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CHAPTER NO.1
INTRODUCTION TO BANK
HISTORY OF BANKING:Banking in the modern sense of the word can be traced to medieval and
early Renaissance Italy, to the rich cities in the north like Florence,
Venice and Genoa. The Bardi and Peruzzi families dominated banking in
14th century Florence, establishing branches in many other parts of
Europe. Perhaps the most famous Italian bank was the Medici bank, setup by Giovanni Medici in 1397. The earliest known state deposit bank,
Banco di San Giorgio (Bank of St. George), was founded in 1407 at
Genoa, Italy.he earliest evidence of money-changing activity is depicted
on a silver Greek drachm coin from ancient Hellenic colony Trapezus on
the Black Sea, modern Trabzon, c. 350325 BC, presented in the British
Museum in London. The coin shows a banker's table (trapeza) laden with
coins, a pun on the name of the city. In fact, even today in Modern Greek
the word Trapeza () means both a table and a bank.
ORIGIN OF BANKING:The term bank is supposed to be derived from banco, the Italian word forbench, the Lombard Jews in Italy having benches in the market-
place where they exchanged money and bills. When a banker failed, his
bench was broken by the people, and he was called a bankrupt.This
derivation of the term, however, is probably wrong. "The true original
meaning of banco,"says MacLeod,"is a heap, or mound, and this word
was metaphorically applied to signify a common fund, or joint stock,
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formed by the contributions of a multitude of persons."A brief account of
the first banking operations in Venice will dispel the haze enveloping this
subject. In 1171 the financial condition of Venice was strained in
consequence of the wars in which the people were engaged. The great
council of the republic finally determined to raise a forced loan. Every
citizen was obliged to contribute the hundredth part of his possessions to
the State, receiving therefor interest at the rate of five per cent. The public
revenues were mortgaged to secure the interest, and commissioners were
appointed to pay the interest to the fundholders and to transfer the stock.
The loan had several names in Italian, Compera, Mutuo, but the most
common was Monte, a joint stock fund. Afterward, two more loans were
contracted, and in exchange for the money contributed by the citizens, the
commissioners gave stock certificates bearing interest, and which could
be sold and transferred.
DEFINITION OF BANKING:banking business" means the business of receiving money on current or
deposit account, paying and collecting cheques drawn by or paid in by
customers, the making of advances to customers, and includes such other
business as the Authority may prescribe for the purposes of this Act;
(Banking Act (Singapore), Section 2, Interpretation).
TYPES OF BANKING:There are various types of banks which operate in our country to meet the
financial requirements of different categories of people engaged in
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agriculture, business, profession, etc. On the basis of functions, the
banking institutions in India may be divided into the following types:
Central Bank:
A bank which is entrusted with the functions of guiding and regulating
the banking system of a country is known as its Central bank. Such a
bank does not deal with the general public. It acts essentially as
Governments banker, maintain deposit accounts of all other banks and
advances money to other banks, when needed. The Central Bank provides
guidance to other banks whenever they face any problem. It is therefore
known as the
bankers bank. The Reserve Bank of India is the central bank of our
country. The Central Bank maintains record of Government revenue and
expenditure under various heads. It also advises the Government on
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monetary and credit policies and decides on the interest rates for bank
deposits and bank loans. In addition, foreign exchange rates are also
determined by the central bank. Another important function of the Central
Bank is the issuance of currency notes, regulating their circulation in the
country by different methods. No other bank than the Central Bank can
issue currency.
Commercial Banks:Commercial Banks are banking institutions that accept deposits and grant
short-term loans and advances to their customers. In addition to giving
short-term loans, commercial banks also give medium-term and long-
term loan to business enterprises. Now-a-days some of the commercial
banks are also providing housing loan on a long-term basis to individuals.
There are also many other functions of commercial banks, which are
discussed later in this lesson. Types of Commercial banks: Commercial
banks are of three types i.e., Public sector banks, Private sector banks and
Foreign banks.
Public Sector Banks:These are banks where majority stake is held by the Government of India
or Reserve Bank of India. Examples of public sector banks are: State
Bank of India, Corporation Bank, Bank of Baroda and Dena Bank, etc.
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Private Sectors Banks:In case of private sector banks majority of share capital of the bank is
held by private individuals. These banks are registered as companies with
limited liability. For example: The Jammu and Kashmir Bank Ltd., Bank
of Rajasthan Ltd., Development Credit Bank Ltd, Lord Krishna Bank
Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
Foreign Banks:These banks are registered and have their headquarters in a foreign
country but operate their branches in our country. Some of the foreign
banks operating in our country are Hong Kong and Shanghai Banking
Corporation (HSBC), Citibank, American Express Bank, Standard &
Chartered Bank, Grindlays Bank,etc. The number of foreign banks
operating in our country has increased since the financial sector reforms
of 1991.
Development Banks:Business often requires medium and long-term capital for purchase of
machinery and equipment, for using latest technology, or for expansion
and modernization. Such financial assistance is provided by Development
Banks. They also undertake other development measures like subscribing
to the shares and debentures issued by companies, in case of under
subscription of the issue by the public. Industrial Finance Corporation of
India (IFCI) and State Financial Corporations (SFCs) are examples of
development banks in India.
