Many districts lack bank branches despite high economic activity: Nirmala Sitharaman

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Union Finance Minister Nirmala Sitharaman on Sunday said despite the huge thrust on financial inclusion and high economic activity, there are districts in the country not having any banking presence at all.

She asked the lenders to get their act together and open either a full-fledged brick-and-mortar branch or an outpost rendering banking services, wondering how banking presence eludes even pockets which have high economic activity.

It can be noted that policymakers have been focusing on financial inclusion for over a decade and also had set a target of ensuring banking presence in every village with a population of over 2,000 people. A few years ago, the RBI had liberalised branch opening norms for banks.

“Even today, there are very many districts in which even big panchayats don’t have a physical bank…there are very many districts in which not even one banking institution is physically present,” Sitharaman said, speaking at the 74th annual general meeting (AGM) of the industry lobby group Indian Banks’ Association (IBA).

She exhorted the IBA members to digitally map all the districts to see the areas having low coverage for themselves and accordingly make provisions for either a physical branch or an outpost.

“You should be able to see the centres of economic activity. Be it a completely rural pocket but if the economic activity is strong there, wouldn’t you think there should be some kind of presence?, she asked.

Making it clear that she is not against digitisation, which has paid tremendous cost benefits to lenders in terms of outreach, Sitharaman wondered how there can be parts of country which do not have even a single brick-and-mortar branch.

The minister cited the case of a highly persuasive lawmaker who has been making appeals for a bank branch in an area witnessing high agricultural-related trading and wholesale activity and flags that the locals have to travel miles for their banking needs.

Appreciating the work done by the Pradhan Mantri Jan Dhan Yojana, in which millions of new accounts were opened, the finance minister also reiterated her wish for higher quantum of loans to be given in eastern India and added that lenders have to move beyond looking at such regions as a source of low-cost deposits.

In a statement released after the finance minister’s speech, largest private sector lender HDFC Bank said it will be doubling rural reach to 2 lakh villages in the next two years and hire 2,500 people in the next six months.

Meanwhile, Sitharaman asked all to desist calling the National Asset Reconstruction Company (NARCL) as a ‘bad bank’ as similar institutions are called in other countries like the US.

She also said that the banks’ books are much cleaner now and this will help the government as the recapitalisation requirements go down.

Reminding the ambitious target of USD 2 trillion in exports by 2030 and USD 400 billion for the ongoing FY22, she said meeting this aim is possible only if banks are nimble and understand the needs of every business.

The legal framework for creation of a Development Finance Institution (DFI) is on at present, she said, adding that “we need such entities in both the private sector and also the government-backed one to address our developmental aspirations”.

She hoped for strong competition between the private DFIs and the state-run one, stating that only that can ensure lower cost of borrowing for projects.

Sitharaman paid homage to bank staffers who died during the pandemic, appreciating their efforts to keep the financial system running even as infections raged all across.

She also advised the banks to improve their corporate communication function for better flow of essential information to the general public.

She said the government’s lone focus from here on is a reset of our minds.

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