Puducherry, the erstwhile French territory in south India, earlier known as Puducherry, has not promoted any local bank, like the Portuguese-held Goa on the west coast. It was a prosperous region on the east coast known for its exports of textile and other products. Many battles royal were fought here during the19th century between the English and French to possess this territory, not very far from Madras, where the East India Company was in power.

Bank of Madras, promoted by British traders, was operating in Madras from 1843. It had branches in the nearby places like Cuddalore and Nagapattanam.

Indigenous money lending was widely prevalent in Puducherry since long. The French government had set up Monte-de-Pete, a Pawn office in 1827 by an ordinance. Loans were granted to the needy from this office at fairly low rates of interest. A similar office was opened at Karaikal in 1907. Chit funds, locally known as ceetu, were quite popular as an avenue for saving for the middle class people.

The first bank to operate in Puducherry was the Banque de L'indo-Chine, which was established in Paris in 1875. Its operations were mostly in the far eastern countries like China. It opened a branch in Puducherry in 1876 to finance foreign trade, mostly groundnut.

Four enclaves separated by long distances

While the British left India in 1947, the French were in Pondicherry till 1954. From 1 November 1954, Pondicherry became a part of the Indian Union. This Union territory has a unique feature of having four enclaves separated from each other by vast distances. Karaikal is 160 km away from Puducherry, located near Thanjavur district. Yanam in the north at a distance of 840 km is near East Godavari district in Andhra Pradesh. Mahe, located 653 km away on the west coast, is surrounded by Kannur district of Kerala.

Indian Banking Companies Act 1949 was extended to the Puducherry territory in 1954, which paved the way for Indian banks to open their branches here. Pondicherry State Cooperative Bank Ltd was established in 1958. Before the establishment of the apex bank, the cooperative societies in Puducherry region were availing credit facilities from South Arcot District Central Cooperative Bank Ltd; cooperative societies in Karaikal region were obtaining credit facilities from Kumbakonam District Central bank Ltd; those in the Mahe region were seeking such facilities from Tellicherry Cooperative Bank Ltd and the societies in Yanam region had to avail credit support from Kakainada Central Cooperative Bank Ltd. During the last fifty years, Pondicherry State Cooperative Bank Ltd has made good progress having opened 20 branches in the territory. The deposits mobilised were Rs.251.54 crore and the advances were Rs.184.19 crore as on March 2008.

By 1961, there were four banks - Indian Bank, Indian Overseas Bank, United Commercial Bank and State Bank of India - having branches in Puducherry. Karaikal was the other town, which attracted banks. Indian Overseas Bank and State Bank of India opened branches here in the early 1960s. United Commercial Bank Ltd (now UCO Bank) opened its branch in Karaikal in 1973. Canara Bank came shortly thereafter.

First local bank

The first bank to be registered in Puducherry is Puduvai Bharathiar Grama Bank, which was inaugurated by P Chidambaram, Union finance minister on 1 June 2008 at Puducherry. It is a regional rural bank, registered under the Regional Rural Banks' Act 1976 and is sponsored by Indian Bank. The paid up capital is one crore rupes owned by the Government of India, Government of Tamil Nadu and Indian Bank in the ratio of 50:15:35. With its headquarters in Puducherry, it is expected to operate in rural areas in the union territory. In fact this bank is the first regional bank to be opened 27 years after the last regional rural bank was opened. As the regional rural banks were undergoing the process of amalgamation during the last couple of years, no new rural banks were expected to be sponsored. This new entrant, therefore, has come up as a surprise.

The inadequacy of rural banking can be measured by the small percentage of rural branches in this union territory. There are only 21 rural branches out of the total number of 104 bank branches. As against the national average rural branch ratio of about 40 per cent, the ratio in Puducherry is not more than 20 per cent. The volume of credit lent in the rural branches is Rs.174 crore as on March 2008, which constitutes less than five per cent of the total bank credit. Mobilising rural deposits to the extent of Rs.342 crore, banks operate with a low credit-deposit ratio of 50 per cent in the rural sector. There is an imperative need for accelerating rural lending and the new credit agency, the gramin bank, has an important role to play in this area.

Progress of Puducherry

Banking sector in Puducherry has made reasonably good progress during the last decade. The number of branches operating in the capital city has increased from 38 to 56 during this period. There is an improvement in the city's ranking in terms of deposit mobilisation. With the increase in deposits from Rs.679 crore to Rs. 3485 crore, its rank among the top 100 banking centres in India has improved from 83 to 75.

All the 20 south-based banks have their branches in Puducherry and among the public sector banks, out of 27 banks, 19 banks are present here. Four of the new generation banks, Axis Bank Ltd, HDFC Bank Ltd, ICICI Bank Ltd and IndusInd Bank Ltd, are also operating here. Among all the banks, which have opened branches in this beautiful coastal city, there is a foreign bank also, Citibank. Its branch has mobilised deposits to the tune of Rs. 22 crore and has lent Rs.9 crore. As there are a large number of local people holding French passports and receiving pension from France, NRI deposits with the banks in the region are substantial. As Auroville, the International city known for its experiment in international living, attracts a large number of foreign tourists, it is but natural that a foreign bank's presence is necessary.

