‘Urban Bias’ in the Flow of Funds and Deposit Mobilisation:Evidence from Karnataka, India

Until banking sector reforms were introduced in India in 1991, the emphasis in the credit provision through formal banking system was to meet the targets at the expense of the quality of credit and viability of the banking system. The policies after 1991 stipulated the banks to continue to meet targets on credit to socio-economically deprived sections and sectors. At the same time, banks were asked not to neglect the viability of the banking system. This paper examines the impact of such contrasting policies on the flow of credit and deposit mobilisation in rural and urban areas in Karnataka State, India. The paper argues that as bankers consider deposits a means for security, easy and attractive deposit schemes should be introduced in rural areas. This not only enhances the creditworthiness of rural dwellers but also ensures them more formal credit.