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Regional Rural Banks:Regional Rural Banks were established under the provisions of an
ordinance promulgated on the 26th September 1975 & the Regional Rural
Bank Act,1976 with an objective to ensure sufficient institutional credit
for agriculture & other rural sectors. The RRBs mobilize financial
resources from rural/semi-urban areas & grant loans & advances mostly
to small & marginal farmers ,agricultural ,labourers,& rural artisans. The
area of operation of RRBs is limited to the area as notified by
Golcovering one or more districts in the State.RRBs are jointly owned by
Gol,the concerned State Government & Sponsor Banks (27 Schedule
Commercial Banks & one State Co-operative Bank); the issued capital of
a RRB is shared by the owners in the proportion of 50%, 15% & 35%
respectively.
Co-operative Banks:People who come together to jointly serve their common interest often
form a co-operativesociety under the Co-operative Societies Act. When a
co-operative society engages itself inbanking business it is called a Co-
operative Bank. The society has to obtain a licence from the Reserve
Bank of India before starting banking business. Any co-operative bank as
a society is to function under the overall supervision of the Registrar, Co-
operative Societies of the State. As regards banking business, the society
must follow the guidelines set and issued by the Reserve Bank of India.
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Types of Co-operative Banks:There are three types of co-operative banks operating in our country.
They are primary credit societies, central co-operative banks and state co-
operative banks. These banks are organized at three levels, village or
town level, district level and state level.
1) Primary Credit Societies:These are formed at the village or town level with borrower and non-
borrower members residing in one locality. The operations of each
society are restricted to a small area so that the members know each other
and are able to watch over the activities of all members to prevent frauds.
2) Central Co-operative Banks:These banks operate at the district level having some of the primary credit
societies belonging to the same district as their members. These banks
provide loans to their members (i.e., primary credit societies) and
function as a link between the primary credit societies and state co-
operative banks.
3) State Co-operative Banks:These are the apex (highest level) co-operative banks in all the states of
the country. They mobilise funds and help in its proper channelisation
among various sectors. The money reaches the individual borrowers from
the state co-operative banks through the central co-operative banks andthe primary credit societies.
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Specialised Banks:There are some banks, which cater to the requirements and provide
overall support for setting up business in specific areas of activity. EXIM
Bank, SIDBI and NABARD are examples of such banks. They engage
themselves in some specific area or activity and thus, are called
specialised banks. Let us know about them.
1) Export Import Bank of India (EXIM Bank):If you want to set up a business for exporting products abroad or
importing products from foreign countries for sale in our country, EXIM
bank can provide you the required support and assistance. The bank
grants loans to exporters and importers and also provides information
about the international market. It gives guidance about the opportunities
for export or import, the risks involved in it and the competition to be
faced, etc.
2) Small Industries Development Bank of India (SIDBI):If you want to establish a small-scale business unit or industry,
loan on easy terms can be available through SIDBI. It also finances
modernisation of small-scale industrial units, use of new
technology and market activities. The aim and focus of SIDBI is to
promote, finance and develop small-scale industries.
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3) National Bank for Agricultural and Rural Development(NABARD): It is a central or apex institution for financing
agricultural and rural sectors. If a person is engaged in agriculture
or other activities like handloom weaving, fishing, etc. NABARD
can provide credit, both short-term and long-term, through regional
rural banks. It provides financial assistance, especially, to co-
operative credit, in the field of agriculture, small-scale industries,
cottage and village industries handicrafts and allied economic
activities in rural areas.
FUNCTIONS OF COMMERCIAL BANKS:The functions of commercial banks are of two types.
(A) Primary functions; and
(B) Secondary functions.
Let us discuss details about these functions.
(A)Primary functions:The primary functions of a commercial bank include:
a) Accepting deposits; and
b) Granting loans and advances.
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a)Accepting deposits:
The most important activity of a commercial bank is to mobilise deposits
from the public. People who have surplus income and savings find it
convenient to deposit the amounts with banks. Depending upon the nature
of deposits, funds deposited with bank also earn interest. Thus, deposits
with the bank grow along with the interest earned. If the rate of interest is
higher, public are motivated to deposit more funds with the bank. There is
also safety of funds deposited with the bank.
b)Grant of loans and advances:
The second important function of a commercial bank is to grant loans and
advances. Such loans and advances are given to members of the public
and to the business community at a higher rate of interest than allowed by
banks on various deposit accounts. The rate of interest charged on loans
and advances varies according to the purpose and period of loan and also
the mode of repayment.
(B)Secondary functions:In addition to the primary functions of accepting deposits and lending
money, banks perform a number of other functions, which are called
secondary functions. These are as follows.
Issuing letters of credit, travellers cheque, etc. Undertaking safe custody of valuables, important document and
securities by providing safe deposit vaults or lockers.
Providing customers with facilities of foreign exchange dealings.
