rural areas of major states came under adequate banking services coverage as it was only about meeting regulatory guidelines. However, huge part of population living in interior villages is excluded and accumulative figure of exclusion is shocking. Quoting NSSO data, 45.9 million farmer households (51.4%), out of a total of 89.3 million households have no access to credit, neither institutional nor non institutional sources. Moreover, despite the continuously improving network of nationalised banks‘ rural branches, not even one third of total farm households are indebted to formal sources .Farm households lacking access to credit from formal sources as a proportion to total farm households is shockingly high at 95.91%, 81.26% and 77.59% in the North Eastern, Eastern and Central Regions respectively. Thus apart from financial exclusion being large, there is noteworthy variation across regions, groups and communities. The poorer the group, the greater is the exclusion. It is true everywhere irrespective or region, religion, ethnicity or any other identity. Asset holding or lack of it is primary key to understanding financial exclusion pattern. However, there is strong counter view as well. It champions the cause of having few, stronger banking entities by consolidation in the sector rather than creating new banks which would mean more number of banks that are comparatively small. Creation of more banks will increase the competition and customers are supposed to benefit from that. But it is not that easy to say if competition within the banking sector comes with significant benefits, if at all. Competition squeezes margins and forces banks to take increased risk to ensure returns for shareholders and compensation for executives. What happened in 2008 in global finance meltdown can largely be con-
tributed to such a scenario. The advocates for larger banks instead of more banks also argue that in a country with rather shallow financial markets dominated by short term speculative players, where nearly 70% of bank assets are bottled up in cash reserve ratio, statutory liquidity ratio and priority sector lending obligations, leaving only 30% of the kitty to generate returns for shareholders, the environment is ripe for excessive risk-taking if competition increases further in the banking sector. It is important to understand that what we need is variation in banking sector. We need new entities that would not be just a replica of already existing private banks because in that case granting new licenses will simply increase competition in the case. It is not desirable keeping in mind the consumer‘s side is sufficiently protected by ever vigilant RBI. Any further competition in the banking sector will cause much more harm than benefits to the customers, if any. The purpose of creating more banks must be expanding the reach of institutionalised finance. The utility of having new banks has to be measured by how much financial inclusion can be achieved through them rather than their ability to cater to the needs of industry or upper middle class and rich section of the population. With total bank lending less than even half the size of the GDP, Indian banking system is stunted, something which is a boon to unauthorised local money lenders, who occupy the space vacated by the banks. There should be no doubt that we need more banks but new licensing regulations and eventual market player selection must ensure that the very purpose of this expansion activity is not defeated by creating replicas of existing urbanised private banks.
29