Sumbitted

by, Rural & Urban Banking at Glance

Deepak 140
120
G
100
80
60
40
20
0
Rural Urban Total

Population Branches Per Branch

(Crore) (in ‘000) Population
Share of Deposits Share of Advances

Deshmukh
PGDM Rural management at Prin. L.N. Welingkar Institute of Management Development and
Research (WeSchool), Mumbai.

Emerging BFSI Sector in Rural Economy

Introduction

The banking, financial services and insurance sectors weren’t sound at the time of
independence and there were banks under devious management. After independence, the
Indian government took some most important steps towards taking reforms in BFSI sector.
Currently, India has a wide range of banking, financial service and insurance providers in the
market. India is the country of villages and agriculture and allied activities are the pillar for
economic development. The rural economy contributes 25-30% to the GDP and the rural
India constitutes 68% of the country’s population, thus expansion of these BFSI services in
rural India can create a win-win situation that will help for the growth.
 Source: RBI Banking Statistics

BFSI Sector presence in Rural Economy

As per the RBI Banking statistics, out of 6.4 lakh villages, only 1.07 lakh villages have
mature banking services and more than Five lakh villages remain unbanked due to
operational and structural issues like viability, infrastructure, costs, distance, etc. Access to
financial services is important for uplifting the rural economy, but still low-income families
and daily workers keep themselves away from the benefit of the credit, savings schemes and
available insurance services. In Insurance domain all 57 insurance companies have a very
solid occurrence in urban areas but they need to focus on
rural India for better exposure. The report tells that 79
families out of every 100 rural families do not have
access to credit facilities from formal sources and only
41% of rural families have access to savings accounts in
banks. This simply shows the great capability of rural
India that bring the much-needed volumes and help the
BFSI sector in volume-driven growth for the future.

Challenges Faced by The BFSI Sector in Rural

Economies

 Very low penetration and Competitions: Only around 41 families out of 100 rural
families have savings accounts and 20% have access to credit from banks. Also, many
survey shows that poor rural family depend deeply on informal finance to meet
money needs regardless of banking network in rural areas. In addition to this, the
noticeable fact is that the services available in cities are exactly not available to rural
branches, this affects rural branch to lack behind. To solve these issues, there is a need
to guarantee the availability of banking outlets at rural locations.

 Banking Practices and Technological Problems: Rural bank in rural economy is a

need of the hour for financial inclusion but, banking system largely ignores
unorganized and rural people. Banks and financial services centres are likely to assist
everyone without any biased, but it won’t happen in many cases. In addition, all
consumer interests are not pondered complete protection and their complaints are not
correctly attend by banks for a longer period. In rural India, local banks don’t have
 good comparable
Regionwise deployment of ATMs for the technology, this raises a
question mark on
quarter ended June 2021 coordination with other
branches.

Metro
Urban  Financial Literacy: In
Semi Urban rural India Literacy rate is
Rural very low compared to
urban and this literacy rate
act as a major challenge for
the BFSI sector while
execution. Rural people are
unaware about banking
procedures like withdrawal
of money, a deposit of
money, etc. Also, people aren’t aware of the banking terms and conditions which
update from time to time. Even people don’t have essential and valid documents. In
some cases, lack of knowledge about technology keeps people away from using easy
banking services instead people spend hours at the bank physically.

 Poor Access to Financial Services: More than dozens of financial services get
available for peoples at urban branches on fingertips but, the same will not reflect at a
rural branch for getting financial services. Reason for poor access is inadequate staff,
insufficient training, lack of resource, untrained marketing team and improper
approach.

 Need of Customized Insurance: There is a huge difference in the lifestyle of people

in urban and rural India. Socially and traditionally, there is a gap in urban and rural
India. All this impact marketing and distribution of Insurance products thus, the
alternate set of insurance services required for the rural economy. Also, it is not
enough to deeply penetrate rural India rather, there is a challenge to provide
customize insurance at a low premium to provide maximum benefit to the rural
economy.

Opportunities

 Expansion of Network: Banking

Source: Website Reserve Bank of India
network in rural India is very poor as
compared to other urban banking
network. Rural India has a lot of untapped potential, to get benefits of the same,
increasing presence in rural economy is mandatory. However, bank needs to
established more physical branch, ultra-small branches and branch-in-a-box model at
rural location as per population count.
  Service Delivery Channel: Creating physical presence of bank at each small to
medium village seem too difficult for banking system. Therefore, increase in the
alternate service providing delivery channels at village can be the solution for banks
to get penetrate into rural economy. Delivery channels like ATMs, biometric ATMs,
mobile ATMs and cash points would help banking system to breach into rural India.

 Rural Financial Services: Rural India is mainly dominated by agriculture activities

and India has the large number of small and marginal farmers who face credit
shortage for buying advance machinery, improved seeds and for performing
agriculture operations. Also, artisans and daily wageworker needs financial support.
Financial credit service sector is the emerging sector which is continuously growing
year by year and there is opportunity to focus on credit services for agri-processing,
agri warehouses, farm mechanization, post-harvest technology development, etc.

Way Forward
The Indian rural economy is in a remarkable position for making overall progress but, the
large section of rural India still, away from benefits of banking and financial services, even
after the government scheme like Pradhan Mantri Jan Dhan Yojana which created the
landmark of an enrolment of rural India with banking services. The India has a large
population who been living in villages therefore, there is a need to implement the large scale
program to enrolled more population in BFSI. Private players in banking, financial services
and insurance sector need to come forward to explore this rural potential for exponential
future growth of the Indian BFSI sector for providing good banking and financial services to
the rural economy.

"The future opportunity lies in the

hinterland. The rural economy is
less affected. Banks, including
Bandhan, would like to focus on
enterprises that have a good
network in rural areas," MD and
CEO of Bandha
Bank Chandrasekhar Ghosh said.