Government is the Source of the Problem!

Another NYT story said:

"India's drive to become a global economic powerhouse faces a huge roadblock in its inefficient, largely state-controlled financial system, analysts say. Two-thirds of India's banking business is conducted through less than 5 percent of its branches...An estimated 70 percent of Indian citizens are still not part of the banking system, while bureaucracy and inefficiencies are countering the benefits from faster growing parts of the economy, say political leaders and economists."

Can the government do anything about this?

Nope according to the story because of strong resistance from the 750,000 public bank employees, who have strong unions.

Another reason is that "[a] large part of the population is still dependent on the banking system for small requirements,"said Amitabh Verma, joint secretary of banking operations in the Ministry of Finance. Big companies are not the primary concern, he said. Corporations with international ratings"have an alternative,"he said, while these individuals do not.

Read more here.

That makes me wonder, if state-banking is indeed so effective in meeting the poor people's demand for financial services, then why is micro-finance arrangement so popular in India. Afterall, aren't all these micro-finance mechanisms set up specifically for meeting those very same demand of the poor people. Read this.