The recent data on deposits and credit of scheduled commercial banks published by the Reserve Bank of India provide valuable insights into the distribution of banking business across the country. As on March 31, 2009, the number of banked centres served by scheduled commercial banks stood at 34,636. A very large number of them — over 28,000 — were single office centres, mostly in rural and semi-urban areas. At the other extreme, there were 61 centres having 100 or more bank branches. The concentration of bank branches in a few urban and metro centres is by no means a new development. But for the unprecedented branch network expansion that followed the nationalisation of large banks in 1969, the concentration would have been even more pronounced. In the reform era beginning the early 1990s, the emphasis shifted in favour of consolidation. With considerations of profitability dictating the strategic plans, branch expansion, especially to rural areas, was no longer a priority. Instead, banks tended to converge on centres that had business potential. According to the RBI, the top hundred centres, arranged according to the size of deposits, accounted for 69.2 per cent of the total deposits, while the top hundred ranked according to the size of credit accounted for 78.5 per cent of total bank credit as on March 31 this year.

The skewed pattern of distribution obviously meant heightened competition in certain centres while in a much larger number of places, including those with no banks at all, the urgent task has been to extend the range of financial services. Among the banks, non-price competition has become the norm. Technology has been harnessed in a variety of ways to take on competition and, more importantly, to reduce transaction costs. It has enabled the opening of new delivery channels such as internet banking and mobile banking. But its role in extending financial services across the country has not been fully appreciated. Quite obviously the goal of inclusive banking has to be achieved in a context where the traditional model of branch banking cannot be entirely relied upon. Technological applications are already enabling business correspondents and others to deliver many types of services now offered by a bank. However, over the medium-term it is highly unlikely that the traditional bank model will lose its relevance, even in rural areas. In fact, these bank branches might be called upon to undertake newer services, including those having a development dimension such as delivery of subsidies and conditional cash transfers.

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