Unbanked districts to get a leg-up

Reserve Bank of India makes it mandatory for banks to open half their branches in rural areas.

One in every two new bank branches now has to be opened in under-banked districts.

The falling number of rural and semi-urban branches has prompted the Reserve Bank of India (RBI) to make it mandatory for banks to open at least half of their new branches in under-banked areas since the last year.

In 2006, RBI had prepared a list of close to 400 under-banked districts.

As a part of their annual expansion plans, banks are required to propose opening of 50 per cent of the new branches in the under-banked districts. A district with a population per branch more than the national average of about 16,000 is defined as under-banked.

In the past, encouraging banks to open branches in under-banked districts and rural centres, RBI had not made it mandatory for them to open half of their branches in these areas.

RBI Governor Y V Reddy said, "An area of concern has been the concentration of bank branches in metropolitan areas to the detriment of semi-urban and rural areas. To mitigate this problem, since 2006, opening of new branches for any bank is approved by RBI only on condition that at least half of such new branches are opened in under-banked areas as notified by RBI."

"Many banks now find that branches in semi-urban and rural areas are also commercially viable," he added.

Among the states and Union territories, Goa and Chandigarh do not find any mention in the list, while Kerala, Punjab and Sikkim have only one under-banked district each.

Uttar Pradesh has the maximum number of under-banked districts (63), followed by Madhya Pradesh (41) and Bihar (36).

While banks added a total of 1,065 branches in 2005-06, they reduced their rural and semi-urban branches by 916 and 285 branches, respectively.

On the other hand, branches in metros and urban centres expanded by 1,860 and 406, respectively. At the end of March 2006, out of the 259 branches of foreign banks in India, only one branch was in a semi-urban area, while there was no branch in rural areas.

Between July 2006 and June 2007, the central bank has given permission to open 10 branches of foreign banks in India. Of this, six approvals have been given for bank branches in under-banked areas of Raipur, Jodhpur, Kolhapur, Salem, Udaipur and Kanchipuram.

Only Shinhan Bank was allowed to open a branch in a metro, New Delhi.

RBI issued approvals for 13 branches of foreign banks in India during the calendar year 2006, up from the previous year's sanction for opening 10 branches.

The central bank also requires new private sector banks, including ICICI Bank, HDFC Bank and Axis Bank, to ensure that at least 25 per cent of their total branches are in semi-urban and rural centres on an ongoing basis.