Rural and semi – urban areas lead in bank deposits

Posted on November 15, 2016

Household bank deposits from small towns and villages exceeded expectations so far with deposits from towns and villages accounting for more than 50% of the overall deposits in banks so far! The banks in India are struggling to replenish their cash – dry branches and ATMs with new currency notes. On Thursday alone, Kolkata-based UCO Bank received Rs. 2,500 crores from cash deposits. Of this, Rs. 1,300 crores (more than half) came from rural and semi – urban areas, according to Ravi Krishan Takkar, managing director and chief executive officer at UCO Bank.

At United Bank of India, total cash collection on Thursday was approximately Rs. 1,700 crores out of which deposits from rural areas and semi – urban areas accounted for more than one crore! “The urban and rural collections were mostly spread out. There was a lot of collection from rural branches”, a bank official at United Bank of India said. “Huge deposits are likely to affect the loan to deposit ratio of banks. Clearly, the collections have exceeded expectations. We can deploy this cash in a variety of ways. We will see some fall in loan to deposit ratio”, said Pawan Kumar Bajaj, chief executive officer and managing director at United Bank of India. Read more on Deposits

Remarkably, in Assam’s Dibrugarh district alone, total deposits in fifty seven branches of a public sector bank on Thursday, were close to Rs. 50 crores. It was much more than expected. Most of the deposits were from household savings; not many corporates showed up to deposit cash, said a banker at the public sector bank. While banks across the country are rich with cash, ATMs are running dry. “If banks are not able to lift cash quickly, it is going to be a losing proposition for banks”, said the official at the public sector bank. On the bright side, banks across India, expect the number of zero-balance accounts opened under Pradhan Mantri Jan-Dhan Yojana scheme to come down drastically due to the flow of deposits from household savings from mainly rural areas. As on November 2^nd, 2016, the percentage of zero-balance accounts opened under the scheme was close to 23%, while the total deposits stood at Rs. 45,302 crores.

It is heartening to see that a major portion of the deposits done in banks are from rural and semi – urban areas because middlemen play a major role in the money – lending business in these areas. They lend money to people at high rate of interest (40% interest rate) and go to the extent of even killing them if money is not repaid on time. They also cause a loss to the legal banks that run there. Due to this move, people in rural areas have become aware of the procedures to deposit and withdraw money from banks. They have also become aware of the fact that banks are offering loans to them at a lower interest rate than middlemen. They may perhaps choose banks over middlemen next time for depositing money and taking loans. Another bright side of this move is that the number of zero balance accounts opened by the Pradhan Manthri Jan Dhan Yogna scheme has drastically come down and now constitutes only 23% of the total accounts opened by the scheme. Overall, despite the temporary inconvenience caused to people, demonetization is a good move by PM Narendra Modi and his BJP led government. Read more on Startup News