Banking Penetration in Tier 2 Cities

Cities are considered to be the engines of growth. These cities provide ample economic opportunities to the people and help in escalating economy overall. Realizing this, Indian government has recently started a thrust to build 100 smart cities in India.

Historically, India is gifted with four metro cities but they are already overpopulated and congested. Attempts are being made to rewrite the growth story via tier 2 cities now. India has 50+ cities with more than a million people. They carry the hopes and aspirations of the new India. These cities are able to provide employment, education and higher standards of living, compared to the rural cities.

When the Government came up with Smart Cities Plan in 2015, the idea was to develop growth centres in each of the Indian state which will expand to nearby regions also. Already state capitals have developed into economic centres where an aspirational class is thriving. With 50+ cities having more than a million population like Jaipur, Patna, Guwahati, Bhuwaneshwar, Kochi,etc. people have changed a lot from last decade. Now they travel through air, communicate via mail or mobile, travel to foreign for holidays, read and speak in English, want to work in MNCs, etc. These cities are positively engaging with their demographic dividend to reap the benefits. Already Internet penetration in urban areas is around more than 50% and mobile connectivity is higher than ever, and with Union Budget focusing on new airports construction the rate of growth of tier 2 cities will be high in coming times.

Moreover, these cities are attracting investments and are left with wider opportunities for business. However, these cities still do not have financial services infrastructure. Easy and affordable access to credit is still not available. There are 141 thousand banking branches in India. Out of this 29 thousand are in Metro cities, while 26 thousand are in other urban areas. However, only 5 crore people live in the four metro cities compared to 34 crore people living in other urban areas. Banking penetration is 7 times lesser in other urban areas compared to Metros. This is not to say that Metros have adequate banking facilities. Several pockets of slums in these cities have little or no branches, and the banking experience well off people is still far from hassle-free. However, the situation in Tier 2 cities is much worse. Without a proper banking infrastructure it is not possible for these cities to fuel the next stage of growth in India. With increasing internet penetration, FinTech companies could replace the traditional banks providing banking solutions to the population living there.

With the Government also focusing upon Rurban Mission (Rural-urban continuum fringe), there is possibility of cities growing along with attached rural areas which will provide boost to the Indian economy by creating jobs and opportunities. Tier 2 cities have the best chances to become pragmatic solution to present day problems of economy, the Government needs to invest positively and pragmatically in these areas.


Abhishek Ranjan is a Research and Policy Analyst to Members of Parliament (MPs) Mr. Ninong Ering and Mr. Dilip Tirkey. He is also working as a Consultant to DTSRDF and University of Chicago’s Delhi Center for Anubhav Lecture Series, and is a Policy Consultant for FinTech startup Credy. Earlier, he was a LAMP Fellow and graduated in Engineering from Manipal Institute of Technology.

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