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Introduction
India has dedicated 75 digital banking units to villages and small cities across the nation in order to increase financial services and literacy rates. Rural India is the place where almost half of the country’s population still resides. But, it is also a place that lags behind when it comes to financial inclusion and development.
With over 70% of its people living in rural areas, India has made bold moves to further financial inclusion and development in these areas through introducing new legislation, building new banks, and creating virtual bank branches (VBCs) accessible via mobile phone.
These initiatives have been taken by the government, with an intention of providing digital access and services to rural customers. This article explores the state of banks in rural India, what challenges they face and how are financial institutions trying to solve them by using new business models like VBCs, microfinance, mobile banking and branchless banking etc.
Shaktikanta Das, Governor of the Reserve Bank of India, stated that physical banks will be available in all Indian states and union territories. In addition, banks may employ digital business services and correspondence to extend DBUs' footprints, he said. If a customer asks a question or has a complaint, a digital assistance zone will help them out.
What Are The Rural Banks In India?
Most of the banks in India have come up in urban areas only, providing access and financial services only to a certain section of society. So, majority of the rural population doesn’t have access to these financial services. Rural banks (RRBs) were established to provide financial access to the rural population and bridge the gap between urban and rural areas.
These RRBs came up in the 1970s and 1980s primarily to cater to the credit needs of the small and marginal farmers who often did not get their requirements fulfilled by the commercial banks. In the last few decades, the number of RRBs has increased from around 240 in 1971 to more than 2000 at present. The total number of branches of RRBs has also increased from about 3000 in 1971 to about 1,80,000 at present.
The Indian Banking Environment
India is the largest democracy of the world, with its population of about 1.3 billion. It is one of the fastest growing economies in the world, ranking third in terms of growth rate. With a growth rate of 7.6%, its economy has grown consistently in the last three years.
The Indian banking industry employs over 2.5 million people in more than 98,000 branches, while the number of ATMs has crossed 1,50,000. The Indian banking industry has seen many changes over the years and witnessed rapid growth in terms of size and business. In 2016, the total business of the banking industry was INR 93 trillion (US$ 1.4 trillion), up from INR 50 trillion in 2011.
In terms of branches, the number has increased from about 97,000 in 2011 to about 98,500 in 2016. In villages and small towns, the Prime Minister, Narendra Modi, said that getting banking services was difficult. Even though there are over a billion bank accounts in India, people living in remote regions have typically needed to take off a day of work to visit a nearby city to do banking.
To reach the last mile, we've taken great care to provide banking services,” he said. “Not only have we removed the physical distance, but also its psychological barrier.” The digital banking units are part of the Modi government's ambitious programme to provide financial and banking services to the country's remote areas.
The programme, Jan Dhan Yojana, was established in 2014 to open bank accounts for all citizens. Almost half a billion bank accounts have been opened as a result of the scheme, which provides banking and financial services to all citizens.
Challenges Faced By Banks In India
Since the number of people opening bank accounts has gone from less than 10% to more than 70%, banks have had to gear up their operations. But, they have had to deal with a number of challenges as they strive to meet the needs of a growing population. These challenges include - Growing number of customers: As more people have started using banking services, the number of bank customers has increased.
This has put pressure on banks to provide faster service and reliable products and services. Growing demand for digital services: With more people opting for online banking services, there has been an increase in the demand for digital services. This has put pressure on banks to improve the quality of their digital services and ensure that there is no breach in security.
Virtual Bank Branch (VBC)
VBCs are virtual branches of banks created by forming a partnership between banks and telecommunication service providers (TSPs) such as telecom service providers (TSPs) and internet service providers (ISPs). Increasing demand for banking services and increasing number of unbanked people has given rise to the concept of VBCs.
It has the objective of providing banking to those who are unbanked or underprivileged or unserved by the conventional banking system. It has the potential to provide cost-effective banking services to the unbanked population residing in remote areas of the country through the internet and mobile phone channels.
Micro Finance Bank For Rural India
The number of people being included in the formal banking system is increasing in India. Moreover, the growth in the number of people using credit is also remarkable. This has created an opportunity for microfinance banks to tap the rural population. Microfinance banks have a long history of catering to the needs of rural communities in India.
They have started their operations in rural areas to provide loans to farmers and other sectors of rural economy. These banks have the potential to provide financial services to a large number of people in rural areas.
Mobile Banking Services For Rural Indians
Almost 90% of the Indian population is under 35 years of age. And, almost half of the population is below 25 years. This section of society has a high propensity towards using mobile phones for various services including banking. Since a large number of people use mobile phones, especially in rural areas, banks have started providing mobile banking services in India.
The number of people using mobile banking has increased in the last few years. It has the potential to provide financial services to a large number of people residing in rural areas who are yet to be included in the formal banking system.
Conclusion
The Indian economy has made a significant progress in the past few decades, and the banking sector has played a key role in this progress. The banking sector in India has about 98,500 branches, 1,50,000 ATMs, and over 2.5 million employees. Banking in India has seen many changes over the years, and it has witnessed rapid growth in terms of size and business.
The rural population is the place where almost half of the country’s population still resides. But, it is also a place that lags behind when it comes to financial inclusion and development. With over 70% of its people living in rural areas, India has made bold moves to further financial inclusion and development in these areas through introducing new legislation, building new banks, and creating virtual bank branches (VBCs) accessible via mobile phone.
These initiatives have been taken by the government, with an intention of providing digital access and services to rural customers.
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