Banking for the Poor : A GLM Study on Small Finance Banks in India

Greater financial intermediation has a positive impact on economic development of a country and banks can play a stabilizing role in an era of rising income inequality. Despite numerous models such as priority sector lending, SHG model, Correspondent banking, RRBs, UCBs, etc. the agenda of financial inclusion is yet unmet. A new entrant in this market is RBI's recent innovation – “small finance banks” (SFBs) which have a stated vision of financial services for the poor. RBI data shows that low-income states (LIS) and north-eastern states (NES) have a total of 85.7 million low-income households, having an estimated unfulfilled credit demand of INR18.3 trillion and the potential to save INR21.4 trillion. The focus of the current study is the deposit and credit activity within the SFB segment. The current study does an empirical analysis of last six financial quarters – since the launch of SFBs, using GLM repeated measures model to draw out emerging trends in terms of banking services to poor states (LIS/NES). Data provides evidence that deposit taking and credit giving activities are divergent activities, influenced by varying factors. There is a clear indication that banking business got affected by Demonetization in quarters 1 & 2 of financial year 201718. Year on year deposits have grown but more so from non-poor states, credit issuance seemed to have had a non-poor tilt earlier but now since the last 2 quarters it seems to favour LIS/NES