Expanding banking services to rural areas

Too many banks, too few clients in cities and towns
Maswood Alam Khan
In our cataclysmic business environments, a bank is still trusted as one of the few institutions where people get a little bit of service like depositing money, drawing cash, availing of a loan, etc. Well, at least it was so a few years back. Of course, the services, in terms of catering banking facilities to quality clients, have of late deteriorated, especially in state-owned banks. On the other hand, exorbitant fees are being charged in private banks, to the detriment of fixed income groups.

With the introduction of online and Automated Teller Machine (ATM) banking services in the city and urban areas in Bangladesh there have been significant improvements in the over-the-counter banking services. With an ATM card a bank client can now enjoy fast and convenient banking round-the-clock. Thanks to ATM, an account holder, without having to go to the bank premises, can step onto an ATM booth and use the keypad of the machine to withdraw cash, transfer funds, enquire about his balances, and ask for other online services — 24 hours a day, 365 days a year. There would soon be a time, hopefully, a bank client, like in the western countries, will be able to deposit even cash and cheques and get authenticated receipts of the respective deposits through the same ATM machine. What is needed is efficient maintenance of the ATM machines through seamlessly wired and wireless networking so that an ATM card-holder is never frustrated for any breakdown of an ATM machine.

The other day I went to a bank branch in Banani to do some banking around 11 in the morning, usually a rush banking hour. I was surprised to see that compared to about two dozens of employees in the branch there were only three clients. The reason behind such low presence of clients in a bank is there are too many banks in the locality and clients avoid coming to bank branches unless their physical presence is essential in connection with sanctioning loans or other accommodations related to import or export. Clients and customers hardly come to a branch for other retail banking. Cities like Dhaka, Chittagong, Khulna, Sylhet and many other important towns have surprisingly been teeming with banks and the country has already been over-banked with more than 47 banks, some 29 non-bank financial institutions, and many non-government organisations (NGOs) doing quasi-banking trades competing with each other to grab extremely limited market shares. Adding to woes of smaller local banks, foreign banks have beefed up their presence in Bangladesh and taken away lucrative investment banking businesses.

In the whole world when the old banks are getting merged to minimise cost and survive the latest financial crisis and in Bangladesh when the existing banks are up to their neck in liquidity crises, the government’s recent decision to award licences for opening new banks would undoubtedly stifle the healthy growth of banking industry in Bangladesh, if the proposed new banks are allowed to open their outlets in urban areas.

It is understandable that the new banks are being approved on some political considerations, taking literally no cognisance of their financial viability. Bangladesh Bank, the central bank, being the regulatory authority of the banking sector, must be aware of the over-banking situation in our country and we believe that the central bank must have attempted to take their position against the government’s move to give licenses to new banks. But, unfortunately, policy makers in our government become unreasonably helpless when there is a pressure from lobbyists to do something that may benefit more personal than national interests.

Anyway, if the central bank is compelled to give licenses for new banks there should be some provisions in the licenses so that 100 per cent of their new branches are first opened in remote rural areas at the Thana levels so that rural people can get some benefits and the loads on the branches of the state-owned and other banks in those areas can to some extent be shouldered by the new banks. The new banks may be given some realistic targets to fulfill their obligations in rural banking businesses before they are allowed to open their first branch in an urban area. They should not, however, be allowed to open their branches in any metropolitan area unless they satisfactorily achieve their respective targets in rural and urban areas in different phases.

The Financial Express, in their recent editorial dated March 18, 2012, pointed out that the move to grant licenses to a few more new banks has caused many to raise their eyebrows. The editorial rightly suggested the central bank to concentrate their attention more on the quality of the members of the boards of directors of the proposed banks and especially the colour of money they would be investing as their paid-up capital.

What is important is banking automation also in rural areas, connecting both rural and urban people with the best of modern banking. The Central Intelligence Bureau (CIB) of Bangladesh Bank may take a gigantic step to create an exhaustive data base of all the bank clients in rural areas, including the agricultural borrowers, so that a new bank can easily find out the credit worthiness of their clients in a new area without investing much of their time and manpower resources in screening the loan applications. There need also to be a system by which the banks in rural areas can deploy their resources to do mobile banking, meaning selling their products from door to door through their mobile agents, just like the walking vendors selling their products at the doorsteps of the customers. Such mobile banking has been very effective in India and Malaysia. In addition, ATM machines should extensively be installed in urban and rural areas including the villages.

Given the inefficiency of some banks in implementing their production plans, Bangladesh Bank should examine technical and scale efficiency of all the banks in urban and metropolitan areas which is characterised by an over-banked system and identify the differences in efficiency between domestic and foreign banks as well as small and large banks before determining where the new banks should be allowed to operate, and in what scales, in different phases of their growth with a view to developing a homogenous enlargement of our banking industry.

E-mail: maswood@hotmail.com


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