Small finance bank: Why is East India not on radar?

A week ago, the Reserve Bank of India (RBI) had granted <g data-gr-id="26">in principle</g> approval to 10 financial entities to set up small finance banks in 18 months. However, while doing so, the RBI completely ignored Eastern India, comprising states of West Bengal, Bihar, Jharkhand and Odisha, with no valid reason or justification.

On November 27, 2014, the RBI had issued a 10-page guideline for setting up of small finance banks (SFBs). The guidelines read that areas lagging in providing banking services such as the states of Eastern, North Eastern and Central India would be given preference in granting <g data-gr-id="47">licence</g> for SFBs. 

The RBI has granted <g data-gr-id="46">licence</g> for SFBs to 10 of the 72 applicants and completely ignored its own guidelines by not even granting a single licence in the Eastern India. Were there no applicants from the Eastern India? There were as many as 11 applicants from Eastern India. But the RBI rejected all. The RBI’s selection of applicants for <g data-gr-id="44">SFBs unfortunately</g> smacks of its blatant regional bias. As many as four licences for SFBs (40%) are issued for Southern India (Tamil Nadu and Karnataka two each) and three licences (30%) for Northern India (Rajasthan, UP and Punjab one each), two licences (20%) for Western India (Maharastra and Gujarat one <g data-gr-id="38">ecah</g>), one licence (10%) for the North East (Assam at one). 

Why <g data-gr-id="41">the RBI has</g> granted as many as four licences (40%) for South India, where the banking services and infrastructure have been relatively strong and sufficient to meet the banking requirements of people?

The most disturbing part of the SFBs story is no states in Eastern Region is found fit for at least one licence. This neglect is <g data-gr-id="40">shocking,</g> if one remembers that over 30% of India’s 121 crore population live in the Eastern India. The need of this region is the spread of banking facilities across these four states, where the huge number of BPL families live. 

As on 31.05.2015, the total number of bank branches across the country is 1,25,809, whereas Eastern India has only 17,386 branches. At all-India level, each bank branch covers a population of 9,617, <g data-gr-id="39">whereas</g> at Eastern India-level, each branch covers 15,272 population. 

The vast swathes of rural areas in Eastern India are unbanked areas – not covered by private or nationalised bank. Not only the bank penetration is low, but also the credit-deposit ratio is dismal in Eastern India.

Last year, the RBI had said that chit fund companies were destroying the economy of Eastern India and also ruining the financial security of the rural people in the region as banking infrastructure in rural areas was inadequate. Is it not the moral duty of the RBI to strengthen banking infra in them region?