Commercial banking development in India: An analysis of rural urban divide

Rural sector plays a very vital role in terms of contribution to GDP. Even after 75 years of India's Independence, 26% of rural population is living below poverty line as compared to 13.7% of urban poor living below poverty line. Ensuring timely and adequate credit to rural poor can bring them out of poverty. Commercial banks have played a very important role by mobilizing the savings and making them available for those who need it for productive purposes. In order to cater to the financial requirements of rural areas,several government interventions were made which included the nationalization of banks, Lead Bank Scheme, setting up Regional Rural Banks (RRBs) to name a few. Financial Inclusion scheme was introduced in 2005 to ensure increased access to banking services to the neglected poor. Commercial banking system has gone through different phases. The present study has analysed the banking growth and disparities for 1981–2020. CAGR of three basic parameters of branch expansion, deposits and credit have been compared for different population groups to see whether with passage of time rural –urban disparities have converged or not. The analysis led to the conclusion that rural-urban disparities were least in pre-reform phase.With the initiation of reform process, the rural areas were neglected and rural –urban disparities were maximum in this phase. However, the disparities have started to narrow down in post reform phase (2011–2020) due to financial inclusion initiatives.