Change the way banking is done

India is rapidly accelerating on the digital economy highway and currently boasts of a superior ecosystem that has fostered a thousand innovations across the spectrum. We have already reached a century when it comes to unicorns in startups with a total valuation of $332.7 billion. It is now said that one in 10 unicorns in the world were born here.

In this context, it is not surprising that digital loans are also attracting the attention of banks and policy makers. As we celebrate our success in IT, the foundation of a country’s success is that the fruits of development reach the last person.

The government’s initiative to set up 75 Digital Banking Units (DBU) in as many boroughs is indeed a major step to bring more people into the fold of the modern economy. Even today, 65% of the population of our country lives in rural areas. There are up to 6,40,000 villages in our country and a significant population of these villages is still beyond the reach of formal credit for various reasons. We have some 53,000 bank branches in the villages. Thus, on average, a bank branch serves about 12 villages. But it’s not uniform. In some states and in underdeveloped regions, one bank branch serves 20 or even more villages.

In most states, and especially in eastern India – Bengal, Bihar and Odisha – the share of the number of accounts held by small and marginal farmers is disproportionately small compared to their actual number. Again, this does not include landless farmers, oral tenants and sharecroppers. Most people in rural areas are still not comfortable going to a bank branch and using the help of agents/middlemen. But they are comfortable with a friendly branch manager from a bank who can understand their language and their requirements. These 75 new DBUs will play a major role in breaking down these barriers and encouraging customers to manage their banking needs and seek more services from their lenders. This initiative has the potential to break the chain where many people in rural India continue to rely heavily on informal sources of credit.

DBUs will focus on educating customers and engaging potential customers on a digital journey. Emphasis will also be placed on cybersecurity awareness and safeguards. A customer recourse mechanism will also be put in place to address the grievances of customers in the order zone. This is indeed a bold move to facilitate digitalization in rural areas. There are 775 districts in the country and this experiment which is carried out in approximately 10% of the districts could be extended to other districts in the future.

Bringing the post offices, which is another budget announcement, under a basic banking solution will go a long way in improving the reach of the rural population to the formal banking network and the formal credit network. The existing 53,000 bank branches and say another lakh postal bank in rural areas will bring the number of villages per bank branch down from 12 to maybe 4/5. Commercial correspondents can continue to play their role of “Bank Mitra” side by side. The story of transfer payments has been a huge success story from its humble beginnings in 2016 to today, when NPCI is aiming for 1 billion transactions per day over the next 3-5 years. In the same way, these DBUs can usher in the next generation reforms in the Indian banking sector.

The author is a senior adviser to the Indian Banks’ Association. Views are personal.