The Banking System and Rural India

M O D E R N economy may he called "bank economy" . The bank ing

system spares the ind iv idua ls and ti le communit ies the t rouble of stock­p i l i ng bu lky chattels and enables them to attain domestic security and transact business by means of ever-negotiable bank accounts.

For once it has been necessary to say the obvious, because bank ing has been the target of vicious pol i ­t ical attack and multi-slinging f r om Lef t and Right over several decades. However, banks were func t ion ing in the Fascist and Nat ional Socialist countr ies yesterday in spite of their repeated denunciat ion of " interest s lavery" . They are operat ing in the Communist countries today, in spite of some of the more picturesque propagandist al legations, compar ing bank directors to leeches.

That pol i t ic ians on the extreme Right as wel l as the extreme-Left ended up by adapt ing, instead of destroying, the hated banks, is no indicat ion of a change of heart. They may have merely discovered that banks are indispensable for the admin is t ra t ion of an up-to-date eco­nomic system, whatever the pol i t ica l complexion, racial composit ion or social phi losophy of the government.

It is not a mere theory, but a very tangible fact that banks, as the co­o rd ina t ing centres and observation posts of economic act ivi t ies, trans­cend national as wel l as ideological f ront iers in this modern age. At the present stage of development, banks are alone capable of usher ing the surplus product ion, — and surplus product ion does exist even in the poorest distr icts of the poorest coun­tr ies — into product ive investment and thus promote technical progress and human welfare. When we speak about "underdeve loped" terr i tor ies, we could more accurately use the term ' ' under -banked" terr i tor ies.

The p r i nc ipa l cause of India 's economic p l igh t is therefore the melancholy fact that eighty per cent of the country has so far remained outside the bank ing network. I t is, in consequence, a v i ta l p rob lem, and not just fo r a certain section of the publ ic , but for the ent i re nat ion, what can be done to extend the bank ing faci l i t ies to the ru ra l areas?

There is hardly any c i rculat ion of money in the very small vi l lages,

even where the popu la t ion is not exactly poor. The local labourers and craftsmen receive payments in k i n d , so does the vil lage Brahmin fo r his rel igious services. Even the vi l lage bania may not be able to change one single rupee-note.

In the larger villages or smal ler townships, however, there is a con­siderable volume of commerce, busy bazars, even some industry . There are usually several large, comfortable and recently re-decorated houses test i fy ing to the material wel l -being of the inhabitants. In such locali­ties there must be Some amount of bankable savings wh ich could be p ro f i tab ly integrated into the blood­stream of the national economy.

The Barclays Bank f r o m London had recently a very encouraging ex­periment wi th its publ ic i ty campaign in Niger ia . They used the medium of the f i lm screen, simple language and wi t ty cartoons. Since there are at least occasional cinema shows in the larger Ind ian vil lages also, the experience of the Barclays Bank may have some bearing on the stra­tagem to be devised for this country . However, mak ing people bank-cons­cious is only p a r t - and the smaller pa r i—o f the problem here. The real difficulty is how to make bank­ing services available to the well-to-do in the rura l communi ty .

The opening of branches by the large banks in the vi l lages—even in the largest ones would not be a pract ical proposi t ion for a very long l ime to come. A novel approach has therefore to be devised for the in ject ion of the hidden wealth in the countryside into the veins and arte­ries of the nation's f inancial system.

The best solut ion, in theory at least, appears to he the establish­ment of a " R u r a l Bank ing Society" w i th the par t ic ipat ion of India's leading banks. Wh i le direct Gov­ernment association w i th the project might not be desirable, the official circles would have a f inger in the pie through the State Bank of Ind ia in any case.

Such an agency could set up its offices in some of the prosperous rura l and agr icu l tura l centres, pre­ferably in co-operation w i th several leading local merchants and fa rm-ers whose presence on the board

would create popular confidence. Wh i l e banks, according to the natu­ral scheme of things, usually seek to collect deposits before grant ing loans, in the case of rura l Ind ia we may have to put the cart before the horse for the sake of long-term benefits.

Even by grant ing local loans wi th the max imum of security and mak­ing investments w i th the m i n i m u m of r isk, the Rural Bank ing Society would create in the vi l lagers the necessary goodwi l l towards itself and its operat ions. 'Green Credi t ' to farmers against the new crop, the f inancing of small f ru i t -bo t t l i ng plants in the h i l l y regions, fish-tann ing works at the seaside places, land reclamation and improvement projects in the purely agr icu l tu ra l distr icts could offer a sui table outlet for short- term, comparat ively safe and potential ly lucrat ive exploratory activi t ies.

Once the vi l lagers are convinced that the Rural Bank ing Society is a he lp fu l f r iend and a wise counsel, the possible in i t ia l distrust w i l l melt and the local cash w i l l find its way f rom underground hide-outs, hay-slacks and pi l low cases into the sav­ings books and current accounts. Especial ly i f the "exp lo ra to ry invest­ments" by the Rural Banking So­ciety prove effective in increasing the villagers" income, the borrowers of yesterday w i l l come forward as the depositors of tomorrow. The new Society w i l l thus gradual ly uni fy the hi therto separated economies of urban and rura l Ind ia fo r the bene­fit of both.

Obviously there would not be enough funds and experienced per­sonnel to cover the entire country wi th Rural Banking Societies r ight f rom the beginning. However, It would certainly be worth the whi le and the risk to inaugurate a small pilot project in one of the reason­ably prosperous and comparat ively "daco i t -p roo f " areas. Wh i l e the government has undertaken numer­ous commendable schemes to util ise the vast natural resources of the sub-continent, the l ime has come to attempt the mobi l isat ion of the hi therto equally untapped f inancial resources of Ind ia 's extensive ' 'backwoods' ' .

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George A Floris

THE ECONOMIC WEEKLY July 2, 1960