The It is the lack of banking services

The biggest challenge to the banks in this country for the next decade or more is to capture the banking business of 50% population of this country of over 120 billion. Financial exclusion is a serious concern for low earning household and small businesses located in semi-urban or rural India. It is the lack of banking services to the people under poverty line.

Around 240 million adults in the rural area do not have bank account today. The study of census has suggested that rural households that use banking services have increased from 30% to 54% from 2001 to 2011. But still 46% of the rural households are excluded from banking services.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

2001

2011

Household

Total no. of household

Household availing banking services

percent

Total no. of household

Household availing banking services

percent

Rural

138,271,559

41,639,949

30.1

167,826,730

91,369,805

54.4

Urban

53,692,376

26,590,693

49.5

78,865,937

53,444,983

67.8

Total

191,963,935

68,230,642

35.5

246,692,667

144,814,788

58.7

 

The RRBs have performed well in rural credit and rural development. But to expand further and to achieve the target of financial inclusion they will have to face many challenges. Some of the challenges are enumerated below:

Lack of banking facility in the locality – Expansion of the Banks:

The committee for setting up regional rural banks had suggested setting up five pilot banks in the first year at selected places on experimental basis which could be extended based on their performance. Setting up new regional rural banks at this fast pace in relatively short period of time created problems for concerned regional rural banks and their sponsored banks.  The pace of activities for setting up these new RRB’s have been forced from above which had to be accepted by sponsoring commercial Banks, State Governments and even the Co-operatives

At first, the location for branches in various districts was not selected in a co-ordinated manner at the State level, demarcating the areas of operations of the existing institutional credit agencies as was suggested by Working Group on Rural Banks. The other important test in rural banking expansion is the proportion of number of branches opened in relation to the number which was expected to be opened in the given time at unbanked centers.  There was no directive from the government in this regard but the expectation was that each regional rural bank will open 20 to 30 branches in first year of its operation and another 20-30 in second year of operation to reach the target of 50-60 branches in ‘underbank’ centers of its operation. This branch expansion target wasn’t able to achieve by Regional Rural Banks.