STUDY OF RURAL BANKING IN INDIA

INTRODUCTION
Rural banking is banking that is done in an area that is not close to towns or cities,
making it difficult for those who need to conduct banking business. Many times a bank
agent will come to the rural area to offer basic banking services. The goals of rural banks
are to provide banking services to the rural/ village population of India. Rural banking is a
common practice in places where banking institutions are few and far between and
people who need to carry out banking transactions may have difficulty finding a way to
do so. With modern technology, more and more people have access to online systems
that allow them to conduct certain types of banking without a nearby branch but this
technology is not available for everyone and demand for rural banking is still high in
some areas. Rural banking is the process of conducting banking transactions out in the
country where bank branches are too far away to be of use. Rural banking is popular for
very small towns and farmers who live far away from areas of larger population and
cannot make the drive to these locations even when they need to use banking services.
Typically an agent of the bank will visit these rural locations and offer to make
transactions in an official capacity.
The regional rural banks were established with a view to developing the rural economy
by providing, for the purpose of development of agriculture, trade, commerce, industry
and other productive activities in the rural areas credit and other faculties, particularly to
small and marginal farmers, agricultural laborers artisans and small entrepreneurs and
for matters connected therewith and incidental thereto. The institution of Regional Rural
Banks (RRBs) was created to meet the excess demand for institutional credit in the rural
areas particularly among the economically and socially marginalized sections. In order to
provide access to low-cost banking facilities to the poor, the Narasimham Working Group
proposed the establishment of a new set of banks, as institutions which combine the
local feel and the familiarity with rural problems which the cooperative possess and the
degree of business organizations ability to mobilize deposits, access to central money
markets and modernized outlook which the commercial banks have.
The multi-agency approach to rural credit was also to sub serve the needs of the input
intensive agricultural strategy, that is, the green revolution, which by the mid seventies
was ready to spread more widely throughout the Indian countryside. In addition the
potential and the need for diversification of economic activities in the rural areas had
begun to be recognised and this was a sector where the Regular Rural Banks could play
a meaningful role.
A rural bank focuses on providing savings and credit services to people who live in rural
areas. The financial products offered respond to the needs of its clients. A rural bank is a
smaller size in assets than the very large banks. It is located generally in smaller cities
and concentrates in making loans and other services to that immediate locations Earlier
commercial banks hesitated to open the rural branches due to profitability, infrastructure
etc. So the government of India and Reserve Bank of India decided to open a new
banking channel i.e. regional rural banks. These banks were allowed to work within a
district. The focus of regional rural banks was to provide finance in the agricultural sector
only. They were not allowed to finance vehicles, housing, business loans etc. The salary
of regional rural banks was less than the commercial bank. The capital sharing of this
district level was 50% of sponsored commercial banks. 35% of the central Government
and the remaining 15% of the state Government. The competition in the banking sector
changed all basic rules.
The regional rural banks were allowed to finance in every sector. The salary of the
employees of the RRBs is equal to commercial bank employees. The sponsored banks
were allowed to merge the different district regional rural banks within a [Link]
banking has become integral to the Indian financial markets. With the majority of the
Indian population still living in rural or semi urban areas, the Government of India and
Reserve Bank of India have been continuously working to achieve complete financial
inclusion, that is, timely and sufficient access to financial services and credit at an
affordable cost in the vast expanse of our country.
Pradhan Mantri Jan Dhan Yojana is one of the recent initiatives by the BJP Government
which has definitely contributed to bringing banking to every household. This scheme
with time will significantly reduce the gap between rural and urban areas in terms of
financial inclusion. But the fact that about 70% of the population of India is still rural and
the penetration of banking facilities is as low as only 24%, i.e., only this percentage of
people in these areas have formal bank accounts, cannot be ignored.
Various Regional Rural Banks have been set up under the Regional Rural Banks Act,
1976 to provide a continuous source of credit for agriculture and other activities. These
banks were set up with the aim of reaching every corner of the country and cater to
financial needs of rural society comprising small and marginal farmers, agricultural
laborers, self-help groups, artisans etc. The credit to weaker sections was made
haggle-free and given at cheap or concessional [Link] has also encouraged the
spread of these banks by undertaking the following:
1) Allowing non-target group financing for RRBs
2) Recapitalisation and restricting of RRBs
3) Simplification of banking procedures as per Gupta committee recommendations
4) Special credit plans
5) Kisan credit cards
6) Deregulation of banking rates
7) direct financing for SCBs
8)Various relaxations in investment policies and non-fund business
9)Allowing direct access to refinance assistance at concessional rates for RRBs
These initiatives have promoted the banking culture by making formal credit available to
rural households. These facilities have helped to steer the agriculture dominated
economy towards modernisation. The bank has to keep in mind subtleties of the rural
culture and understand that the rules of rural economy are different from urban
dynamics. However with increased mobility and connectivity the urban and rural
integration has increased and many factors which made the urban landscape have come
to mark rural settings as well. This has led to diversification in activities and people have
started to look at other factors of employment too Agricultural activities have also been
significantly commercialized with increased role of cash crops.
