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Danendra Jain <>



What happened in 1970s and 1980s:

In seventies and eighties there was huge pressure from government of India and Reserve Bank of India on Public sector banks for opening of branches in rural areas so as to cover all villages. As per policy of Service Area Approach introduced by RBI each branch of a bank had to serve 15 villages and cover 10000 of population. There used to be Block Level Banker’s Committee (BLBC) constituted by Lead Bank Manager, Branch Managers of all banks in the block and block level officials to prepare an annual credit outlay plan for the year for the service area and monitor its implementation. Thereafter District Level consultative Committee (DLCC) and State Level Banker’s Committee (SLBC) were constituted to monitor the quality and quantity of progress.

But unfortunately this entire exercise in the real field proved formal and futile during last thirty years of its existence.
Village level, District level and State level plans formulated by BLBC, DLCC and SLBC proved a futile exercise so far as the real welfare of villages, elimination of poverty and idea of social welfare is concerned. This is a bitter truth that all these plans failed miserably and position of villagers did not improve despite several poverty alleviation programes undertaken by PSU banks in one name or the other during last for decades. Officials of banks and state government offices still complete these formalities of conducting meetings, formulating annual plans and there submitting the report to Banking Division and RBI but there is none at field level branches of banks or block offices to take care of plan and its execution.


Economic Reforms of 1990s:

In the year 1991 government of India adopted the path of economic reformation in line with global policy of liberalization, privatization and globalization (LPG). Banking reformation also was also planned and put into action under the leadership of the then Finance Minister Mr. Manmohan Singh. Banks were given huge freedom, rates were deregulated, licensing policy was reframed, private banks were opened and gradually
banks changed their working style from traditional social banking and mass banking to Class banking, from social service entity to profit making unit. In nineties, several branches of banks were closed or turned into satellite branch only because there were unable to earn profit. Villagers who lived in the service area of closed branches were forced to contact other branch of that bank at farther place or to contact some other nearby bank for financial assistance or for any banking operation. During this period not only poor villagers were discarded and left at the mercy of traditional money lenders for exploitation, but even banks were also constrained to write off huge amount of loans and advances disbursed in the villages.

Government of India had to infuse capital several times to make PSU banks strong enough to compete with global banks. Merger of banks were point of debate at all level so that their lending capacity may increase and they may be able to finance to bigger and bigger project .In brief the choice of bankers became top industrialists and top traders and not poor villagers. Banks now consider wholesale and bulk lending instead of retail lending. Ambiance of most of the branches have been changed and decorated to suit rich society and to make it comparable with private and foreign banks which were by birth made to serve rich class people.

Banks were nationalized in 1969 by Late Indira Gandhi to make banks accessible for poor villagers.
Unfortunately, poor villagers have again been thrown out of bank’s branches during last twenty years of reformation in banking. In the new set up poor villagers are directed towards Micro Finance Institutes (MFI) or advised to come through newly formed broker called as NGO or form their own Self Help Group (SHG). Banks gradually turned to non banking business like insurance, and demat services to earn more and more profit by less and less staff because they realized that profit earning by PSU banks competing with private banks was not easy. In the changed situation banks are trying to show false and cooked profit by hiding their bad assets or selling their bad assets to ARCs or by imposing service charges for every banking operation they do in the bank.

Banks are trying to earn Non Interest Income because their Interest Income has sharply come down due to unwarranted rate war declared by government under the frame work of reformation policy. Profits of PSU banks are facing continuous erosion due to increase in Non Performing Assets and hence bankers are least interested in rural lending which involves comparatively more manpower and enlarged network of branches.

Now after twenty years of reformation RBI has once again realized that need of the hour is to serve the villagers. New word called as Financial Inclusion has become the slogan of bankers. But as a matter of fact their all field activities indicate that banks are bent upon Financial Exclusion of poor villagers by directing them to MFI or to NGO or to form SHG. Poor people in villages and towns have now to depend on ATM and biometric cards for cash deposits and cash payment and on MFI. NGOs and local money lenders for availing loan facilities. Banks as also government of India think it wise to make finance to MFI and NGOs in hundreds of crores of rupees at base rate or at low rates and the ask MFI to make finance to poor people at many times higher rates.

Financial Inclusion is used merely for opening of No Frill accounts and to serve the purpose of UID (Uniform Identity Number). The word ‘Financial Inclusion’ is frequently used by political leaders and government officials along with bankers. But in fact no real improvement of poor people has taken place during last twenty years of reformation policy initiated by the government in the year 1991. It will not be an exaggeration to say that poor people were better served during the period 1971 to 1990 (after nationalization of banks in 1969). To add fuel to fire RBI is again putting thrust on bank management to open more and more new branches to reach the level of each Panchayat.

Bankers have burnt their fingers in large scale expansion program under Service Area Approach plan of seventies and again they are committing the same blunder by opting unwarranted expansion of branch network to spread it upto Panchayat level without increasing manpower to suit the need of branch expansion. The new word ‘Financial inclusion’ is nothing but is old wine in new bottle and this continue to make mockery of poor people.

Under the umbrella of reformation banks have stopped recruiting fresh staffs to save staff cost and to earn more and more profit in line with other capitalists who are exploiting Indians by way of labour exploitation and by indulging in large scale profit making. Business of banks have multiplied ten times during last five years but number of staff working in banks have come down compared to what it was five years ago inspite of addition of new branches and new businesses in banks. As such employment opportunities available to educated youth are also shrinking in the era of reformation.

Obviously we need to debate whether banks are serving poor people, whether policy of capitalism adopted by Government of India in the name of economic reformation suits to Indians environment and whether growth of five percent of population of Indian is the real motto of the government and the real purpose of GDP growth. We Indian have to ponder over the prevailing policy of capitalism and discuss whether it is more important or we have to revert back to the policy of socialism or to adopt a middle path in unison with the policy of Mixed economy. Poor and middle class of Indians who constitutes 95% of population cannot even afford quality education, quality health care services, quick justice in court and quality food in our country because rich and affluent class have been given complete freedom to exploit consumer and earn profit without any fear of administrative action under the policy framework of reformation called as LPG. As such this large segment of society have to depend on bank’s loan for all their essential needs food, health care, education and so on.

Last but not the least PSU banks in general are running in acute manpower shortage but still management of the bank is least inclined to recruit fresh manpower to keep cost of establishment at the lowest. Besides there is complete lack of devoted, talented and honest workers due to increasing number of corrupt officers sitting at top post who discourage good workers and hence the assets of the bank are undoubtedly at stake and the health of the banks has to face is in way sound.
As such large scale expansion undertaken by branches may prove to be suicidal activity and the word Financial Inclusion has become a laughing stock for common men. Neither bankers nor poor people are happy and safe. Even banks are not safe but more confused because they are unable to decide which path they are actually to go when government changes policy so frequently and in a impractical way.



***December,  2010***

Important Notice :  [The articles written by authors contains only the academic view of the writer and purely for discussions and updation of the knowledge of the bankers.   The views expressed in the articles may not at all be subscribed by the organisation where the author is working and / or]