MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Mandates Banks Open 25% of New Branches in Rural Areas; Banks May Offer Only Limited Financial Services

The Reserve Bank of India (RBI), the country’s central banking authority, recently published circulars that will require new and existing banks to open one quarter of new branches in towns with populations of less than 10,000 people in an effort to further the government’s financial inclusion agenda. An unnamed senior official from a public sector bank is quoted as saying that the banks would “have to work out cost-effective ways to open branches in rural areas,” such as providing only basic banking services, at least for an initial period.

The circular covering new banks also requires that they submit “realistic and viable” plans for their approach to financial inclusion. This circular is available at: http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=24975

By Rohan Trivedi, Research Associate

About the Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

Sources and Additional Resources:

[1] Business Standard: “Financial inclusion mandatory for new banks, says RBI”, http://www.business-standard.com/india/news/financial-inclusion-mandatory-for-new-banks-says-rbi/447500/

MicroCapital.org story, August 15, 2011: “MICROCAPITAL BRIEF: Indian Government Publishes Draft of Microfinance Institutions Bill, Would Make Reserve Bank of India (RBI) Sole Regulator, Establish Microfinance Development Council, Microfinance Development Fund”, https://www.microcapital.org/microcapital-brief-indian-government-publishes-draft-of-microfinance-institutions-bill-would-make-reserve-bank-of-india-rbi-sole-regulator-establish-microfinance-development-council-microfinance/

MicroCapital.org story, July 26, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India Urges Banks to Increase Credit Provision to Micro- and Small-Sized Enterprises”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-urges-banks-to-increase-credit-provision-to-micro-and-small-sized-enterprises/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/

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