227
9
Branch Banking: A Costly Neglect and the Imperatives
of Resurrecting the Rural Financial Architecture
Recognisedly, an outstanding aspect of banking development after the
nationalisation of banks in July 1969 had been the rapid growth and territorial
spread of branch network all over the country, particularly in rural and semi-
urban areas as well as in underdeveloped regions. From a base of a little over
8,000 bank branches in 1969, the presence now of over 96,000 branches
indeed represents an unprecedented growth of scheduled commercial banking
in India. However, the bulk of this expansion took place before the 1990s. In
the first two decades (1970-1991), 53,537 branches of scheduled commercial
banks were added, that is, 2,550 branches per year. But, thereafter in about a
16-year period until March 2007, only 8,987 branches had been added, that
is, 562 branches per year or about one-fifth of what was achieved until the
1990s.
While some slowdown was expected after the initial spread at a rapid
pace, it is the neglect of rural areas that stands out. By the early 1990s, the
number of bank branches operating in rural areas had crossed 35,000 or
about 57% of the total number of bank branches operating in the country
(as per the centres with 10,000 of population classified based on the 1981
population census data at that time). Reclassification of the areas based on the
1991 census to an extent contributed to the bringing down of the number of
rural bank branches from 33,017 in March 1995 to 32,981 in March 1996. But,
thereafter, on a comparable basis, the number of rural branches had steadily
come down to as low a figure as 31,967 by March 2005 (Table 9.1) by mergers
and swapping of rural branches. Again, partly due to the reclassification of
centres based on the 2001 Census, the number of rural branches had declined
to 30,610 in March 2006 and further to 30,393 in March 2007.
It is significant that the first Narasimham Committee Report - I on the
Financial System (November 1991) had specifically recommended that “each
public sector bank should set up one or more rural banking subsidiaries to
takeover all its rural branches” and that the operations of regional rural banks
(RRBs) should be expanded to embrace all types of banking business (
ibid
.
pp.76-78). Thus, the imperative of continuing with the expansion of branch
banking in rural areas and underdeveloped regions was recognised even by
the Narasimham Committee – I (1991). Earlier, there was a branch expansion
programme monitored by the RBI which got disbanded. On the expiry, on March
