New Banks to first cater to the rural India

The government and the RBI are toying with the idea of granting licenses to new banks only after the banks are willing to accept the condition of working in the rural India first. This move initiated by the finance ministry in the Budget has been made with the idea of opening up of the banking segment to achieve the larger aim of financial inclusion.

Although all this sounds good, I am not sure as to how many banks will actually make meaningful investments in the rural India, inspite of its profitability, without first wanting to have a piece of the urban pie. Providing banking services to the rural masses is not just about low cost operations and high interest rate margins!! In order to be effective, the banks will have to take pains to understand the rural consumer. One concept that immediately comes to my mind is the 4A's of rural marketing - Affordability, Availability, Acceptance, Awareness. From my personal experience in the field (Rural Uttarakhand) of the past one month, I can confidently say that 'acceptability' will be the biggest challenge faced by these new banks.

The new banks will have to spend time, effort and money in understanding the problems of the farmers and small traders. They will have to understand why MIDDLEMEN are so important to any farmer and why a farmer will prefer to take money from a ZAMINDAR inspite of knowing very well that he is being exploited!! Understanding these realities of the rural India will take much more than the money power possessed by these ambitious business houses like Tatas and the Birlas. Field work and first hand experience is what will come into picture. This is where I can see a big role being played by NGO's and NPS's that have been working in the rural India since years.

I completely agree with the statement made by an RBI official - "If new banks also start competing in the urban and semiurban areas,the whole concept will falter". It will be interesting to see how this new development shapes up!!