Banks and Inequality: Evidence from a Nationwide Branch Expansion Policy

Abstract We analyze the causal impact of a nationwide bank expansion policy on economic inequality in India using a regression discontinuity design (RDD). The findings reveal significant reductions in both consumption and wealth inequality, driven by economic growth and structural transformation. We document strong ‐convergence in consumption and income, with middle‐income households experiencing the largest relative gains, underscoring the role of financial access in accelerating upward mobility. Our results demonstrate that bank expansion fosters economic diversification, supporting nonagricultural development and narrowing regional disparities. This paper contributes to the literature by providing evidence on how large‐scale financial inclusion policies reshape regional inequality dynamics and drive inclusive growth in developing economies.