Growth of Banking and Development in India

The world’s second largest populated country, India, is the apple of the eye for the world now. The world economies are seeing it as their potential market. This has been going on since quite some time now, ever since 1991 reforms of liberalization, globalization and privatization. Indian markets in urban areas have grown appreciably and are on the verge of saturation, so corporates have started tapping rural markets, since more than 60 per cent of India’s population lives in rural areas.



During this global meltdown and fall of exports, if the Fast Moving Consumer Goods (FMCG) sector has been able to show rising quarterly growths, it is because of the Rural Markets and their rising spending power, which have not been affected by this meltdown. If we look at the strategies followed by Rural Marketers in the FMCG sector, it is to sell many small sachets of Rs. 2 shampoo pouches, Rs. 5 Maggi packs and the Rs. 5 chota Pepsi, because here, the strength lies in volume sale, considering the large consumer base in these rural markets which won’t spend altogether at once on buying large family packs of 500ml shampoo or super saver packs of Maggi or a Pepsi pet bottle of 2 litres.



Therefore, consumption trends followed by the rural Indian are considered to be the driver of future growth of companies. And this trend of tapping rural markets is visible across all sectors now, be it FMCG, IT, Banking, education etc. For example, today, India is in better state than China because our GDP is less dependent on exports as compared to them, where maximum revenues come from exporting to the European and US markets. Thus, tapping the rural markets is most important for us to be a self sustaining economy.



India has been considerably shielded from the global recession. Firstly, we are not very dependent on the exports for our GDP and have a good consumer base in India. Secondly, we are a saving prone economy, unlike western economies which are consumption prone. Thirdly, when banks across the world are falling like a pyramid of playing cards; we are safe, steady and strong, with our banks which have acted like a strong backbone of our economy during present turmoil. And just like thr FMCG sector, there is tremendous growth potential in the banking sector, because firstly, the rural masses have the habit of saving and spending only when needed. Secondly, their small credit requirements for agriculture, cottage industry and marriages etc.



According to researches carried out by the Reserve Bank of India (RBI), on an all India basis, 59 per cent of the adult population in the country has bank accounts and 41 per cent don’t. In rural areas, the coverage of banks is 39 per cent, against 60 per cent in urban areas. There is only one bank for a population of13000.



Tapping the rural market by banks becomes all the more important, not only for the banking sector, but all other industrial sectors as well. If there is growth in the banking sector, it benefits the other sectors as well. By this, it is meant that in this sector, the trickledown theory of economic growth or top down approach works, if we keep the banks at the apex in India Inc. Reasons being, as banks promote savings in the economy, they speed up the capital formation and then become the source of finance of trade and credit for the industry. Then they provide credit to enable entrepreneurs in their ventures, which promotes production and employment. This production and employment generates income and consumption and supply and demand, by increasing the spending power of people. And a sum total of all these reduces poverty and better life styles.



But the problem is that banks have not been able to reach a vast majority of the rural population; the rural poor have limited access to organized, affordable and transparent financial services such as savings, loans, remittances and insurance services etc. It is important for them to have access to banking services, especially credit and insurance, to enlarge livelihood opportunities and to empower themselves to take charge of their lives.



The unorganized sector of lending is believed to be acting as a problem to the growth impetus in these sectors. In several villages, farmers still go to traditional money lenders like zamindars for meager sums of a few hundred or thousand rupees and get into debt trap for their whole lives. As a result, farmer suicides, bonded labor, naxalism and political and social unrest and on top of it, poor financial management, which if had been done smartly would have helped in economic growth of their own self and economy.



Project Financial Literacy of the RBI is one such initiative of dual purpose. First, financial inclusion of the rural poor and second, to tap the growth potential in rural markets by volume growth for banks through edutainment (education +entertainment).Its objective is to disseminate information about the central bank and general banking concepts to various target groups like children, women, self help groups etc., using development communication and increasing the habit of saving in rural poor. Because if in an economy, saving is more than 30% for 7 consecutive years, the GDP doubles and India can’t ignore the rural sector to increase our savings



An improved rural banking under the umbrella of the RBI by the means of mobile banking, self help groups and microfinance institutions is important. The effective use of development communication, using Information and Communication Technology (ICT) will help to create awareness for financial inclusion through banks and make it a success.



Here, it is important to use technology as an enabler via mobile banking, because large numbers of Indians are using mobile phones. Using mobile phones for banking operations will cut costs by branchless banking, as there is no need for physical infrastructure and human resources, which is a problem in rural areas and a major constraint in carrying out banking operations. It will also make it convenient, safe, reliable and transparent.



With above initiatives and reaching out to women, self help groups, and microfinance institutions, the banks will not only be able to reach out to half of the population of India that is women, but as these changes expand access to financial services for the low income segment and rural masses, the effects can be measured in many ways, not just in the volume of GDP growth, but new jobs and income generations, greater personal safety for women, better education for their children, timelier health care for themselves and their empowerment



Thus, future development of India and the growth of India Inc. lies in financial inclusion, by tapping the rural markets through banks. This will not only help corporates in fulfilling their social responsibilities, but is important for fuelling growth in other industries and to keep the economy growing and moving. Truly, there are fortunes at the bottom of the pyramid.



Khushboo Luthra



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