Bank services concentrated in urban areas: NRB report

KATHMANDU, MAR 12 -

‘Going rural’ may be the buzzword in the banking industry, but urban areas are where banks and financial institutions (BFIs) do most of their business. This is what the latest report of the Nepal Rastra Bank (NRB) shows.

Urban areas account for more than 95 percent of deposits mobilised and credit disbursed by BFIs, according to the NRB report. As of the first six months of the current fiscal year, BFIs collected Rs 908 billion (95.3 percent) of their total deposits of Rs 952 billion from urban areas, while they lent Rs 714.93 billion (97.1 percent) out of their total lending of Rs 735.94 billion to those areas.

Among the urban centres, Kathmandu Valley tops the charts in terms of both deposit collection and credit flows. The Valley contributed 65.9 percent to the total deposits of BFIs, while it received 61.8 percent of credit in the first half.

“This (the situation) is largely due to BFIs not reaching out to rural areas,” said NRB Spokesperson Bhaskarmani Gnawali. “If not, there are immense possibilities of deposit mobilisation and lending in rural areas, as remittance inflow is robust there.”

Poor banking penetration in rural areas is also evident with the fact that 82.8 percent of BFI branches are in urban areas. There are 1,876 BFI branches in urban centres out of the total 2,265 branches in the country, according to NRB.

Gnawali said the central bank has been encouraging BFIs to go to rural areas by providing interest-free loans to open branches in specified 22 remote districts. The Monetary Policy for the current fiscal year states that the central bank will provide interest free loans of up to Rs 5 million to BFIs for opening branches in headquarters of those districts and Rs 10 million for expanding branches outside headquarters.

“We have also adopted a policy of allowing BFIs to open new branches in the Kathmandu Valley only after they open a branch in relatively less-banked 30 districts and one outside the Kathmandu Valley,” said Gnawali.

National Planning Commission (NPC) Vice Chairman Dipendra Bahadur Kshetry said the lack of entrepreneurship in rural areas has also discouraged BFIs to go there. “Promotion of schemes like ‘Youth Self-Employment Programme’ would help spur credit demand in the rural areas,” said the former central bank governor.

Bankers say the concentration of banks in urban areas is a natural phenomenon as economic activities mainly take place in those areas. They, however, said they are making efforts to reach out to rural areas too as the urban market is saturating. “We have introduced ‘FINO’ (a branch-less banking mechanism) to reach out to rural areas,” said Everest Bank CEO PK Mohapatra.

‘FINO’ enables villagers to deposit their money through transaction machines using smart cards. Mohapatra said his bank also plans to open an Agriculture Enterprise Development Department in Rajbiraj to promote agriculture in the next one-and-a-half months.

Despite rural people’s poor access to formal banking, there has been some improvement over the last decade. The number of people having access to bank branches within 30 minutes increased to 39.9 percent in 2010-11 from 27.8 percent in 2003-04, according to Living Standard Survey 2010-11.

Geographical Distribution of Deposits

Urban     95.3 percent

Rural    4.7 percent   

Geographical Distribution of Credit

Urban    97.1 percent

Rural    2.9 percent

Geographical Distribution of BFI Branches

Urban    82.8 percent

Rural    17.2 percent

Geographical Distribution of Deposits by BFI Class

Commercial Banks

Urban     96.5 percent

Rural    3.5 percent

Development Banks

Urban    84.6 percent   

Rural    15.4 percent

Finance Companies

Urban    97.7 percent

Rural     2.3 percent

Geographical Distribution of Credit by BFI Class

Commercial Banks   

Urban    98.2 percent

Rural    1.8 percent

Development Banks

Urban    88.9 percent

Rural    11.1 percent

Finance Companies

Urban     99 percent

Rural    1.0 percent

Geographical Distribution of Branches by BFI Class

Commercial Banks

Urban    88.5 percent

Rural    11.5 percent

Development Banks

Urban    66.6 percent

Rural    33.4 percent

Finance Companies

Urban    91.1 percent

Rural    8.9 percent

Source: Nepal Rastra Bank/ Kantipur