KARACHI, Aug 27: It has been made mandatory for banks to open branches in rural areas to provide banking access to the people who are still in a majority as compared to urban population.

The major decision was taken by the State Bank by making amendment in its branch policy which provides guidelines to banks and also approves expansion plan of a bank.

“At least 20pc additional branches are planned to be opened by banks under annual branch expansion plan, and will be opened in “rural or underserved areas,” said the State Bank on Monday.

The SBP is encouraging banks to provide banking services in rural areas but banks are been reluctant to open branches.

The obvious reason is that banks have been making huge profits without reaching rural areas. The decision was taken to enhance financial penetration of the banking system, said the SBP.

However, credit penetration in agriculture sector has substantially increased in the last three years.

Private commercial banks, which never showed interest in lending to the agriculture sector, increased their loans to a very high level.

The SBP defines the term “Rural / Underserved Areas” which means villages and small towns and also include those Tehsil headquarters where no branch of any bank already exists.

The other reason for sending banks to rural areas is massive liquidity generated during the last five years in rural areas.

The record wheat, rice and cotton crops created wealth in rural areas which should be the attraction for banks.

Banks have been expanding their branch network in urban areas with lavish branches.

The SBP said banks interested in opening branches or sub-branches in “Rural/Underserved Areas” over and above the requirement, can approach the State Bank any time for permission to open such branches.

“Their requests will be considered as per criteria prescribed in the Branch Licensing Policy,” said the SBP.