On the credit front, there has been a near nine 'fold increase in ten years. Advances have risen from Rs.241 crore to Rs.1825 crore. In one of the recent meetings of the State Level Bankers' Committee, analysing the current trends in credit deployment, it was pointed out by some of the bankers that slackness in credit expansion was due to the lack of investment opportunities in the union territory.

Indian Bank, the convener of the Union Territory Level Bankers' Committee, has the largest number of branches, 17, followed by Indian Overseas Bank, which has 11 branches. The total number of branches has now crossed the 100 mark. Deposits are in the vicinity of Rs.4700 crore, while advances are nearing the level of Rs.2500 crore. The number of borrowing accounts does not indicate a steady increase during the last decade. Deposit accounts are increasing relatively faster.

The number of branches in the union territory increased from 71 in 1991 to 108 in June 2008; deposits from Rs 313 crore to Rs 4699 crore and advances from Rs 185 crore to Rs 2404 crore during this period.

Regional disparities in the availability of banking facilities in the union territory are inevitable considering the geographical diversities of the four regions. Puducherry and Karaikal have witnessed reasonably good progress in banking development during the last decade. In tune with their limited geographic size, Mahe and Yanam could not find banks making rapid progress. There has been no increase in the number of bank branches in these two regions during the last ten years. Deposits, however, have increased in the case of Mahe, while hardly any improvement could be seen in the volume of deposits mobilised by the banks in Yanam. In the case of credit deployment also there is a marginal increase in Mahe from Rs.9 crore to Rs.52 crore, while banks in Yanam could raise their level of credit outstanding from Rs.12 crore to Rs.23 crore during the decade.

Financial inclusion

Puducherry was in news, when the process of financial inclusion started after its announcement made by the Governor of the Reserve Bank of India in 2005. This union territory was the first one to be declared as having achieved 100 per cent financial inclusion. Indian Bank, launched a National Pilot Project for Financial Inclusion (NPPFI) on 30 December 2005 at Mangalam village, an adopted village of the Bank's Villianoor branch, to commemorate 100 per cent coverage of the village. Banks are reported to have opened 141,245 no-frills accounts during 2007-08.

According to the data available in the 2001 Census, the extent of penetration of banks was not very high in the union territory of Puducherry. It was found that only 24.5 per cent, of the rural households had availed banking services. In the case of urban households it was 35.5 per cent and the combined average was 31.7 per cent. If all the households have been covered now through the opening of no-frills accounts, it would be certainly a positive step in the direction of financial inclusion. However, it may be noted that opening such accounts is not the end of achieving financial inclusion. It is only the beginning of developing the relationship with those who have remained un-reached so far. Banks have to go much beyond this. They have to assess the credit needs of each household and then formulate schemes for extending the much needed credit support at affordable rates tailored to the repayment capacity of the borrowers.

An interesting revelation which one of the rarely quoted publications of the 2001 Census-Analytical Report on Household Assets - makes is about the percentage of households not owning any assets, besides not having any dealings with banks. The assets listed are: radio, television, telephone, bicycle, scooter, motor cycle, moped, car, jeep and van. It is reported that 33.6 per cent of the rural households do not own any of these assets at all. The percentage of urban households having no assets was much lower at 16.1. By inference, 84 per cent of the urban households own some of the assts listed, while in rural areas 64 per cent of the households belong to this category. The rural-urban divide does not appear to be very explicit in the union territory. The population below the poverty line is perhaps one of the lowest at 21.7 per cent according to the 2004-05 estimate of the Planning Commission.

However, the 34 per cent of the asset deprived rural households need greater attention than mere no frills accounts. Their credit needs have to be assessed patiently and sympathetically as the requirements may be very small. Steps have to be taken to ensure that the delivery channels of the banks extend to them the credit support either directly or through the Self Help Groups promoted in the villages. This is a strenuous task, which requires special task forces to undertake the responsibility of mapping the credit needs of individual households.

It is reported that Indian Bank has a proposal to set up rural development and self- employment training institute of the RUDSETI model in Puducherry in the near future. This is a welcome development, where the bank intends to go much ahead from mere account opening to lending and training with a view to enabling the educated unemployed to take up self employment ventures. Incidentally, the Eleventh Five Year Plan has set a target of every district having a RUDSETI type institute by the end of the Plan period. About 600 such institutes are expected to be established by banks with the financial support of the Central and state governments in the form of capital subsidies. The state governments would be providing land and Government of India would meet 75 per cent of the capital cost. Sponsoring banks have to meet 25 per cent of the capital cost besides providing the handholding services like, project consultancy and business counseling; incubation assistance; marketing of the products; and sourcing of credit and raw material supply. The focus would be largely on entrepreneur development programmes.

Very successfully this model has been implemented by the promoters of the RUDSETI model during the last 25 years, extending the experiment from Karnataka to many other states, including Rajastan, Orissa and West Bengal. Such an attempt would not only make financial inclusion more meaningful, but also lead to inclusive growth in the real sense.