Spend, Save and Invest Smartly
Rural banking has been the buzzword in banking circles since the 1970’s. SBI had penetrated into rural India to the best of knowledge, surrounded by commercial banks, SBI pioneered rural banking. In the mid-1970’s, the regional rural banks arrived to complement the rural banking mechanism. Rural branches handle a large number of small accounts resulting in poor ‘per-account’ volume of business. This increases the servicing costs with the result that branches are hard put to generate significant profits. Cost-cutting is the only remedy available to boost profits and achieve branch viability. Significant cost-cutting can be achieved if salary outflow is minimized through computerization. But power providing is unpredictable in rural India concomitant investment in infrastructure like UPS is warranted.
The rural customer profile is usually dominated by small farmers, marginal farmers, agricultural laborers, rural artisans, petty traders and transport operators like rickshaw pullers, Tonga wallas. They have been spoon-fed for too long and expect the bank staff to do everything for them – right from filling up the pay-in-slip / withdrawal form and arranging attestation of their left thumb impression as they are illiterate. Big farmers and high net worth individuals constitute a small chunk of the rural population. To attract customers, bankers have to frequently ingratiate themselves with the big farmers and high net worth, by sanctioning loans to their proteges. The staffs of commercial banks is urban-centric and are not inclined to make known themselves with the rural customers, their peculiarities, their problems, etc. This is not to mean that the rural way of life is worthy of emulation and that the urbanites are doing a mistake by refusing to identify with the rural customers.But, to the extent it is warranted in discharging their duties smoothly, bank staff should identify with the rural customers. The level of finance prescribed by the bank is based on unrealistic assumptions. If a certain crop warrants an investment of Rs 20,000 per acre, the scale of finance prescribed by the bank is typically 75% of it, viz., Rs.15, 000 per acre. This is because banks assume that the farmer brings in 25% as mar-gin. The bank underestimates the expenditure on fertilizers since it assumes that the farmer has stockpile manure in his plot. The bank’s easy chair experts who compute the scale of finance have no touch with reality nor do they realise that the Indian farmer is born in debt, lives in debt and dies in debt.
The same is true in the case of dairy loans – the farmer either buys a pedigree cow or risks losing bank finance. Seldom does the banker realise that a pedigree cow is a terribly faddy eater and requires a shed that is spick and span, neither of which the farmer can afford; nor does he know where to vend all that copious milk it yields. Fortunately for the banks, these days some States have permitted retail majors to acquire the produce directly from the farmer. Farmers get a better deal in such cases because the retail major offers a good price, transport and off-loading costs are lower and farmers are paid on the spot in hard cash.