The nation is trying a massive financial experiment, Initially called demonetisation and war on terrorism/black money. It has slowly morphed into a war on the informal sector and efforts to bring every transaction into the banking system.
To bring every transaction into the banking system we need a robust banking infrastructure. If every employer pays his staff via bank transfer’s then the staff should be able to withdraw their salary without major expenditure of time.
For the conversion to a formal economy to be technically feasible and successful similar convenience should be available in the rural and non metro sector.
Any service, in order to be used, should be available and convenient. For a person currently doing cash transactions, once he receives his salary he can perform a cash transaction for obtaining goods and services with zero transaction delay. Once the employer of such a person is asked to be a part of formal economy and pay salary via bank transfer, then the employee needs to perform an additional step of first withdrawing the salary from the bank.
The very first question that needs to be answered is, is the new process(banking) as easy as the old? does the employee need to spend additional time to receive his salary? if yes, how much?
The additional time required to withdraw his salary depends on two things
The readers of this article may have 6-7 banks and around 8-10 ATM’s within 1 KM radius of their home and office. Under normal circumstances their banking burden is at most a few minutes of effort to withdraw cash from the nearest ATM while running errands.
If visiting the bank required a bus journey to the district/taluka headquarters and/or standing in a queue for hours then, will we exhibit the same banking pattern?
A customer would prefer to have his Bank or ATM next door so that he can transact with minimum hassle.
For the bank to provide a service point (either a branch or an ATM) the questions are…
If the answer to any of these question is negative, then the banks will not be willing to provide the required banking service in that region.
Banks are not in the business of saving/salary account maintenance. They are in the business of lending other peoples money. To setup a branch office staffed with a manager, accountant, cashier, teller, guard etc. requires investment in terms of lakhs of rupees per month for salary alone, to this we should also add the building rental, networking infrastructure, IT, electricity, transport and other costs.
An analysis of a profitable rural bank finds:
With 82% of Indian villages having a population of less than 2,000. (The districtwise median rural population is 1428.8272 persons.)
The branch in the above study would support 35.6936 villages. Providing near home banking would mean increasing the banking density to say, one branch per village.
The expenditure required to run these additional branches will be more or less equal to the expenditure required to run a single branch. Since the population served has reduced from 51000 to 1428.8272 people it will result in a fall in the per branch income impacting profitability.
Having established nearness of the bank as one of the criteria for transition to formal economy, Let us see what is the average distance between bank branches in each district.
(Note the numbers calculated here are optimistic as a majority of bank branches are typically found in the district headquarters which will actually result in greater distance for rural places in the same district.)
Looking at the Branch density per district we find a few interesting things.
The median banking area in India is 26.569 sq km. per bank.
While the long tail goes on for thousands of Km, the histogram of the area covered by banks tells us that very few districts provide banks within 10 km radius to their citizens.
Since banks are in the business of lending other people’s money, you will typically find banks at places where their business is.
Taking the example of a place like Bhopal we find.
Bhopal city(area 463 sq km) is a part of Bhopal District(2772 sq km) and out of the total 556 branches in the district, the city has 501 branches. The remaining 501 villages and 2 towns share the remaining 55 branches.
Some of the districts with more than 70% bank branches in the District HQ are
In general Urban Centers, Metro’s etc will have banks at every kilometer or even less and in every locality while tens of villages will share one bank among them. At the worst end of the spectrum, the nearest bank may be hundreds of Km away.
To answer the second question, i.e. how long the line/wait time is we need to observe the theoretical count of the number of people served by Banks.
Note, This again suffers from an optimistic estimation error as there will be more banks in the urban sector and less in the rural. Taking the example of Bhopal the urban population/bank density is 3826.4491 people/bank and the rural density is 8254.7273 people/bank.
If we expect every person to hold a bank account and transact at least once each month with his bank, then we need to estimate whether the banks can serve the population properly.
Currently the median population served per bank would be 10394.9721 people/bank.
When the population map is compared with the area map we find that While the north, the south and to some extent the west has a good ratio of bank to the population, the Gangatic region and the east which has a good area wise distribution cannot service its population.
Central India fails on both the metrics, area as well as population.
Currently some of the heavily overburdened banks are
|627||SOUTH GARO HILLS||MEGHALAYA||4||471.8||35584||142334|
|630||KURUNG KUMEY||ARUNACHAL PRADESH||2||3020.0||46038||92076|
and the less burdened ones are
|LAHUL & SPITI||HIMACHAL PRADESH||16||865.062||1973||31564|
We are doing a spatial analysis of the bank locations across India. Instead of taking individual Bank locations we are aggregating the banks at the district level.
The data sources are
While this is better than taking the national average which would treats a metro like Bangalore or Mumbai to be equivalent to a remote village in Bihar. A district level analysis will still give a skewed result as the district headquarter or a major commercial zone will attract most of the banks.
When we speak of cashless economy, It requires certain components, A credit card or an e-wallet, (Mobile) Broadband connection etc.
Recent reports (Nov 30 2016 http://economictimes.indiatimes.com/tech/internet/indias-low-broadband-penetration-a-concern-trai-chairman/articleshow/55705295.cms ) put the average broadband penetration in India at 7%
If we count both broadband and narrowband internet this number raises to 24% (12% rural and 49% Urban) Places like Bihar register rural internet numbers as low as 6.77%. (Source http://www.trai.gov.in/WriteReadData/PIRReport/Documents/Indicator-Reports-Mar12082015.pdf)
Unless this number rises to near 100% from the current 7% Digital economy may remain just a dream.
The code used to create this report and associated files are available at https://github.com/DataDrivenPolicy/India/blob/master/src/Banks.Rmd