How Banks Reach Out to People in Rural Areas :
Financial inclusion (Banking, Insurance and other financial services) reaching out to all sections of our Society (Rich / Poor and Urban/Rural) is a must.
Recognizing this need, small banks are being started in the country.
What are small banks?
You can deposit your money with small banks just as in any other banks in the country. The major difference between small banks and other banks is these banks go where other banks do not.
Lending (Loans) in the rural areas are the focus of the small banks. These small banks lend (give loans) to people in rural areas who need it the most as many major banks do not have operation in these areas.
Small banks lend to small businesses in rural areas, farmers, micro and small industries and the unorganized sectors of the nation.
These banks are small in size (unlike larger commercial banks) and focus only on the basic banking (accepting deposits and lending).
You would not find demat and other stock market services in small banks.
Which banks are most suitable to become small banks?
NBFC’s (non banking finance Companies) are the most suitable to become small banks in the country.
These banks already have a presence in most rural areas as many NBFC’s lend gold loans to rural people.
The idea of a small bank is that these banks should have a local feel (People in rural areas should be comfortable with such banks).
Many NBFC’s have already set up banking operations in most rural parts of the country. If NBFC’s get small bank licenses they could easily start operations.
What are the benefits of small banks?
- These banks focus on the rural areas in the country (accept deposits and lend) to rural people and unorganized (small and rural) businesses in the country.
The small banks focus on lending to the priority sector such as agriculture, small industries, housing and education.
These banks focus heavily on technology to reduce their cost of operations. High end technology reduces the need for excess staff and saves on costs. The speed and efficiency of their services also increases.
At least 50% of the small banks loan portfolio (Lending by small banks) will be for loans/advances up to INR 25 Lakhs. This means a focus on loans of small sizes particularly in rural areas.
Small banks have at least 25% of their operations in unbanked rural areas and this means they can easily reach out to the rural sector.
All deposits made by you with small banks are guaranteed (protected) by the DICGC (Deposit Insurance and Credit Guarantee Corporation of India) up to a maximum of INR 1 Lakh for both the principal and the interest amounts.
A large population of India still lives in rural areas in spite of migration to cities. This means it is necessary for banking to reach these areas and small banks are the answer to the problem.
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