The crumbling down of the Ponzi empire in West Bengal following the Saradha Group scam may prove to be a gain for banks.
While a certain portion of funds, parked in such schemes in lure of high returns, might find its way into safer havens including bank deposits, a lot will depend on the financial inclusion initiatives undertaken by banks, say economists and senior bank officials.
Poor penetration
“There is certainly a chance for reverse flow of funds into safer havens. However, we need to see how well prepared banks are to tap these funds which come primarily from rural and semi-urban areas where banking penetration is still very low,” said Abhirup Sarkar, professor at Indian Statistical Institute.
According to Sarkar, lack of proper regulation and the failure of formal financial institutions, including banks, to penetrate into rural areas were the key reasons for mushrooming of such schemes across the State.
“Penetration of bank branches in the rural and semi-urban areas is poor, particularly in the East and North-Eastern parts of the country. The concept of business correspondents suggested by the Reserve Bank of India has also not taken off too well in these regions,” he said.
Well Geared
The flow of funds into bank deposits will depend on how well banks can rejuvenate their older schemes and implement newer schemes and products in the future, he pointed out. Banks on their part, however, feel that they are well geared to tap these funds.
According to S. Chandrasekharan, Executive Director of UCO Bank, the presence or absence of banking services cannot be blamed for the mushrooming of such schemes.
“People usually fall prey to such schemes in lure of high returns and this is evident from the fact that a large number of investors in such products are from the city where banking penetration is high. Moreover, most of these schemes are sold at their doorsteps by people or agents who are known to them,” he said. In rural areas where financial inclusion has still not happened in a big way, banks will look at strengthening the business correspondent model by setting up customer service point (CSP) kiosks, he said.
These funds, if channelised into banks, would directly reflect in the CASA (current account and savings bank account) deposits, he said.
“It is early days yet to understand the exact impact of the crisis on bank deposits. But it is only a logical human reaction that during such times people tend to move towards safer havens,” said Sunil Shrivastava, Chief General Manager of State Bank of India, Bengal Circle.
SBI Bengal Circle has witnessed a reasonable growth in deposits last fiscal, he added.