Expansion of Financial Infrastructure in India-An Analysis of the Recent Trends

Nationalized banking in India from 1969 to 1991 had a salutary effect on the expansion of the commercial banking system of the country, geographically, locally and sectorally. However, it witnessed deterioration in the efficiency, asset quality and profitability of the commercial banks in the country. Banking sector reforms were launched in the country in 1991, along with general economic reforms, to overcome the limitations of nationalized banking and to improve the efficiency, profitability and productivity of the banks, which have suffered during nationalized banking. However, with the autonomy of operation given to the banks, consequent to reforms, considerable de-banking of the rural areas of the country took place, since the rural branches of the banks were found to be not sufficiently profitable by the banks. This led to the launching of the programme of financial inclusion and inclusive banking in the country in 2006. The Reserve Bank started adopting an interventionist policy of directing the commercial banks to expand their branch network in the rural areas, particularly in unbanked rural centers. This led to an improvement in the availability of banking facilities in the rural areas again, resulting in a process of rural re-banking in the country. This highlights the fact that rural banking and inclusive banking in the country requires deliberate management of the branch expansion policy of the commercial banks in the country by The Reserve Bank of India, so as to promote a balanced spread of the financial infrastructure, essential for attaining financial inclusion and inclusive banking in the country.