Even after nearly three decades of `mass banking', the complexion of banking has not changed. At the end of 1996, the rural areas continued to account for a meagre 14 per cent of deposits and 11 per cent of advances while metros continues to dominate with their share of 44 per cent of deposits and 58 per cent in advances.

The banking sector reforms initiated in 1992-93 have further widened the gap between banking facilities in the metro complexes and those available in rural areas. The reforms alerted the banking system to the need for high technology and competitive spirit in banking business in the metro-areas.

The entry of large numberof foreign banks and establishment of nine new banks generated an awareness among public sector banks to be in tune with the Joneses. A large number of computerised branches, ATM centres, tele-banking, credit-cards and debit-cards, SWIFT, SPANS network in cities like Mumbai have altered the complexion of banking in metro-complexes.

The emphasis of the new policy on `profits' has blunted the edge of social banking, so assiduously imbibed into the banking system immediately after nationalisation. The small man is being gradually neglected. Banking is gradually becoming preserve of the few in metro-complexes. However, modern banking technology has remained confined to less than five per cent of the population in the big cities. Metros themselves account for about five per cent of total population of the country.

India lives in villages. The gap between the availability of banking services in metro and other areas is vast and widening. It is an axiomatic truth that metro complexes are more trade andbusiness-oriented and real production base is outside the metro areas. India's export effort will get a boost if the technology percolates to the 95 crore people in non-metro areas. It is a fact that the reforms process initiated since 1991 has bypassed rural India. If the gap in banking development between metro and other areas is to be bridged, special attention to `transfer of technology' to non-metro areas is inevitable.

Ideally, the regional (old) private sector banks having their headquarters at remote areas and yet keeping abreast with the modern technology can work wonders if they are encouraged to percolate the technology to the farm sector. Agro-based industries need to be encouraged for processing, storage and marketing of agricultural products.

The task is enormous and challenging. Twenty-three old private sector banks have added advantage of functioning for more than five decades in their local areas which has brought them closure to the rural community.

All-India public sector bankshave the national ethos although they have a large network of branches in rural areas. Managers of their rural branches, by and large, treat rural posting as two year punishment posting. Their ability, therefore, to mingle with the rural community is limited.

A large number of regional political parties emerged during the last few years mainly because the national parties could not appreciate the regional aspirations in proper measure. The regional parties could clearly study the local needs and aspirations and cater to their regional requirements.

Similarly, old private sector banks have an edge over all-India banks in understanding the requirements of the local people. Therefore, in areas where effective regional banks are non-existent, the authorities should make special efforts to set up regional banks with moderate capital base and local participation. The fate of Local Area Banks continues to hang in air.

A network of regional/local banks spread over different states, with local participation andrural `ethos' will be the ideal agency to take new technology to the rural production and distribution base.

Commercial banking in rural areas will be viable with the development of a variety of business including foreign exchange through agro exports. Private sector banks should have a `correspondent relationship' with metro-based large public sector or foreign banks. This relationship between the regional/local private sector banks and metro-based large banks will be mutually beneficial.

It will generate substantial business for both types of banks simultaneously. The gap in commercial banking will stand reduced since the old private sector banks and the branches of other banks in rural and semi-urban areas will modernise their working, provide export-import facilities to the farm sector and the agro-based industries. The work-culture in rural branches will undergo visible change with technology-based facilities for the staff. A balanced banking structure will thus emerge.

It is necessary topositively look at making use of the existing old private sector banks to modernise rural India, instead of repeatedly harping on the nebulous and impractical merger slogan. Repeated references to their inadequacies in the new competitive environment and the stress on making them "sacrificial goat" will unwittingly demoralise the staff in these banks. Undoubtedly, a strong, efficient and sound banking base is crucial for ensuring effective intermediation in the economic process.

Sound banking, therefore, is the sine-qua-non for prosperous new INDIA. Sound banking, however, is not coterminous with the `size'. In the words of C Rangarajan, former Reserve Bank of India governor: "It is important to note that bigness is not synonymous with success". Therefore, merging the old private sector banks to bring them to respectable `size' is not the proper remedy for ushering in an efficient banking structure. The policy intent should be to encourage a large number of small banks to concentrate on their niche areawith modern technology and bring about economic development of their region. This will ensure balanced banking structure which is crucial for economic development and social stability.

The author is chairman of United Western Bank Ltd