Banks' deposit, loan structure have become wholesale: RBI

Rural penetration of branches have fallen over the years

The Reserve Bank of India (RBI) has asked banks to increase their allocational efficiency, as this has become more concentrated in urban areas. This has resulted in a decline in the proportion of rural branches to the number of total branches—from 57 per cent in 1994 to 37 per cent this year.

“Allocational efficiency has not improved along the lines of the improvement in operational efficiency. The increase in operational efficiency has come at the cost of allocation efficiency. The benefit of increase in operational efficiency has not reached customers, particularly in rural areas,” said RBI deputy governor K C Chakrabarty. RBI data shows operational efficiency of banks has improved since financial sector reforms were initiated in 1991.

The central bank has mandated banks to open at least 25 per cent of their branches in rural, un-banked areas. (BANKING SNAPSHOT)

Chakrabarty said while non-performing assets in the priority sector were low, credit deployment in this sector was also less, as banks felt credit to this sector was a loss-making proposition.

“The entire deposit and loan structure of banks has become wholesale in nature,” he said, adding the concentration of deposits in the top 10 cities had risen sharply—from 39 per cent to 49 per cent—over the years, while the concentration of credit deployment in these cities had risen from 58 per cent to 60 per cent.

“The number of credit accounts in rural areas has grown at a compounded rate of 1.4 per cent, while in metro areas, it has increased 14 per cent. The proportion of deposits sourced from rural areas declined from 15 per cent to nine per cent. The entire growth was metropolitan areas-led,” Chakrabarty said.

The proportion of the credit to agriculture and small and medium enterprises declined from 28.5 per cent to 18 per cent. “The thinking of banks’ boards and managements will have to be changed to increase allocational efficiency,” Chakrabarty said.

“Banks have to increase allocation efficiency and reform the business re-engineering process. Also, banks have to reduce transaction costs by leveraging technology.”