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Transferring money from one account to another; and from onebranch to another branch of the bank through cheque, pay order,
demand draft.
Standing guarantee on behalf of its customers, for making paymentfor purchase of goods, machinery, vehicles etc.
Collecting and supplying business information. Providing reports on the credit worthiness of customers. Providing consumer finance for individuals by way of loans on
easy terms for purchase of consumer durables like televisions,
refrigerators, etc.
Educational loans to students at reasonable rate of interest forhigher studies, especially for professional courses.
STANDARD ACTIVITIES OF BANKING:banks act as payment agents by conducting checking or current accounts
for customers, paying cheques drawn by customers on the bank, and
collecting cheques deposited to customers' current accounts. Banks also
enable customer payments via other payment methods such as telegraphic
transfer, EFTPOS, and automated teller machine (ATM).Banks borrow
money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and
bonds. Banks lend money by making advances to customers on current
accounts, by making installment loans, and by investing in marketable
debt securities and other forms of money lending.Banks provide almost
all payment services, and a bank account is considered indispensable by
most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally
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considered an adequate substitute for having a bank account.Banks
borrow most funds from households and non-financial businesses, and
lend most funds to households and non-financial businesses, but non-
bank lenders provide a significant and in many cases adequate substitute
for bank loans, and money market funds, cash management trusts and
other non-bank financial institutions in many cases provide an adequate
substitute to banks for lending savings too.
CHANNELS OF BANKING:Banks offer many different channels to access their banking and other
services:
ATM is a machine that dispenses cash and sometimes takesdeposits without the need for a human bank teller. Some ATMs
provide additional services.
A branch is a retail location Call center Mail: most banks accept check deposits via mail and use mail to
communicate to their customers, e.g. by sending out statements
Mobile banking is a method of using one's mobile phone toconduct banking transactions
Online banking is a term used for performing transactions,payments etc. over the Internet
Relationship Managers, mostly for private banking or businessbanking, often visiting customers at their homes or businesses
Telephone banking is a service which allows its customers toperform transactions over the telephone without speaking to a
human
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Video banking is a term used for performing banking transactionsor professional banking consultations via a remote video and audio
connection.
Video banking can be performed via purpose built bankingtransaction machines (similar to an Automated teller machine), or
via a videoconference enabled bank branch.
BUSINESS MODEL OF BANKING:A bank can generate revenue in a variety of different ways including
interest, transaction fees and financial advice. The main method is via
charging interest on the capital it lends out to customers[citation needed].
The bank profits from the differential between the level of interest it pays
for deposits and other sources of funds, and the level of interest it charges
in its lending activities.This difference is referred to as the spread
between the cost of funds and the loan interest rate. Historically,
profitability from lending activities has been cyclical and dependent on
the needs and strengths of loan customers and the stage of the economic
cycle. Fees and financial advice constitute a more stable revenue stream
and banks have therefore placed more emphasis on these revenue lines to
smooth their financial performance.
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In the past 20 years American banks have taken many measures to ensure
that they remain profitable while responding to increasingly changing
market conditions. First, this includes the Gramm-Leach-Bliley Act,
which allows banks again to merge with investment and insurance
houses. Merging banking, investment, and insurance functions allows
traditional banks to respond to increasing consumer demands for "one-
stop shopping" by enabling cross-selling of products (which, the banks
hope, will also increase profitability).Second, they have expanded the use
of risk-based pricing from business lending to consumer lending, which
means charging higher interest rates to those customers that are
considered to be a higher credit risk and thus increased chance of default
on loans. This helps to offset the losses from bad loans, lowers the price
of loans to those who have better credit histories, and offers credit
products to high risk customers who would otherwise be denied
credit.Third, they have sought to increase the methods of payment
processing available to the general public and business clients. Theseproducts include debit cards, prepaid cards, smart cards, and credit cards.
They make it easier for consumers to conveniently make transactions and
smooth their consumption over time (in some countries with
underdeveloped financial systems, it is still common to deal strictly in
cash, including carrying suitcases filled with cash to purchase a
home).However, with convenience of easy credit, there is also increasedrisk that consumers will mismanage their financial resources and
accumulate excessive debt. Banks make money from card products
through interest payments and fees charged to consumers and transaction
fees to companies that accept the credit- debit - cards. This helps in
making profit and facilitates economic development as a whole.
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PRODUCTS OF BANKING: RETAIL: Business loan Cheque account Credit card Home loan Insurance advisor Mutual fund Personal loan
WHOLESALE: Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Risk management (FX, interest rates, commodities, derivatives)
Banks face a number of risks in order to conduct their business, and how
well these risks are managed and understood is a key driver behind
profitability, and how much capital a bank is required to hold. Some of
the main risks faced by banks include:
Credit risk:risk of loss[citation needed] arising from a borrower who does not make
payments as promised.
Liquidity risk:risk that a given security or asset cannot be traded quickly enough in the
market to prevent a loss (or make the required profit).
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Market risk:risk that the value of a portfolio, either an investment portfolio or a
trading portfolio, will decrease due to the change in value of the market
risk factors.
