Few Indians having access to banks will add to people’s hardship following the withdrawal of Rs 500 and Rs 1,000 denominations from circulation. The impact will be felt more in north-eastern states and backward districts of the country where banks are few and far.
Only 28%-32% of Indians have access to financial institutions, including post offices and bank, according to data compiled by the banking division of finance ministry, sources said. This becomes important as it is banks and post offices that will exchange the banned old currencies.
In a move that attracted criticism and applause alike , Prime Minister Narendra Modi on Tuesday evening announced the recalling of these two denominations and set a 50-day target to exchange the currencies with banks and post offices.
HT analysis of RBI data on commercial bank branches across India shows that 33% of the 138,626 bank branches are in 60 cities in Tier-1 and Tier-2 categories, leaving a highly skewed proportion with rural India. At least 38 districts, mostly in five north east states (Arunachal Pradesh, Meghalaya, Manipur, Mizoram and Nagaland) have less than 10 functioning banks. The data also reveals that there is one bank for 9,500 Indians.
Experts like political scientist Pratap Banu Mehta say that while the government’s move is structurally good, it is a logistical nightmare. “At least conceptually it’s not exclusionary and going ahead gives signals of moving towards plastic currency. Schemes like Jan Dhan architecturally address the issue of financial inclusiveness. However, the absence of financial institutions in rural areas raises some serious doubts about the implementation of the scheme.”
Like Mehta pointed out, the accessibility to banking institutions like any other public service gets affected with distance.
Take the case of Paschim Champaran in Bihar, one of the most backward districts of Bihar. It has 17 administrative blocks and one of them is Sidhaw, a remote tehsil consisting of 158 villages. In this block, there are only 2 banks and 15 post offices whereas the district has 187 branches.
Paschim Champaran is an example of the unequal geographical spread of financial institutions at micro level.
However, finance ministry officials defended the government move. A senior government official, on condition of anonymity, said, “Access to financial inclusion is a 50-year-old problem. This will definitely lead to short-term inconvenience but it is a one-time problem. The government could not possibly give more time because the parallel economy will derive some new method of bringing the cash into the system and defeat the purpose.”