Forest of branches

A few weeks ago,during his Budget speech,Finance Minister Pranab Mukherjee announced that the UPA intended to ensure that,in its current term,all places with more than 2,000 residents would have some sort of access to banking facilities. Financial inclusion of that order requires some pretty ambitious plans from individual corporations: and hence the statement by the chairman of the State Bank of India SBI to Wednesdays Financial Express that the SBI is planning to massively increase the number of banking correspondents,or BCs,on its rolls. BCs are individuals or small enterprises that will accept deposits and remit money on behalf of the bank,as well as serving as local providers for the banks basic financial schemes for example,insurance plans.

The SBI plans to add 15,000 new BCs over this financial year. To say that this is a substantial increase is something of an understatement: the number that the SBI currently has on its rolls is negligible. But we could very well be at the threshold of a transformative moment: a sign marking an SBI franchisee might become,soon,as ubiquitous in our villages as the yellow sign for an STD/ ISD PCO became in the 90s. And as revolutionary,too,as were those PCOs. This goes beyond the oft-mentioned hope that increasing the number of accounts will aid in the payment of NREGA wages,or in keeping tabs on the leakage in other social sector schemes; no,the prospect here is that the smallest of enterprises or the poor,self-employed Indian will fundamentally alter the way they manage their risk or pay their creditors.

Most crucially,as the Raghuram Rajan report on financial inclusion pointed out,increasing the size of the formal banking sector will aid in the process of creating a coherent structure within which credit history is built up meaning that disbursement of credit can become more efficient and targeted. But the states pushing of its own banks can only go so far. What is needed is for it to aid private banks into the sector: their cost-cutting ethic is precisely what this sort of no-frills expansion will require.