Operational risk:risk arising from execution of a company's business functions.The capital
requirement is a bank regulation, which sets a framework on how banks
and depository institutions must handle their capital. The categorization
of assets and capital is highly standardized so that it can be risk weighted
(see risk-weighted asset).
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CHAPTER NO.2
INTRODUCTION OF RURAL BANKING
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. The government of India set up
Regional Rural Banks (RRBs) on October 2, 1975. The banks provide
credit to the weaker sections of the rural areas, particularly the small and
marginal farmers, agricultural labourers, artisans and small entrepreneurs.
Initially, five RRBs were set up on October 2, 1975 which was sponsored
by Syndicate Bank, State Bank of India, Punjab National Bank, United
Commercial Bank and United Bank of India. The total authorized capital
was fixed at Rs. 1 crore which has since been raised to Rs. 5 Crore. SBI
has 30 Regional Rural Banks in India known as RRBs. The rural banks of
SBI are spread in 13 states extending from Kashmir to Karnataka and
Himachal Pradesh to North East. The total number of SBIs Regional
Rural Banks in India branches is 2349 (16%). Till date in rural banking in
India, there are 14,475
rural banks in the country of which 2126 (91%) are located in remote
rural areas. There are several concessions enjoyed by the RRBs by
Reserve
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Bank of India such as lower interest rates and refinancing facilities from
NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate
of interest on loans taken from sponsoring banks, managerial and staff
assistance from the sponsoring bank and reimbursement of the expenses
on staff training. The RRBs are under the control of NABARD.
NABRAD has the responsibility of laying down the policies for the
RRBs, to oversee their operations, provide refinance facilities, to monitor
their performance and to attend their problems
DEFINITION: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
whenever they need to use banking services.
OBJECTIVES OF RURAL BANKING:The main objectives of setting up the RRB is to provide credit and
other facilities especially to the small and marginal farmers agricultural
labourers artisans and small entrepreneurs in rural areas.
Bridging the credit gap in rural areas. Check the outflow of rural deposits to urban areas. Reduce regional imbalances and increase rural employment
generation.
Each RRB will operate within the local limits specified bynotification.
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If necessary a RRB will also establish branches or agencies atplaces notified by the Government.
Each RRB is sponsored by a public sector bank which providesassistance in several ways viz., subscription to its share capital
provision of such managerial and financial assistance as may be
mutually agreed upon and help the recruitment and training ofpersonnel during the initial period of its functioning.
To uplift the mass of population residing in rural areas who arecurrently below the poverty line by extending credit to the smallest
scale economic activity.
The approach involves increasing the accessibility of bankingservices to the poor in a commercially sustainable manner.
The institution of Regional Rural Banks was created to meet theexcess demand for institutional credit in the rural areas, particularly
among the economically and socially marginalized sections.
RRBs are expected to make credit available to rural householdsbesides inspiring carefulness.
To take the banking services to the doorstep of rural masses,particularly in hitherto unbanked rural areas.
To make available institutional credit to the weaker sections of thesociety who had by far little or no access to cheaper loans and had
perforce been depending on the private money lenders. To mobilize rural savings and channelize them for supporting
productive activities in rural areas.
To create a supplementary channel for the flow the central moneymarket to the rural areas through refinances.
To generate employment opportunities in rural areas and bringingdown the cost of providing credit to rural areas.
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CHAPTER NO. 3
FUNCTIONS OF RURAL BANKING
Every RRB is authorized to carry on to transact the business of banking
as defined in the Banking Regulation Act and may also engage in other
business specified in Section 6 (1) of the said Act. In particular a RRB is
required to undertake the business of granting loans and advances to
small and marginal farmers and agricultural laborers whether
individually or in groups, and to cooperative societies including
agricultural marketing societies agricultural processing societies
cooperative farming societies primary agricultural credit societies or
farmers service societies primary agricultural purposes or agricultural
operations or other related purposes, and granting loans and advances to
artisans small entrepreneurs and persons of small means engaged in
trade commerce industry or other productive activities within its area
of operation.Regional Rural banks (RRB) were created to provide the
sufficient institutional credit for agriculture to the rural areas of a
state.The function of RRB is to provide loans to the small marginal
farmers and agricultural laborers. However, the functions of an RRB are
limited to a specific area which is specified by the state.Agricultural
growth plays an important role in boosting the economic growth of a
country, therefore, RRB are created as a helping hand to foster the
agricultural growth. Some rural banks also work for the development of
the rural areas.
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Landlords who reside in rural areas also encourage thesebanks to be developed in such areas. In this way rural banks
also provide a way to such people to deposit their money.
Rural banks make collections and payments for the accountof others and perform such other services for its customers
as are not incompatible with banking business.
Rural banks act as financial agent, buy and sell, by order ofand for the account of its customers, shares, evidences of
indebtedness and all types of securities.
Rural banks receive in custody funds, documents, and othervaluable objects, and rent safety deposit boxes for the
safeguarding of such objects.
Rural banks act as correspondent for other financialinstitutions.
Rural banks sell domestic drafts.
