Small towns are favourites with banks

What do towns like Madhepura, better known to be Lalu Yadav's constituency; Rae Bareli; the Gandhi family's constituency; Allahabad, also known as the Nehru family's hometown; Etawah, Mulayam Singh Yadav's constituency, or Surat "" the diamond city and textile hub, have in common?

Today they have become the hotspots for banks seeking a branch licences from the Reserve Bank of India (RBI). The simply reason being that the regulator had for the first time revealed what was so far the "confidential" list of 391 "underbanked" districts or states. Banks seeking a branch licence in any such place would be given preference above others, the RBI stated.

In its circular to all Indian scheduled commercial banks last week, the RBI said, "While considering your bank's proposal for branches, weighting would be given to the number of branches proposed to be opened in these districts or states."

Foreign banks armed with this list of "preferred" places intended to make the most of it, especially when many of these districts happened to have a large population and also were major industrial hubs.

The list includes the diamond city and textile hub of Surat, where the unemployment rate is zero, the state of Jharkhand housing coal and steel plants, Aurangabad, a tourist attraction and an industrial town, Nashik, famous for its grapes and orchards, the industrial district of Thane, or Korba in Chhatisgarh, which is the electricity hub of the country.

The RBI had already informed foreign banks that it would relax the branch licencing norms when it came to issuing licences for "underbanked" districts.

Standard Chartered Bank immediately got a branch licence when it applied for one in the Thane district. Similarly, ABN Amro was equally successful in procuring seven licences for places like Panipat, Nashik, Moradabad, Lucknow, Mangalore, Tirupur and Mangalore.

Even as the identified quota for foreign banks rose from 12 to 20 branches a year, most foreign banks received three to four branch licences.

According to RBI, the definition of underbanked essentially identified districts with population per branch more than the national average.

That is to say, a branch in some of these districts would well be servicing ten or more times that many customers as compared to well-banked cities or districts like Mumbai, Delhi, Bangalore, among others.