The government’s plan to expand bank branches in the North-East is largely a signal for big banks to step in and open branches in the region, industry experts said.
Union Finance Minister Nirmala Sitharaman in her Budget address in Parliament on July 23 said that the government will open more than 100 branches of India Post Payments Bank to expand banking services.
Barring the plan to bring in more structured banking and finance processes in the underbanked region, experts said that the initiative is a signal for big banks to step in as the region has seen rising stress of the microfinance industry (MFI) and bad experience of some banks in the past.
“Some small finance banks and a bank which has a high exposure in the region saw high delinquencies in the past. MFIs have been lending at high rates there. Hence, we may see that the government wants to bring in more banks in the region,” said a senior executive of a bank operating in the region, refusing to be identified.
Additionally, Gaurav Dixit, director of BFSI at CareEdge, said that the thought process behind the government’s move is to bring in more banking processes in the region. “Historically, north-eastern India has largely been an under-banked and scattered region for financing. Banks in the past have not had a good experience too. And the government would now be looking at more a holistic approach,” he said.
Under-banked, high pressure
According to information from the central bank, the physical banking access in the North-East is lowest with only 19 branches per 1,000 square kilometres.
An article titled, Financial Inclusion through Microfinance – An Assessment of the North-eastern Region of India, released in December 2022 showed that in 202–21, the physical access to banking was the weakest in the North-East and the intensity of bank credit usage captured by credit to net state domestic product (NSDP) ratio was also the lowest at 24 percent.
Additionally, the article highlighted that the credit-deposit (CD) ratio was 43 percent in the North-East as compared to 70 to 90 percent in South, North and West.
Being one of the credit-challenged regions, often impacted by natural calamities, lenders charge very high interest rates in the North East. In fact, Moneycontrol had on June 19 reported that some MFIs and non-banking financial companies (NBFCs) in the region are charging high interest rates of around 40 percent on some loans. The central bank has also started sending out warnings to NBFCs and MFIs for this.
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