Rural banks accept savings and time deposits.
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The Reserve Bank of India has brought RRBs under the ambit of priority
sector lending on par with the commercial banks. They have to ensure
that forty percent of their advances are accounted for the priority sector.
Within the 40% priority target, 25% should go to weaker section or 10%
of their total advances to go to weaker section.
RURAL BANKING DURING 1940S:Farmers need credit that is, loans in order to start up, expand and
survive in the agricultural economy. In the late 1940s, a complex system
of credit institutions fueled good times on the farm. Farmers need two
types of credit. First, they need long-term loans to buy land and
machines. Second, they need short-term loans to buy the "inputs" they
need to farm each year. They need money to buy seed, fertilizer,
herbicides, pesticides and other production items.
In the 1940s, there were four major sources of credit.
Banks are the most obvious sources of credit for farmers. Duringthe 40s, most rural banks were locally owned and operated.
Life insurance companies have been significant ag lenders duringthe 20th Century. With large sums from premiums and the need to
find stable, long-term investments, farming was a good investmentfor the insurance companies.
Individuals and local businesses have been a huge source of creditfor farmers. Relatives or local wealthy people will often loan
money to farmers starting up or expanding. Implement and
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grocery stores will carry farmers on their books until the cropscome in. In fact, in 1930, almost 60 percent of farm debt was owed
to individuals and local businesses.
The federal government has loaned farmers more and more moneysince the government got into the business when it established the
cooperative Federal Land Bank system in the 1916.
A pie chart tracking the percentage of farm debt through the 20th Century
shows that local banks, individuals and businesses extended over 80
percent of the loans to farmers in the late 1940s.
KEY PERFORMANCE INDICATORS:The following trends can be highlighted :
111 RRBs out of total 133 registered profit in the year 2005-06. CD Ratio has been increasing from 46% on 31 March 2004 to 53%
on 31 March 2005 and further to 56% on 31 March 2006.
Recovery percentage has been improving from 73% during 2003-04 to 80% during 2005-06.
Consequently, net NPAs have declined from 8.55% on 31 March2004 to 3.99% on 31 March 2006.
Loans disbursement registered an impressive 35% annual growthin 2004-05 and 21% in 2005-06.
Per branch productivity has increased from Rs. 5.71 crore on 31March 2004 to Rs. 7.66 crore on 31 March 2006.
There has been a decline in the total number of staff.
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REFORM PROCESS OF RURAL BANKING:RRBs started their development process on 2nd October 1975 with
theformation of a single bank (Prathama Grameen Bank). As on 31March 2006, therewere 133 RRBs (post-merger) covering 525 districts
with a network of 14,494.branches. RRBs were originally conceived as
low cost institutions having a ruralethos, local feel and pro poor focus.
However, within a very short time, most bankswere making losses. The
original assumptions as to the low cost nature of theseinstitutions were
belied.When the reform process in the banking sector was initiated, RRBs
were takenup for a close look. The GoI in consultation with RBI and
NABARD started thereform process thru a comprehensive package for
RRBs including cleansing theirbalance sheets and recapitalising them.
Extant lending restrictions were removed andspace and variety available
for investment of their surplus funds was expanded.Simultaneously, a
number of human resource development and OrganisationalDevelopment
Initiatives (ODI) were taken up by NABARD with funding support ofthe
Swiss Development Corporation (SDC) and with the tools of training
andexposure visits, ODI, technology support, computerization and use of
IT, systemdevelopment, etc. for business development and productivity
improvement. By endMarch 2005, there was a remarkable improvement
in the financial performance ofRRBs as compared to the position
prevailing in 1994-95. The number of banksreporting profits went up to
166 of the 196 RRBs. As on 31 March 2006, of the total133 RRBs (post
merger), 111 posted profits and 75 of these RRBs were sustainablyviable
organisations having no accumulated losses as also posting current
profits.GoI initiated the process of structural consolidation of RRBs by
amalgamatingRRBs sponsored by the same bank within a State as per the
recommendations of theVyas Committee (2004). The amalgamated RRBs
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were expected to provide bettercustomer service due to better
infrastructure, computerization of branches, pooling ofexperienced work
force, common publicity marketing efforts, etc. and also derivethe
benefits of a large area of operation, enhanced credit exposure limits and
morediverse banking activities. As a result of the amalgamation, the
number of RRBs wasreduced from 196 to 133 as on 31 March, 2006 and
to 96 as on 30 April 2007. Thus,59under the amalgamation process, 145
RRBs have been amalgamated to form 45 newRRBs.
PERFORMANCE UNDER DOUBLING OFAGRICULTURE CREDIT : RRBS
More importantly, the performance of RRBs under GoI's initiative on
doubling of agriculture credit in three years (from base year 2003-04) and
greater coverage of small and marginal farmers, have been impressive.
They disbursed agriculture loans of the order of Rs. 12,404 crore during
2004-05 registering a phenomenal annual growth of 64% against the
targeted 30%. During 2005-06, agriculture credit flow stood at Rs. 15,223
crore with a growth of 23%. Thus, RRBs have achieved the target of
doubling of agriculture credit in 2 years. RRBs financed 18.58 lakh new
farmers in 2004-05 and another 17.03 lakh new farmers in 2005-06.
