Sikkim does not make news very often to find a place in the front pages of national dailies. In October last year, it was in the news when the Board of Directors of the Reserve Bank of India met in Gangtok after 12 years.

The emerging banking map

Sikkim became a state of the Indian Union on 26 April, 1975 under the 36th Amendment of the Constitution of India. Tangible economic development of this Himalayan state began only thereafter. Banks also have started increasing their presence in the state since then. State Bank of India opened its first branch in Gangtok in 1976. Other banks followed one after the other. By 1982 there were six branches, many of which were located in the state capital. In the next two years their number increased to 19. State Bank of India has 27 branches in the state now. One of the branches located at Hyumthang is situated at an altitude of 12,000 ft above sea-level.

Central Bank of India has the second largest number of branches 14, of which 13 are in rural areas. Union Bank of India has seven branches. UCO Bank, United Bank of India, and Oriental Bank of Commerce have two branches each. As many as 12 other public sector banks. Gangtok, the small town, being the state capital has as many as 19 public sector banks operating with 26 branches.

Among the private sector banks, Axis Bank Ltd was one of the earliest banks to step into Sikkim in 2002. It has the unique distinction of having installed an ATM at Thegu near the Nathula Pass, which is the highest point in India. HDFC Bank Ltd, ICICI Bank Ltd and IndusInd Bank Ltd have also their presence in Gangtok.

For a population of 5.40 lakh, Sikkim has 73 bank branches. The population-branch ratio works out to be 7605, as against the national average of 15,000. Considering the geographic peculiarities of this state and the inadequacies of communication and transport facilities, Sikkim cannot be counted among the highly banked states based on the per branch population data.
Sikkim State Cooperative Bank Ltd was established as late as in 1998, while in other states, the cooperative credit movement was started nearly a century ago. SISCO Bank, as it is known, has six branches in different parts of the state. The share of this bank in the total annual credit plan of the state in 2009-10 is only 5.21 per cent.

Banking development

Banking in Sikkim started in 1968, with the opening of State Bank of Sikkim with state partnership. It was registered under the Registration of Companies Act of Sikkim, 1968 as a statutory corporation. This bank has 22 branches in the state and also has installed an ATM. According to the available information, State Bank of Sikkim does not participate in Service Area Approach under the Lead Bank scheme.

Sikkim Bank Ltd was the other local bank promoted in the private sector. It was operating till 1999 with six branches. It was merged with Union Bank of India on 22 December, 1999.

Data relating to banking development in Sikkim since June 1976, which are available in the Reserve Bank of India publications, provide an insight into the very slow pace of the spread of banking business. It is an indication of the enormity of spadework required to be made by banks to bring to its fold the uninitiated customers. The single branch in 1976 could attract only 3988 deposit accounts having an amount of Rs.2.58 crore and advances amounting to Rs.1 lakh only, availed by 31 borrowers. For a number of years, savings bank accounts were increasing annually by hardly a few hundreds while the number of borrowing accounts could not cross a thousand-mark until 1982. The credit-deposit ratio remained in single digit for over six years, inching up from 2.5 per cent to 7.3 per cent. In no other state, the credit-deposit ratios were found to be remaining at such abysmally low level.

With the increase in the number of branches, the number of savings bank accounts started moving up during the later part of 1980s. When the network of branches widened to include 26 branches in 1989, the number of savings bank accounts rose to 51,149, raising the savings bank deposits to Rs.15.16 crore; total deposit accounts went up to 87,480 and the total deposits reached Rs.73.43 crore. The outstanding level of credit was Rs.30.59 crore, the number of borrowing accounts marginally increasing to15,878. The credit-deposit ratio rose to 41.7 per cent.

Relatively better picture of banking development emerges only after the 1990s. From 1999 to 2008, the number of branches increased from 42 to 71, resulting from the entry of more banks. The customer base widened, with both the number of deposit accounts and the number of borrowing accounts doubling. The volume of deposits increased impressively from Rs.337 crore to Rs.2108 crore. The household sector owns 67 per cent of the total deposits in the state.

