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Despite talk of ‘inclusion’, bulk of business grows in 6 big cities

Despite talk of ‘inclusion’, bulk of business grows in 6 big cities
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First Published: Tue, Dec 25 2007. 11 39 PM IST

Updated: Tue, Dec 25 2007. 11 39 PM IST
Despite a big push by the Reserve Bank of India (RBI) for financial “inclusion,” just six Indian cities continue to account for the bulk of the banking business in India.
RBI has continuously been encouraging commercial banks to reach out to so-called unbanked areas by offering at least basic financial services to those who do not have access to any formal source of credit.
But Delhi, Mumbai, Chennai and Kolkata, along with Bangalore and Hyderabad, have seen their share of banking business increase over the years. They account for 56% of all deposits and 66% of all credit in 2006-2007.
In 1999-2000, these cities had accounted for just 43% of all deposits and 56% of all credit, according to a recent report on the banking sector by Karvy Stock Broking Ltd, a Hyderabad-based brokerage.
Industry experts attribute this to the growth of retail banking over the last few years, which is largely concentrated in urban areas. Bankers, however, insist that this scenario will change over the next few years as they are being forced to look past saturated big cities.
“The metros have emerged as the largest beneficiaries of the high economic growth in India, as corporates posted robust performance that resulted in higher corporate savings,” the Karvy report said.
It also cites the growth of the mutual fund and insurance industry as the reasons behind high banking business in metros, though “fund mobilization is happening in non-metros as well.”
M.V. Nair, chairman and managing director of Union Bank of India, says the financial inclusion drive by the banking regulator has only been an initiative in the last couple of years, so its impact will be felt soon. Nair also notes that there has been a steady migration from rural to urban areas, and small towns to metros, which, he said, is the main reason behind the high growth in the banking business in select cities.
“There is constant effort by banks to include those who have been excluded from the banking sector so far,” adds Nair.
According to data available with RBI, banks collectively opened the most—806—new offices in urban centres in the fiscal year ended March. Only 124 new offices were opened in rural areas.
O.V. Bundellu, deputy managing director of Industrial Development Bank of India Ltd, another public sector banker, says a “lot of business iscoming from cities such as Chandigarh in the north, Coimbatore and Trichy in the south, and Guwahati in the east. These places, though not large cities, have a growing demand for banking and financial services.”
So far, banks were shying away from semi-urban and rural centres because these areas require more investments in infrastructure by banks, says Robin Roy, a principal consultant at PricewaterhouseCoopers Llp.
“With level A cities being saturated and the attraction of low default rates in semi urban and rural areas, it makes sense for banks to look beyond the metros,” he added.
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First Published: Tue, Dec 25 2007. 11 39 PM IST