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CHAPTER NO.4
REGIONAL RURAL BANKS POTENTIAL
RRB'S POTENTIAL ROLE IN FINANCIALINCLUSION:
Post-merger RRBs represent a powerful instrument for financial
inclusion. Their outreach vis--vis other scheduled commercial banks
particularly in regions and across population groups facing the brunt of
financial exclusion is impressive, as observed from an analysis of Basic
Statistical Returns of the RBI and indicated in the following paragraphs.
With merger infusing the much needed financial strength in RRBs
coupled with the local feel and familiarity they command, RRBs are in a
unique position to play a decisive role in financial inclusion.
Outreach:In rural areas, RRBs account for a substantial 37% of total offices of all
scheduled commercial banks. In semi-urban areas, their share comes to
15%. It goes without saying that exclusion is more severe in rural areas.
Savings Mobilisation:At all India level, RRBs account for 12% of all deposit accounts of
scheduled commercial banks and a meagre 3.5% of deposit amount.
However, in rural areas, RRBs share in deposit accounts is a significant
31% and that in deposit amount 19%. This shows that the average deposit
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amount is lower in RRBs than other commercial banks, thereby implying
RRBs' better reach to small depositors.
Credit Disbursed:At all India level, RRBs account for 18% of loan accounts of all
scheduled commercial banks and 3% of loans outstanding. However, in
rural areas the share of RRBs in loan accounts is an impressive 38%.
More significantly, despite having 38% of all loan accounts, RRBs
account for only 21% of total credit outstanding in rural areas, implying
thereby their better reach to small borrowers. If semi-urban branches are
included, the share of RRBs in credit accounts and amount outstanding is
of the order of 29% and 13% respectively. Both deposit and credit data
indicate that RRB branches in rural areas have performed better in
relation to other scheduled commercial bank branches. However, RRBs
share comes down significantly when data for both rural and semi-urban
areas are considered. This could be due to the fact that branches of other
scheduled commercial banks located in semi-urban areas disburse
considerable loans in rural areas also. This is significant from the point of
view of financial inclusion as rural branches are closer and more active in
extending outreach to remote and interior villages. Viewed from this
angle RRBs are particularly well placed to achieve the goal of financial
inclusion.
Outreach across Regions:The table below points to RRBs significant presence in North-Eastern,
Eastern and Central Regions which manifest financial exclusion of a high
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order. Of all the scheduled commercial banks, RRBs account for 34% of
branches in NorthEastern, 30% in Easternand 32% in Central Regions
whereas their presence is significantly lower (9% to 17%) in other
regions. The data points to the fact that as an institutional group, RRBs
are best suited to take up the leadership role in financial inclusion across
priority areas in States of North Eastern, Eastern and Central Regions
featuring high levels of exclusion.
Savings Mobilisation across Regions:Although RRBs account for only 12% of total number of deposit
accounts at all India level, their share is significantly higher (18% to
29%) in the North-Eastern, Eastern and Central Regions where major
interventions are required for financial inclusion. Further, the share of
RRBs in a region in terms of no. of accounts is significantly higher than
in terms of amount of deposits in the same region. This points to the fact
that they basically cater to small depositors or the small depositors are
more inclined towards RRBs.
Credit Disbursed across Regions:RRBs account for about one third of total number of credit accounts in
NorthEastern, Eastern and Central Regions as against only 18% at all
India level as detailed in the Table below. Further, the average loan
amount disbursed by RRBs is significantly less than by other scheduled
commercial banks. In North-Eastern Region, RRBs account for 36% of
loan accounts but only 13% of the outstanding loan amount. For Eastern
Region, the respective shares are 35% and 6% and for Central Region
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they are 31% and 10%. It is obvious, RRBs command better outreach and
level of comfort for small borrowers.
RRBS AS SELF HELP PROMOTIONINSTITUTIONS (SHPI) :
RRBs have not only provided financial services to the SHG-Bank
Linkage Programme, but have also played a significant role as SHPIs. As
many as 104 RRBs (31 March 2006) are also functioning as SHPIs with
grant assistance from NABARD. Non-availability of good NGOs is a
matter of concern especially in North-Eastern, Central and Eastern
Regions. RRBs can play a vital role as SHPIs in such areas. The
foregoing paragraphs conclusively indicate that RRBs are well positioned
to play a major role in financial inclusion particularly in areas / regions
with high rates of financial exclusion. RRBs were originally created to
cater to neglected sections / areas as they were expected to have sound
financial management combined with local feel and familiarity. With the
amalgamation of RRBs, they have acquired the critical mass in terms of
financial strength to widen and deepen their outreach. With the requisite
strength having been developed, RRBs are the best suited vehicles to
widen and deepen the process of financial inclusion. However, utmost
care must be taken to ensure that in the process of fulfilling the socio-
economic objective of financial inclusion, RRBs' do not again fall into
the vicious circle of deteriorating financial performance and deviation
from their mandate. RRBs may be provided adequate promotional and
developmental assistance to contribute substantially to financial inclusion
in a way that the business generated out of inclusion efforts add positively
to their performance.