It ranks 149 in terms of deposits mobilised by branches. The 26 branches in the capital city have mobilised a total deposit of Rs.1816 crore as on June 2009. On the credit front, however, it is yet to make an entry into the top centres' list.

In 1976, with a single branch operating in the state, the total number of bank staff was only 42. Its size has increased along with the increase in the number of branches to 480 as on March 2008. Of which, the number of female staff is 42 only. Just as the gender ratio for the bank staff is very low, among the bank customers also the gender ratio is quite low. Out of 2.49 lakh deposit accounts, only 0.45 lakh are held by women, accounting for hardly 17 percent of the total accounts.

Changing credit pattern...

The amount of credit sanctioned by the branches in the state is Rs.986 crore as on March 2008. The amount of credit actually utilised by the branches is Rs.1131.78 crore. Credit utilised in the state, but sanctioned by the branches outside is Rs.149.29 crore, while the credit sanctioned by the local branches, but utilised elsewhere is hardly Rs.3.59 crore. Based on the utilisation of credit in the state, the credit-deposit ratio works out to be 53.7 per cent. Outstanding level of credit in the state has reached Rs.1066 crore as on March 2009.

Housing loans, surprisingly, have emerged as the most dominant component of the credit pattern in Sikkim. With an outstanding level of Rs.360 crore, they constitute 31.8 per cent of the total advances as on March 2008. There has been substantial increase in these advances from Rs.1.31 crore in 1998. State Bank group has the major share of Rs.210 crore and the nationalised banks' share is Rs.149 crore.

Industrial advances are the second largest group of advances, amounting to Rs.258 crore and accounting for 22.8 per cent of the total advances. Nationalised banks have lent Rs.166 crore, while the State Bank group's share is Rs.17 crore only. Private sector banks, which are slowly making their presence felt in the banking business, have a bigger share of Rs.75 crore
Other personal loans come next with Rs.152 crore. The number of borrowing accounts here are the highest: 13,673 accounts out of the total borrowing accounts of 40,805. State Bank group dominates in this segment, securing a market share of 66 per cent.

Agricultural sector gets less than four per cent of the total credit. Total number of borrowing accounts of farmers - direct advances - is only 6899 and the amount lent is Rs.38.08 crore. According to a NABARD publication, the amount of credit lent through Kisan Credit Cards by banks in the state is Rs.22.80 crore as on March 2009.

Micro finance is slowly emerging as a source of credit to the low income groups in the state. The number of Self Help Groups (SHG) supported by banks is 1387 with a membership of 16,076 persons. Their savings deposits in the banks amount to Rs.61.96 lakh as on March 2009 according to NABARD. The amount of loans granted to SHGs during the year is Rs.139.42 lakh only.

Future prospects...

Though farming in this hilly terrain is totally different from that in the plains elsewhere, there is enough scope for financing horticulture and floriculture. Exim Bank, which has recently made a study of the Export Potential and Prospects in Sikkim, said: "the agro-climatic diversity enables Sikkim to produce a variety of horticulture and floriculture products for which Sikkim has a comparative advantage from an export perspective. Within this, products which have good potential for exports include large cardamom, orchids, Temi tea, ginger, mandarin orange, medicinal plants and honey." Cultivation of gherkins could be undertaken on a larger scale, considering the soil and climatic conditions of the state.

On the credit front, the State Level Bankers' Committee has formulated a comprehensive credit plan for the state for 2009-2010, taking into consideration the credit needed for the development of priority sectors of the state's economy. The Annual Credit Plan target is Rs.203.80 crore as against the actual level of achievement of Rs.137.25 crore during the earlier annual credit plan;2008-09.

Harnessing the local resources like the hydro-electric potential is of utmost importance. This is necessary for attracting industrial units to step into the state. Tourism has immense scope for development because of the nature's invaluable gifts. The feasibility of setting up a software technology park has to be explored. As directed by the 11th Five Year Plan, the establishment of Rural Development and Self-employment Training Institute (RUDSETI) could be expedited. This model, which has been effective in creating self employment opportunities for the educated youth, without displacement from their homes, could be a great contributor to human development in the state.