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Technology Helps Rural Banking to be Profitable

There will be a change

The banking sector in
India has witnessed a
complete transformation
in its operations both in its
functioning and delivery
of services. Today
technology being the
main driving force for
businesses has enabled
banking customers to sit
back at home and operate
their accounts without
walking into the banks for
anything and everything.
As the advancement of
technology has taken
place with immense use of
internet, mobiles and
online bill payments
banking sector in India has
got a new facet
Now the focus has been
shifted to rural banking as
most of the banks have
become technology
enabled and it has been
made compulsory for all
Indian banks to open at
least one-fourth of their
incremental branches in
the rural areas. As the
operational expenses of
the public sector banks
have shot up extensively,
it has become a huge
problem for the public
sector banks to open up
and run them, making the
rural banking profitable.
Rural operations to be
more profitable: Crisil
But to sustain themselves
in the present scenario
banks have to be
profitable. According to
research done by the Crisil
Research it has been
predicted that if the public
sector banks efficiently use
technology with higher
business per branch and
low cost banking channels
then they can make their
rural operations more
profitable in the next five
years. A Crisil report called
‘Falling costs, technology
tailwinds for rural
banking’ has said, “In the
last five years, business
per branch in the rural
areas has grown at a
compounded annual
growth rate of 7% despite
the overall branch
network growing at 9%
annually. The economies
of scale are set to increase
further in the years to
According to the report,
the recently launched
Pradhan Mantri Jan Dhan
Yojana will boost the
profitability of the public
sector banks in the rural
India. Under this scheme,
by opening up at least on
bank account for each and
every household in the
country, the “financial
untouchability” can be
eliminated once for all.
The report also states that
the Jan Dhan Yojana
currently causes
challenges for the banks
but it would increase
business per branch in the
longer run.
Business correspondents’
role and revenue
It has been estimated by
the Crisil that Rs 100 to Rs
110 is the cost per
transaction in rural
branches whereas the cost
per transaction in urban
areas is Rs 70 to Rs 85. The
business correspondents
enable a transaction at Rs
5 or Rs 7 which is a 15th
of the cost of a branch
with hand-held devices or
by the help of their small
stores. It has been
predicted by the Crisil
researchers that with the
help of technology like
cloud computing, mobile
and virtualization and low
cost channels like business
correspondents, the
business will expand in
the near future.
Presently, for most of the
business correspondents
of the rural areas, the
remuneration they are
getting from the banks or
the corporate business
correspondents is not their
only source of income as
they are either having
their own grocery shops
or STD booths or they are
farmers and also local
panchayat members. So
this business is their only
side business. So it has
been seen that though the
compensation is much
lower but this model can
be sustainable.
Cost of transactions to fall
Crisil said that at present
these business
correspondents are
contributing 8% to 13% of
total liability based rural
transactions which can
grow to 25% - 30 % in the
next coming years and
they are only utilized for
liability based
transactions, for example,
deposits and payment
related ones. They have
also predicted that by
fiscal 2018–’19 the
number of transactions
through banking
correspondents will be
increased to 752 million
from 329 million in fiscal
2013–’14 as the costs of
transactions fall.
The report also says that
the overall business
growth will be outpaced
by the rural banking
which will reduce the
overall operational costs
with economies of scale.
With more and more
banking facilities available
in the rural areas which
comprise 61.35 % of the
total population of India,
the rural masses play a
very crucial and significant
role in building up the
country’s economy. The
presence of a strong
banking system in the
rural areas will not only
improve and uplift the
Indian economy from its
grass-roots level but also
the rural population will
have scope to participate
and contribute in the
country’s economic
Sanchita Paul
I was born in Kolkata
( West Bengal ) and
studied in South Point
High School. After
completing my Studies I
got a new assignment
shifted to Sikkim and
stayed there for nearly ten
long years. Then after
coming back to Kolkata
again shifted to Delhi. For
me my family is my first
priority. As a

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