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RECAPITALIZATION OF RRBS WITH NEGATIVENET WORTH:
Recapitalisation of RRBs with negative net worth has to be given a
serious consideration as it would facilitate their growth, provide lenders a
level of comfort and enable their achieving standard capital adequacy
ratios. As on March 2004, 98 RRBs were in need of Rs. 3,050 crore for
making the net worth positive. The position, as on 31 March 2006, is that
40 RRBs would require Rs.1,718 crore.
WIDENING NETWORK AND EXPANDINGCOVERAGE:
As on 01 April 2007, RRBs were covering 535 districts. They may be
directed to cover all unbanked areas in these districts, taking the village
as a unit, either by opening a branch (wherever feasible) or through the
BF / BC model in a time bound manner. As on 01 April 2007, 87
districts in the country were not covered by RRBs and their area of
operation may be extended to cover these districts.
STRATEGIC MICROFINANCE PLAN WITHNABARD SUPPORT:
RRBs have the potential and capability to emerge as niche operators in
microfinance. They are playing a major role in the SHG - Bank Linkage
Programme especially also as SHPIs. It is significant that as an institutionthey have the expertise and potential to fulfill both the requirements of
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SHGs - formation plus nurturing and financial service provisions (credit
plus). Their dual role has special meaning in areas which face severe
financial exclusion and which do not have a sufficient presence of well
performing NGOs. However, to upscale theprogramme to a level where it
can really make a visible impact, RRBs need handholding particularly in
the areas of training, promotion and development. NABARD may
provide required assistance. NABARD should prepare a strategic action
plan RRB-wise, for promotion and credit linkage of SHGs. RRBs may be
asked to form, nurture and credit link at least 3,000 SHGs in all districts
covered by them in North-Eastern, Eastern and Central Regions. A
Memorandum of Understanding (MoU) may be signed by RRBs with
NABARD for a period of 5 years - with NABARD providing the
promotional and development assistance out of the Financial Inclusion
Promotion and Development Fund and RRBs forming, nurturing and
providing financial services to SHGs. RRBs may accomplish the task
with the support of individual rural volunteers, BFs, their staff members,etc. NABARD may closely monitor the programme - with focus on
qualitative aspects.
NRFIP FOR RRBS:The strategy recommended earlier in the Report for NRFIP for
commercial banks would be equally applicable for RRBs. Theprocess of
undertaking a survey, identification of excluded households,
dissemination of the information, setting of bank-wise / branch-wise
targets, etc., could be followed. RRBs will have certain handicaps in
executing the Plan. They would require promotional, funding and
technology support in different areas as outlined below. RRBs may
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endeavour to cover a large part of their incremental lending thru the
group mode (SHGs/JLGs) as it will enhance their outreach to the
financially excluded. Lending thru group mode would also keep NPAs
at low level.
PILOT TESTING OF BF / BC MODEL BY RRBS:RRBs should adopt the BF and BC models as a major strategy of
financial inclusion. NABARD should extend the required support
including running pilots in selected banks. The proposal for a technology
based intervention under the BF/ BC model would be equally relevant for
RRBs. However, RRBs would require some handholding in
implementing the proposal. NABARD may identify 10 RRBs across the
country, giving greater weightage to regions manifesting higher levels of
financial exclusion and work in strategic alliance with these RRBs and
their sponsor banks in implementing the proposal. The RRBs identified
by NABARD for the project will require to develop a core banking
software for proper integration of the technology model proposed.
NABARD should enter into a MoU with identified sponsor banks and
RRBs and provide initial funding and technology support.
SEPARATE CREDIT PLAN FOR EXCLUDEDREGIONS:
The Committee recommends that RRBs operating in predominantly
tribal areas and having high levels of exclusion may prepare annual credit
plans having a separate component for excluded groups, which would
integrate credit provision with promotional assistance such as agricultural
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services and BDSs for the farm and nonfarm sectors respectively
including entrepreneurship development and formation and strengthening
of producers organisations like dairy cooperatives.Refinance and
promotional support may be provided by NABARD to RRBs on a large
scale for implementation of these credit plans.
COMPUTERISATION:With a view to facilitate the seamless integration of RRBs with the main
payment system, there is a need to provide computerisation support to
them. Banks will be eligible for support from the Financial Inclusion
Funds on a matching contribution of 50% in regard to districts other than
tribal districts and 75% in case of branches located in tribal districts under
the Tribal Sub Plan.
STRENGTHENING BOARDS OF MANAGEMENT:Further, now that RRBs are being merged and are becoming large size
entities, it is necessary that their Boards of Management are strengthened
and powers delegated to them on policy and business operations, viz.
introduction of new liability and credit products, investment decisions,
improving market orientation in raising and deployment of resources,
non-fund based business, career progression, transfer policy.
