% of India’s population living in villages and these households having growing incomes, corporate should make a beeline to stroke demand for consumer goods specially jeeps, scooters, televisions, fans and even washing machines. There is also an increasing market for cosmetics and mobiles and with multi-brand retail channelizing over Rs 400 billion, it will surely be boom time for the rural populace.

In this scenario, banks can project themselves as facilitators and project an image of being caring, much like a family member by initiating jatras and forums to educate about thrift, saving, availing loans for education and building small enterprises; establishing kiosks so that even the semi-literate farmer gets a feel and convenience of an ATM. In one such programme, Syndicate Bank adopted a poor locality in Hyderabad and mobilized 2,000 new savings accounts.

At the other extreme, social control of interest rates on loans less than Rs 2 lakh, renders financial services to micro-clients uneconomical and hinders financial inclusion.  Another factor for serious consideration is whether co-operative banks are fulfilling the lacuna? Probably a common accounting system without external influence and audit procedures will help to provide the much-needed co-operative credit reform. While few reforms have led to diversification of financial services, rural banking yet, till date continues to receive step- motherly treatment from the banking industry.