Friday, August 6, 2010

IBA tells banks to open branches close to police stations in remote areas

The pressure is increasing on commercial banks to open more branches in unbanked areas as part of financial inclusion but banks are worried about frauds and dacoities as there has been increase in such activities after few of the bank branches have been opened in unbanked areas.

An official of the Indian Bank Association (IBA), the apex industry body of India’s banks said,
“There is a proposal that bank branches should only be opened in government offices or near to police stations,” and added that some banks have asked that state governments should provide extra security in risky areas.

In the last 6 months because of dacoities, thefts and robberies the commercial banks have lost over Rs 1,000 crore, the amount can increase if they were further pushed to provide banking in the remote areas.

A senior finance ministry official said, “Banks will be wary of lending, opening branches in remote areas,” and, added the state governments should ensure that the security is provided to bank branches, especially, in the hinterlands.

However the government and the banking regulator, the Reserve Bank of India have show concern over the increase in cases of thefts and dacoities as around 270 cases were reported in the last six months alone.

In view of this RBI has directed its regional directors to hold state-level security committee meetings with the state police officials. Meanwhile, Andhra Pradesh and Uttar Pradesh have reported the highest number of dacoities as a result banks have lost about Rs 320 crore.

This allegedly has impact on the government’s drive to deepen financial inclusion, or make financial services available to those relying on traditional sources of credit or savings through physical assets.

On the other hand government want banks to open more branches in the rural areas and is thinking on various options. For instance, it plans to include financial inclusion as criteria for in performance evaluation of state-owned banks and could also make it one of the conditions while giving out new bank licenses.

According to government’s report out of the 129 unbanked blocks in the country 91 are in the North-East Region, and some of these parts have security issues.

“We have to open branches to pursue the government’s agenda but security issues still remains a concern,” said a senior official with an east-based public sector bank.

The public sector banks are suffers as private banks have to still enter into the hinterland in a big way.

State Bank of India, country’s largest bank, has witnessed 62 such cases and lost around Rs 150 crore. In 2009-10, SBI had lost over Rs 400 crore in 117 cases of thefts or dacoities.

There are around 86,777 branches in the country, 32,301 are in rural areas. Thus branches in rural and semi-urban areas constitute 61% of the total bank branches in the country.