Banking entities, especially public sectors banks, should lend more in rural and semi urban areas through their vast branch network to improve bottom lines as a step to offset any adverse effect of the hike in cash reserve ratio, Reserve Bank of India deputy governor Usha Thorat said. | |
| Banks have about 45,000 branches in the rural areas with average average lending portfolio Rs 5 crore per branch. The advances per branch in urban area works out Rs 40 crore. The rural branch network is highly underutilised, the deputy governor said addressing rural finance seminar by the Indian Banks Association today. |
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| Even Rs 1 crore rise in advances per rural branch will add about Rs 475 crore to the bottom line of banks. This will remove the potential impact of the hike in CRR, which is a macro economic reality, she said |
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| The central bank hiked the CRR, the amount of funds that banks have to keep with RBI out of deposits, to 6 per cent from 5.5 per cent to rein in inflation, which touched a two-year high of 6.6 per cent. This was the second increase in CRR within two months. This is expected to hit banks profits as owing to increase in costs and provision for deprecation in value of investment portfolio. |
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| Recommending a change in approach to rural lending, Thorat said banks should forget about giving activity based loans such as crop loans and term loans. Instead, they should lend by looking at rural household's cash flow. |
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| There are over 50 million bankable households in rural areas waiting to get bank credit. The last 15 years saw banks growing in urban areas, the next 15 years should be for the rural sector, she said. |
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