Despite falling numbers, service access in urban banks is better than rural

Rural still works on cash, largely; city branches have gone digital, making service access more seamless

The stark difference in the operations of a bank branch in an urban set up and one in a rural area will be clearly visible to a visitor who cares to set foot in both of them. 

So if it's a new branch in an upcoming urban peripheral locality, the visitor will most likely encounter serpentine queues and bank staff struggling to manage the rush.

The scenario in a branch loacted in the city centre of a metro is quite the opposite, with miniscule, yet adequate staff and an silent air-conditioned environment, reminiscent of the waiting room in one of those five-star hospitals. The desks are super clean and bereft of the heap of files one has become so accustomed to seeing.

In the rural set-up, the situation takes a dramatic U-turn. That's where you'll see a staff-starved non-AC office with farmers, small shop owners, workers in household factories and cattle owners lining up at 0900 hours to encash their entitled subsidy money, apply for a fresh cattle or Mudra loan, or simply await their turn to get their passbooks updated.

Data shows that when it comes to access to banking, both urban and rural have displayed a similar trend in terms of the number of branches added. Yet there is one crucial difference between the two branch categories.

About 2,000 new bank branches were set up in cities in 2017-18, the lowest annual addition since 2006-07. In villages and small towns, the number was about 1,100 and 1,400, respectively: the least since 2009-10.

But, while rural branches have been rising on the whole, the number of bank branches in cities has actually started reducing from the first quarter of 2017-18 -- down from 41,300 at the end of June 2017 to 40,700 at March 2018.

The year 2017-18 saw the addition of 1,133 new branches in villages, almost a fifth of 5,226 branches added in 2013-14, the last year of the previous government. The annual addition in metro cities halved from 1,760 in 2015-16 to 970 in 2017-18.

Senior bankers said that while digital banking is making bank branches redundant in urban areas, the network of banking correspondents, which is cheaper to manage than a branch, is reducing the need for new branches in the villages.

“Credit assessment, which was initially within the purview of branches, is becoming more centralised now, reducing the need for that kind of expertise in urban branches,” said a senior banker who has previously worked with the Reserve Bank of India.

In the rural, banking correspondents, who were mostly assigned responsibilities in the area of deposits and payments, today also work on the credit side, selling small-value loans and expanding the bank’s credit portfolio in the villages.

In the case of bank employees, the case is the opposite. Employees per million population in rural areas is about a tenth of the human resources available in the urban set-up.

As against 312 employees per million people in the rural, there are more than 3,000 bank employees in cities. In small towns (semi-urban areas), the situation is the average of the two, with about 1,800 employees per million.

The number of rural bank employees rose from 163,000 to 240,000 in a decade, while those in cities were up from 560,000 to 800,000 between 2006-07 and 2016-17.

Experts say the reason for this is the small size of the rural economy compared to the service sector-dominated urban economy, and the fact that the village economy still predominantly works on cash.

Bankers said that the merger of State Bank of India and its associates brought about rationalisation of branches and ATMs across the country, and this took down the number of branches. “But it also means that the areas where branches were rationalised needed less branches in the first place,” quipped a general manager-level banker from SBI.

Additionally, PSBs also have to take forward the initiatives of the government, which invariably puts pressure on them, especially in theitr rural branches.

As a result, branches in villages are facing a situation where a limited number of officers and clerks per branch struggle to service the demands for loans and scheme registrations from the rural folk, the biggest beneficiaries of welfare schemes.

“Even the well-off farmers line up to get their passbooks updated, and sometimes we have to keep one person out of the three in the branch dedicated to the passbook machine,” said a banker from a rural branch of a PSB in Muzaffarnagar, Uttar Pradesh.

Improved focus on financial inclusion and insurance, enhanced welfare transfers through DBT, and aggressive scheme targets from the two tiers of government to banks are putting unprecedented pressure on the rural banking system without adequate human and technology resources, said bankers from PSBs.