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FIs in India can 'pay it forward' with rural branch additions

May 6, 2013

As part of its ambitious plan to extend financial services to India's unbanked population, the Reserve Bank of India is requiring that 25 percent of all new bank branches be located in rural areas. Now the RBI has announced that banks whose rural installations in a year exceed one-quarter of their total branch openings will be allowed to carry forward the overage to the next year's count.

The scheme will run on a three-year cycle, meaning that overages may be carried for two years running after the year in which in the first overage occurred, according to a report by The Hindu Business Line. The three-year scheme will be co-terminus with the country's financial inclusion drive.

"Banks are advised to front-load the opening of branches in unbanked rural centers over a three-year cycle co-terminus with the financial inclusion plan," said RBI governor D. Subbarao. He said that allowing the carryover will help the country to more quickly address an imbalance in in the system.

Currently, a significant majority of financial services are to be found in cities, leaving 41 percent of the adult population of India unbanked.

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