When the RBI announced recently that its Financial Inclusion Index had jumped from 64.2 to 67 this year, celebrating “significant improvement,” it painted a rosy picture that masks a troubling reality. The Department of Financial Services too has been trumpeting achievements in bringing banking to the masses, but scratch beneath the surface and you’ll find a story of declining rural bank presence and over-reliance on unstable intermediaries.
The government’s financial inclusion narrative centers heavily on ‘bank mitras’ or banking correspondents. These foot soldiers of the banking system have supposedly revolutionized access to formal banking through initiatives like Jan Dhan Yojana and direct benefit transfers, finally bringing rural India into the financial mainstream.
Yet this success story obscures a darker trend that should alarm anyone genuinely concerned about inclusive banking. Rural bank branches, which once represented the backbone of India’s banking democratization, are disappearing at an alarming rate. The gains made through bank nationalization – from a paltry 18% rural presence in 1969 to nearly 60% by the 1990s – have been systematically eroded, leaving rural areas with just 29% of bank branches today.
The human cost of this retreat is stark. With nearly 30 farmers taking their own lives daily, according to National Crime Records Bureau data, the connection between credit starvation and rural distress becomes impossible to ignore. Agricultural workers, facing stagnant wages and diminishing access to formal credit, find themselves trapped in a cycle of desperation.
This transformation didn’t happen by accident. It follows the blueprint laid out by consulting giants like Boston Consulting Group, which champions banking “reforms” that prioritize operational efficiency over human accessibility. BCG has been particularly vocal in praising the government’s 2018 EASE reforms, advocating for what they euphemistically call “branch equivalence” – essentially replacing physical bank branches with bank mitras to slash operational costs.
The question that emerges from this strategy is fundamental: efficiency for whom, and at what human cost?
The reality of India’s 17.2 lakh business correspondents tells a sobering story. These banking foot soldiers operate without job security, fixed income, or benefits. Their numbers have actually declined by 2.27 lakh in just the past year, suggesting that even this supposedly sustainable model is cracking under pressure. Many struggle to earn an adequate income and end up working for multiple banks, NBFCs, and insurance companies simultaneously. Reports of unauthorized commission-taking from customers highlight the regulatory blind spots in this system.
To prevent Bank Mitras from Unionisation they are forced to work under Corporate Business Correspondents who themselves have NBFCs like Muthoot finance. They take upto 30% of the commission earned by Bank Mitras. What a tragic exploitation by a welfare state?”
The consequences ripple through rural India, where the absence of reliable formal credit has created fertile ground for predatory lenders. NBFCs with usurious rates, digital loan sharks, and gold finance companies have rushed to fill the void left by retreating bank branches.
In the latest State of Microfinance in India Report, the NABARD itself acknowledges that the waiver of a cap on interest rates for NBFC lenders are leading to exorbitant rates and pockets of indebtedness. The same has been echoed by the RBI on multiple occasions in recent years wherein the Governor has even said that the NBFCs are misusing the freedoms that they have been allowed. But effectively, the policy landscape has only been opened up to allow for the mushrooming of these usurious practices affecting the common people’s access to credit. In fact, just like the Bank Mitras, they are also being celebrated for their so-called impact on “financial inclusion”. So, when the RBI celebrates the rise in its Financial Inclusion Index, we must qualify it with the experience of the countless people in our countryside whom we have forsaken in the hands of these modern day moneylenders.
This article was originally published in Bank Beats, a fortnightly magazine by AIBOC, and you can read it here
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