Two Sides Of Indian Banking

The banking system in our country has two distinct and distinguishable faces. The one we encounter in metros and big cities swears by the principles of customer-first, is ever eager to lend more and more, greets us with a broad smile and believes in constant innovation to bring in more customers to the banking system. It is modern, professional and pleasing. This one symbolizes what is known as the India growth story.

 

The other one, found in the rest of the country, is a picture in contrast. It is on the constant look out for denying customers any chance to get loan because it is seen to be non-profitable. Sanctioning a loan is seen as doing a great favour to customers. It, therefore, never happens without a “cut”. This part of the banking system is seen to be a constant drain on the overall profitability of the entire system. This face, unproductive as it is, therefore has to look dull, scary and inefficient.

 

Used to working with the brighter side of the system, I recently came across the other face when I toured parts of eastern Uttar Pradesh. I kept hearing stories which are hard to believe in Delhi or Mumbai. Can you imagine someone spending one full day getting a demand draft made? He is lucky if he gets one at the end of the day. Have you seen ATMs that do not work for days? Can we afford branches not working for hours because of, what is commonly referred as, “link failure”? But the fact is, major parts of the country continue to live with such a system every day.

 

I got to know that even fully functional ATMs, which are a rarity anyway, do not dispense cash beyond a certain time period. Withdrawing or depositing cash takes hours. Getting a loan sanctioned takes months. Fund transfer is not easy because of constant link failure. To get a new debit card issued takes weeks. And then you are made to wait for a few more weeks for the PIN to arrive. Hard to believe, but I heard a number of such real life stories during my trip.

 

These two faces have to be kept in mind while celebrating the success of the recently launched Jan Dhan scheme. There is no denying that it has been a roaring success when it comes to bringing more and more people to the banking fold. The idea of providing all households with a bank passbook and a RuPay card itself is a laudable one. That we have exceeded all targets is certainly praiseworthy.

 

But my only concern is: which system are we aligning these millions of new entrants to? Certainly not with the one that exists in metros and big cities. If that is not the case, are we not overburdening the system that is already burdened with the weight of sheer inefficiency?

 

In the financial year 2011, 2012 and 2013, we added more than 18,000 bank branches in the country. During the same period we added more than 10 crore people to the banking system. In fact, from October 2012 to October 2014, the number of debit cards in the country saw a net addition of nearly 14 crore. Our banking system could easily have handled this addition if only our ATM network had worked smoothly and banking correspondents had better training. With the existing banking infrastructure that is grossly inadequate to service even the existing customers, can we expect to provide even basic services to the additional 11 crore account holders who have been brought in through the Jan Dhan scheme? I am afraid without major infrastructure addition, both human and technological, we run the risk of increasing financial untouchability rather than reducing it.

 

To make a success out of the scheme, we need to first spread the benefits of financial literacy. In a country where insurance penetration is so low, where not more than two per cent of the people invest in share market and where 73 per cent of the farmers do not have any transaction with the banking system, it is easier said than done. People have to be educated about the benefits of getting associated with the banking system. That can happen only when we present a different banking system, the one that already exists in metros, even in villages and small towns.

 

It is not such a difficult task after all. Banks will have to believe that their operations in villages and small towns too can become profitable. If companies like Maruti, HUL, ITC, Godrej or Dabur can gain significantly from their rural play, why cannot banks do the same? There is a need for a different mindset. A different business plan, perhaps. If we achieve this, we won’t require any scheme to attract people to the banking system. Nor will banks be reluctant to deepen their network in areas which are considered unprofitable now. Unless we do that Jan Dhan will become another scheme that promised so much but achieved very little.