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Business News/ Politics / Policy/  To counter Saradha backlash, Mamata Banerjee backs more bank branches
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To counter Saradha backlash, Mamata Banerjee backs more bank branches

Banerjee announces that her government had started to rent out space in panchayat offices at an annual rent of `1 for banks to open branches

West Bengal chief minister Mamata Banerjee. Photo: Hindustan TimesPremium
West Bengal chief minister Mamata Banerjee. Photo: Hindustan Times

Kolkata: West Bengal chief minister Mamata Banerjee on Thursday wielded the financial inclusion shield in defence of her government, which ignored warnings from top bankers for more than a year about the menace that deposit-taking enterprises spread in the state till mid-2013.

Now battling the political backlash of the collapse of enterprises such as the Saradha Group, Banerjee announced that her government had started to rent out space in panchayat (village council) offices at an annual rent of 1 for banks to open branches.

While some bankers scoffed at the offer, saying it was a honey trap best avoided in the interest of asset quality, Banerjee, having already found a taker in Canara Bank, blamed lack of financial inclusion for the mushrooming of enterprises such as the Saradha Group.

Even as she formally launched on Thursday 51 rural branches of Canara Bank to create access to banking services in some 222 gram panchayats, the head of a public sector bank said such branches run the risk of being transformed into “Trinamool (Congress) party offices" under political pressure. This person declined to be identified.

V.K. Shukla, Canara Bank’s chief general manager and head of the Kolkata region, however, said each branch had the potential to become profitable, thanks partly to the high savings propensity among the people of the state. Earlier in the year, the lender had launched 35 branches in West Bengal, he added.

The West Bengal government has traditionally pressured banks to step up lending because the credit-deposit ratio in the state has for decades been lower than the national average. That is largely due to the paucity of industrial activity in the state.

The credit-deposit ratio is currently at 67% compared with the national average of 72%, according to Deepak Narang, executive director at United Bank of India. Worse still, in at least nine districts of the state, the ratio was lower than 40% at the end of December.

But now in the wake of the Saradha scam, the state administration is pushing lenders to expand their branch networks as well.

Though West Bengal has nearly 7,200 bank branches, or one for every 12,500 people, it was estimated at the beginning of the fiscal year that banking services were not available in close to 900 of the state’s 3,354 gram panchayats.

It isn’t surprising that a dozen branches of Canara Bank formally launched on Thursday are in the South 24 Parganas district—the one most affected by fly-by-night financial enterprises.

The state-level bankers’ committee has identified as many as 28,140 villages in West Bengal with a population of less than 2,000 to provide banking services by March 2016.

It is proposed that in at least 5% of these villages, banks will establish branches and serve the rest through banking correspondents.

“It is usual for banks to face political pressure to open branches and to make loans," said the bank chairman cited above. “But there are always ways to wriggle out, which you must if you want to pursue the best opportunities… It is best to expand quietly."

Though most of the branches being launched in West Bengal now are likely to become profitable in about two years because households savings have started to flow back to banks, the state may not offer the best opportunity for expansion, the banker said.

Besides profitability, staffing rural branches is also a challenge.

However, the biggest fillip to the state’s drive to expand banking facilities in rural areas could come from microfinance institution Bandhan Financial Services Pvt. Ltd, which has already obtained an in-principle regulatory clearance to turn itself into a bank.

Bandhan has some 800 branches in West Bengal, and once it starts to take deposits, it could provide its 2.6 million borrowers in the state a safe haven for their savings.

Though not all its outlets are to be converted into branches when Bandhan rolls out banking services next fiscal year, all its borrowers will automatically become customers of the bank.

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Published: 19 Sep 2014, 12:03 AM IST
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