Rural banking penetration still poor, shows new Crisil index

Underlining the inadequacy of the government's efforts to spread banking to rural areas, a new index launched by research and ratings agency Crisil shows that the country's six large cities have 11 per cent of all bank branches, while four districts in the north-eastern region have only one bank branch each.

These findings were announced on Tuesday as finance minister P Chidambaram launched the Crisil Inclusex, India's first financial inclusion index.

The index currently focuses on the banking sector. It has a scale of 0 to 100, with parameters such as spread of branches, deposits, and credit penetration. Data from 200,000 data points and 165 banks will be included.

The Inclusix found that efforts at financial inclusion over the past three years are having an impact, with deposit and branch penetration on the rise.

"The Crisil Inclusix score at an all-India level has improved to 40.1 in 2011, from 37.6 in 2010 and 35.4 in 2009," a statement by Crisil said.

It added that the Inclusix measures financial inclusion at both the national as well as the state-specific level. The current report is based on analysis of data for the year ended March 2011.

Crisil found that the improvement of credit penetration has been crucial in the improvement of scores of the 50 most backward districts. "The increase in number of borrower accounts in these districts accounted for about 30 per cent of the aggregate incremental borrower accounts, while accounting for just 8 per cent of the population," it said.

The findings also show that the southern region leads in financial inclusion, followed by the western states and then the northern states. The eastern and north-eastern region stood at the fourth and fifth place respectively in the Inclusix; and the report stressed the need to enhance deposit, credit and branch penetration in these states.

Puducherry, Chandigarh, and Kerala are the top three states in terms of financial inclusion while the top three districts are Pathanamthitta (Kerala), Karaikal (Puducherry), and Thiruvananthapuram (Kerala).

"In terms of regions, the urban areas, perhaps not surprisingly, outperform the rural areas, and state capitals score significantly higher than the respective states," the report noted.