Social Banking in India:Myths and Realities

Abstract

The post independence economic planning in India revolved around the expansion of financial institutions to rural and un banked areas with the basic objective of expanding access to formal credit in rural under developed regions. The Government of India initiated a revolutionary concept of social control of banking for operational flexibility and effectiveness. In July 1969, 14 commercial banks were nationalized through newly formulated Bank Company Acquisition Act. Branch Expansion and Priority Sector Lending became the main engines of the social banking concept. The policy of branch expansion led to an increase in number of bank branches through out the length and breadth of the country. Similarly Priority Sector Lending envisaged 40 percent of net credit of all scheduled commercial banks to priority sectors of the Indian economy. Ironically even after six decades of independence, 45.9 million (51.4 percent) farm households in the country do not have access to credit, either from institutional or non institutional sources. Further, despite the vast network of bank branches, only 27 percent of the farm households are indebted to institutional sources. The concept of financial exclusion is of complex nature and it also varies widely across regions, social groups and assets holdings. This article makes an attempt to analyze the various constructs of Social Banking in India. It also makes an assessment regarding the prevailing scenario of financial exclusion in India.