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Aadhaar, niraadhaar and banking How ‘secure’ are the secured loans? Banking on Risk Banking overhauling or reorganisation? Bottomlines shrink, bad loans rise... Banking in Telangana Just 660 days! Target over-ambitious... Who is the real beneficiary? From lazy banking to easy banking Good, bad and ugly Well-lived... Greet Lakshmi the banking robot Why any time money? A new development bank rising in the east… How okay are new banks? Capital base of regional rural banks raised Lacklustre credit expansion Why priority status? What is the priority – mergers or NPA reduction? Growing volume of stressed assets… Another route for achieving financial inclusion New bank licences, at last... Governance in Reverse Gear? Too big to fail and too small to sail Targets continue to be ad hoc Smart banking in smart cities Reaching the Unreached… All that glitters is not gold... Indian customers are tech savvy A bank for women, by women The paradox: clamour for the Goliath and David Cradle of banks to a smart city... Bank deposits account for 46.3 per cent of household savings Holy or unholy? Reaching out: is it slowing down? The collaboration suite of cyber criminals Big bank merger, bigger expectations Financial inclusion vs unclaimed deposits Small finance payment banks... United India Insurance - Rs 110 crore losses have been claimed till now due to floods in Tamil Nadu A development bank for BRICS Small finance banks offer high interest rates Grows Bigger Emerging crisis Nothing much can happen…. Ferrying digital banking to Lakshadweep Cut in repo rate – lower than expected Rationalised Managing NPAs... Small is ‘more’ beautiful New capitals of Migrant banks Cautious and considerate Needed a Banking Atlas Monetary policy continues to adopt dis-inflationary path Perhaps small is more beautiful than big! Thirty more cities seek to become SMART Hesitancy in announcing year-end results Anytime banking to anywhere banking Ernakulam excels... Drop in SLR- sparing lendable resources LVB- A supermarket of financial services Payment banks have arrived Stage set for Indian ‘avatar’ of foreign banks Insatiable appetite for credit Mega merger is on Drastic decline in asset quality Fund healthcare clinics in villages... It’s a war on black money, support it. Merger mania haunts banks Two banks: their jubilees and performances Growing gainfully One down in private sector
 
How okay are new banks?
If the idea behind fostering new banks is to improve access to banking services, it would be difficult for the new entrants to achieve that goal.

WHETHER THE NEW banks would be willing to go to the under-banked districts in the backward states is a major issue that the regulator must address before granting licences. True, the new policy guidelines indicate that the banks have to locate 25 per cent of their branches in rural areas. But since they would be more concerned about profits, it is difficult to visualise as to how effectively they would extend the geographic coverage.

 

Inevitability of rural presence

A financial daily, in its editorial has gone to the extent of declaring that it is absurd to direct the new banks to go to rural areas. The absurdity of this assertion is due to the ignorance about the changes taking place in rural India. Census 2011 reveals that rural India is not merely Bharat, which is devoid of economic development, but a small segment of Nava Bharat is also emerging in many villages. According to some industry-estimates, the share of rural India in the sales of two wheelers is 40 per cent; sales of fridges and TVs -35 per cent; in car sales it is 22 per cent; and in cosmetics and soaps it is 20 per cent. There are bankable households in many regions of rural India and their number is also slowly increasing.

There are 62 gramin banks operating in villages, with a total number of 17,856 branches, all of them have migrated to CBS platform. Out of these banks, only one, namely Nagaland Rural Bank, is in the red. The biggest bank among them, Uttar Bihar Gramin Bank, has 1001 branches in the BIMARU state. The strongest of them Karnataka Vikasa Gramin Bank has made a net profit of Rs194.58 crore, with a zero net NPA ratio in FY2013. Rural banking is no more an unremunerative venture. It requires proper approach with a suitable frame of mind.

There is  need for more banks to meet the growing demand for achieving financial inclusion in a time bound programme.  As vast majority of Indian population remains beyond the reach of the present banking sector, new banks are required to be set up specially in the rural areas of under-banked states. At least one of them should be located in the north-east.

 

Eligibility for acquiring licence

The eligibility to obtain the banking licence should be based on the track record of the applicants and their performance in discharging their corporate social responsibility in the past. They should have a genuine concern for rural development besides making big profits from urban operations. A veteran banker has made a strong plea recently, arguing that licences should not be given to industrial houses. There is some force in his arguments, which are based on the past experience. Exceptions, however, can be made.

Micro finance companies may be avoided, as some of them are known for their exploitation of the poor. Charging exorbitant interest rates under the munificent concurrence of the regulator, they have exploited the hapless borrowers.

It may be added here that two of the gramin banks operating in Andhra Pradesh are topping the list in terms of the profits earned. They are sponsored by two public sector banks and their interest rates are 50 per cent of what the local micro finance companies were charging. They have proved that the poor can be served effectively without incurring losses.  

 

Action plan of new banks

The new banks should be in a position to comply with the RBI’s mandate of opening branches in under-banked centres. What is more suitable is the branchless banking model. Adopting the tech route for reaching out to the unreached would not be a difficult task for any dynamic corporate entity. If some of the FMCG industries could successfully expand their rural market segment by adopting IT, it should be possible for the  new banks too to do so, to carve out for themselves a lucrative market segment in rural India.

Prompt and better services are expected from the new banks, besides innovative products.  White-label ATMs and the branchless banking models may be adopted to reach out for covering wider areas. Straight-jacket services should be replaced by need-based services by the new banks.

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