Thus, banks are getting a strong demand for credit for both agricultural and
non-agricultural uses. Bankers however, have to pay attention to these little cultural cues
and customer profits and accordingly carry their services. The staff has to identify with
rural customers who are not used to banking procedures and need extra assistance at
every step. This will help customers to avail full benefit of banking without any hesitation.
The Pradhan Mantri Gram Sadak Yojana or PMGSY is a nationwide plan in India to
provide good all weather road connectivity to unconnected villages. The centrally
sponsored scheme was introduced in 2000 by then Prime Minister of India Shri Atal
Bihari Vajpayee. The Assam Tribune has reported that the scheme has started to change
the lifestyle of many villagers as it has resulted in new roads and upgradation of certain
inter-village routes in Manipur.
The objective of the Swarnjayanti Gram Swarozgar Yojana (SGSY) is to bring the
assisted poor families above the poverty line by ensuring an appreciable sustained level
of income over a period of time. The objective is to be achieved by inter alia organizing
the rural poor into Self Help Groups (SHGs) through the process of social mobilization,
their training and capacity building and provision of income generating assets. The SHG
approach helps the poor to build their self confidence through community action
interactions in group meetings and collective decision making enables them to identify
and prioritize their needs and resources. This process ultimately leads to the
strengthening and socio-economic empowerment of the rural poor as well as improve
their collective bargaining power.
The main purpose of Regional Rural Banks is to mobilize financial resources from
rural/semi-urban areas and grant loans and advances mostly to small and marginal
farmers, agricultural laborers and rural artisans. The area of operations of RRBs is
limited to the area as notified by Government of India covering one or more districts in
the state RRBs also perform a variety of different functions RRBs perform various
functions in following heads. Providing banking facilities to rural and semi-urban areas.
Carrying out government operations like disbursement of wages MGNREGA workers,
distribution of persons etc. Providing Para-Banking facilities like locker facilities, debit
and credit cards
IMPORTANCE
Rural development has to play a vital role in the overall socio-economic development of
a country like India, where the majority of the population lives in rural areas. The rural
sector affects directly or indirectly almost all the economic activities in the country and
provides employment to the maximum number of Growth of Rural Banking in India
NOTES Self-Instructional 20 Material people. A large part of the revenue of the
government is also generated from rural regions. The necessity of rural finance arose
because moneylenders, landlords and traders etc. exploited farmers and small
entrepreneurs by charging exorbitant rates of interest and forcing farmers to sell their
products at a low price to them. Rural people also face the risk of unpredictable
production of crops due to high dependency on monsoon. They also suffer from lack of
seeds, fertilizers, water supply and other facilities which lead to rural indebtedness. In
India, more than 70 per cent of the population live in rural areas. Obviously, in any
development planning, rural development has to be a priority. Finance being the most
important part of any development process, providing banking facilities drew the
attention of the policy makers since independence. Cooperative banking structure made
its appearance long before that in the British era in 1904 and the Reserve Bank in 1935.
But the real effort in rural banking started in the 1950s with the All India Rural Credit
Survey 1954.
Subsequently the All India Rural Credit Review in 1969 introduced social banking for
commercial banks of the government that are also generated from rural regions. The
necessity of rural finance arose because moneylenders, landlords and traders etc.
exploited farmers and small entrepreneurs by charging exorbitant rates of interest and
forced farmers to sell their products at a low price to them. Rural people also face the
risk of unpredictable production of crops due to high dependency on monsoon. They also
suffer from lack of seeds, fertilizers, water supply and other facilities which lead to rural
indebtedness.
In India, more than 70 per cent of the population live in rural areas. Obviously, in any
development planning, rural development has to get a priority. Finance being the most
important part of any development process, providing banking facilities drew the
attention of the policy makers since independence. Cooperative banking structure made
its appearance long before that in the British era in 1904 and the Reserve Bank in 1935.
But the real effort in rural banking started in the 1950s with the All India Rural Credit
Survey 1954. Subsequently the All India Rural Credit Review in 1969 introduced social
banking for commercial banks followed by bank nationalization.

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