July 2, 1960

THE ECONOMIC WEEKLY

The Banking System and Rural India

George A Floris
MODERN
economy may he called
" b a n k e c o n o m y " . The b a n k i n g
system spares the i n d i v i d u a l s and
tile communities the trouble of stockp i l i n g b u l k y chattels and enables
them to attain domestic security and
transact business by means of evernegotiable bank accounts.
F o r once it has been necessary
to say the obvious, because b a n k i n g
has been the target of vicious p o l i tical attack and multi-slinging f r o m
L e f t and Right over several decades.
However, banks were f u n c t i o n i n g in
the Fascist and National Socialist
countries yesterday in spite of their
repeated denunciation of "interest
s l a v e r y " . They are o p e r a t i n g in the
C o m m u n i s t countries today, in spite
of some of the more
picturesque
propagandist allegations, c o m p a r i n g
bank directors to leeches.
T h a t p o l i t i c i a n s on the extreme
Right as w e l l as the extreme-Left
ended up by a d a p t i n g , instead of
d e s t r o y i n g , the hated banks, is no
i n d i c a t i o n of a
change of heart.
They may have merely
discovered
that banks are indispensable f o r the
a d m i n i s t r a t i o n of an up-to-date econ o m i c system, whatever the p o l i t i c a l
c o m p l e x i o n , racial composition o r
social philosophy of the government.
It is not a mere theory, but a very
tangible fact that banks, as the coo r d i n a t i n g centres and observation
posts of economic activities, transcend national as well as ideological
f r o n t i e r s in this modern age. At the
present stage of development, banks
are alone capable of ushering the
surplus p r o d u c t i o n , and surplus
p r o d u c t i o n does exist even in the
poorest districts of the poorest countries into productive investment
and thus promote technical progress
and h u m a n welfare. W h e n we speak
about " u n d e r d e v e l o p e d " t e r r i t o r i e s ,
we c o u l d more accurately use the
t e r m ' ' u n d e r - b a n k e d " territories.
T h e p r i n c i p a l cause of I n d i a ' s
economic p l i g h t
is
therefore the
melancholy fact that eighty per cent
of the country has so f a r remained
outside the b a n k i n g network.
It is,
in consequence, a
vital problem,
and not j u s t f o r a certain section of
the p u b l i c , but for the e n t i r e n a t i o n ,
what can be done to extend the
b a n k i n g facilities to the r u r a l areas?
T h e r e is h a r d l y any c i r c u l a t i o n of
money in the very small villages,

even where the p o p u l a t i o n is not

exactly poor. The local labourers
and craftsmen receive payments in
k i n d , so does the village B r a h m i n
f o r his religious services.
Even the
village bania may not be able to
change one single rupee-note.
In the larger villages or s m a l l e r
townships, however, there is a considerable volume of commerce, busy
bazars, even some i n d u s t r y .
There
are usually several large, comfortable
and
recently
re-decorated
houses
testifying to the material w e l l - b e i n g
of the inhabitants.
In such localities there must be Some amount of
bankable
savings
w h i c h could be
p r o f i t a b l y integrated into the bloodstream of the national economy.
The Barclays Bank f r o m London
had recently a very encouraging experiment w i t h its p u b l i c i t y c a m p a i g n
in N i g e r i a . They used the m e d i u m
of the f i l m screen, simple language
and w i t t y cartoons. Since there are
at least occasional cinema shows in
the larger I n d i a n villages also, the
experience of the Barclays Bank
may have some bearing on the stratagem to be devised f o r this c o u n t r y .
However, m a k i n g people bank-conscious is only p a r t - and the smaller
p a r i o f the problem here.
The
real difficulty is how to make banking services available to the well-todo in the r u r a l c o m m u n i t y .
The opening of branches by the
large banks in the villageseven in
the largest ones w o u l d not be a
practical p r o p o s i t i o n for a very long
l i m e to come.
A novel approach
has therefore to be devised for the
i n j e c t i o n of the hidden wealth in the
countryside into the veins and arteries of the nation's financial system.
The best
solution, in theory at
least, appears to he the establishment of a " R u r a l B a n k i n g S o c i e t y "
w i t h the
p a r t i c i p a t i o n of India's
leading banks.
W h i l e direct Government association w i t h the project
might not be desirable, the official
circles w o u l d have a finger in the
pie t h r o u g h the State Bank of I n d i a
in any case.
Such an agency could set up its
offices in some of the
prosperous
r u r a l and a g r i c u l t u r a l centres, pref e r a b l y in co-operation w i t h several
leading local merchants and f a r m ers whose presence on the board

1083

would
create popular
confidence.
W h i l e banks, according to the natural scheme of things, usually seek to
collect
deposits
before
granting
loans, in the case of r u r a l I n d i a we
may have to put the cart before the
horse for the sake of long-term
benefits.
Even by g r a n t i n g local loans w i t h
the m a x i m u m of security and maki n g investments w i t h the m i n i m u m
of risk, the Rural B a n k i n g Society
would create in the villagers the
necessary
goodwill
towards
itself
and its operations. 'Green C r e d i t ' to
farmers against the new c r o p , the
financing
of
small
fruit-bottling
plants
in the h i l l y regions,
fisht a n n i n g works at the seaside places,
land reclamation and i m p r o v e m e n t
projects in the p u r e l y a g r i c u l t u r a l
districts could offer a suitable outlet
for short-term, comparatively safe
and potentially lucrative e x p l o r a t o r y
activities.
Once the villagers are convinced
that the Rural B a n k i n g Society is a
h e l p f u l f r i e n d and a wise counsel,
the possible i n i t i a l distrust w i l l melt
and the local cash w i l l find its way
f r o m u n d e r g r o u n d hide-outs, hayslacks and pillow cases into the savings books
and current
accounts.
Especially if the " e x p l o r a t o r y investm e n t s " by the Rural B a n k i n g Society prove effective in increasing
the villagers" income, the borrowers
of yesterday w i l l come f o r w a r d as
the depositors of t o m o r r o w . T h e new
Society w i l l thus gradually u n i f y the
hitherto
separated
economies
of
urban and r u r a l I n d i a f o r the benefit of both.
O b v i o u s l y there w o u l d
not be
enough funds and experienced personnel to cover the entire country
w i t h R u r a l B a n k i n g Societies right
f r o m the beginning.
However, It
would certainly be worth the w h i l e
and the risk to inaugurate a small
pilot project in one of the reasonably prosperous and c o m p a r a t i v e l y
"dacoit-proof"
areas.
While
the
government has undertaken numerous commendable schemes to utilise
the vast
natural resources of the
sub-continent, the lime has come to
attempt
the
mobilisation
of
the
hitherto equally untapped financial
resources
of
India's
extensive
''backwoods''.