TAX INCENTIVES:From 2006-07, RRBs are liable to pay income tax. To further strengthenthe RRBs, profits transferred to reserves could be exempted from tax till
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they achieve standard capital adequacy ratios. Alternately, RRBs may be
allowed tax concessions to the extent of 40% of their profits, as per
provisions under Sec. 36 (1) (viii) of the Income Tax A/c.
NABARD TO SUPPORT HR DEVELOPMENT INRRBS:
RRBs should serve, with the support of NABARD, GoI, RBI and the
sponsor banks, as active financial inclusion players especially in areas
with high levels of financial exclusion. In order to build up the skills and
expertise of the personnel of RRBs, NABARD has played a crucial role
since the inception of RRBs. But for the efforts of NABARD and
initiative of sponsor banks besides RRB managements themselves in HR
development and in implementation of the reform package, the changes
in business performance of RRBs would not have been possible. The
work could be accomplished by NABARD working in close tandem with
GoI and RBI besides the sponsor banks. NABARD would continue to
give special priority to RRBs 68to train their staff through the training
institutions like the BankersInstitute of Rural Development (BIRD) at
Lucknow and the Regional Training Colleges at Mangalore and Bolpur,
specially set up for meeting the training requirements of RRBs.
NABARD may design suitable training programmes to enable RRBs to
meet the challenges in the post merger environment. This training may
also cover members of the Board of the RRBs. This support should be
provided by NABARD working in close tandem with GoI, RBI and the
sponsor banks.
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IMPLEMENTATION OF RBI INITIATIVES FORFINANCIAL INCLUSION:
All the recent circulars relating to financial inclusion, viz., no frillsaccounts, GCC, One Time Settlement (OTS) for loans up to Rs. 25,000,
use of intermediaries, etc., should be implemented by RRBs.
AMALGAMATION OF REGIONAL RURALBANKS:
Amalgamation of Regional Rural Banks.- (1) Notwithstanding anything
contained in this Act, if the Central Government, after consultation with
the National Bank, the concerned State Government and the Sponsor
Bank, is of the opinion that it is necessary in the public interest or in the
interest of the development of the area served by any Regional Rural
Bank or in the interest of the Regional Rural Banks themselves, that two
or more Regional Rural Banks should be amalgamated, that Government
may, by notification in the Official Gazette, provide for the amalgamation
of such Regional Rural Banks (hereafter in this Chapter referred to as the
transferor Regional Rural banks) into a single Regional Rural Bank
(hereafter in this Chapter referred to as the transferee Regional Rural
Bank) with such constitution, property, powers, rights, interests,
authorities and privileges; and with such liabilities, duties and
obligations, as may be specified in the notification. (2) Every notification
issued under sub-section (1) shall indicate the date with effect from which
the amalgamation shall become effective. (3) Every notification issued
under sub-section (1) may also provide for all or any of the following
matters, namely:-- (a) the continuance in service of all the employees ofthe transferor Regional Rural Banks (excepting such of them as not being
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workmen with in the meaning of the Industrial Disputes Act, 1947 (14 of
1947) are specifically mentioned in the notification) in the transferee
Regional Rural Bank at the same remuneration and on the same terms and
conditions of service, which they were getting or, as the case may be, by
which they were being governed, immediately before the date on which
the amalgamation takes effect; (b) notwithstanding anything contained in
clause (a), where any of the employees of the transferor Regional Rural
Banks, not being workmen within the meaning of the Industrial Disputes
Act, 1947 (14 of 1947) are specifically mentioned in the notification, or
where any employee of the transferor Regional Rural Banks has by notice
in writing given to the transferee Regional Rural Bank at any time before
the expiry of a period of three months next following the date on which
the amalgamation takes effect, intimated his intention of not becoming an
employee of the transferee Regional Rural Bank, the payment to such
employee of compensation, if any, to which he is entitled under the
Industrial Disputes Act, 1947, and such gratuity, provident fund and otherretirement benefits ordinarily admissible to him under the rules or
authorisations of the concerned transferor Regional Rural Banks
immediately before that date; (c) the other terms and conditions for the
amalgamation of Regional Rural Banks; and (d) the continuance by or
against the transferee Regional Rural Bank of any pending legal
proceeding by or against any transferor Regional Rural Banks and suchconsequential, incidental and supplemental provisions, as may, in the
opinion of the Central Government, be necessary to give effect to the
amalgamation. (4) Every notification issued under sub-section (1) shall,
as soon as may be after it has been made, be laid before each House of
Parliament.
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RURAL BANKING WITH EXIS BANK:Bank has embarked on a unique strategy - RURAL BANKING
STRATEGY to spread its presence in the rural areas.As a part of Bank'sstrategy of being a total solutions Bank, we launched our Rural Banking
Strategy with branches in Punjab, Tamil Nadu, Rajasthan and Gujarat.
Axis Bank will be opening 100 such branches across India under the
Rural Banking Strategy in addition to our normal network expansion
plans by the end of this financial year.The launch is a part of Axis Bank's
initiative of extending its foot print in Tier III, IV and V centres with a
population of around 10000 up to 50000. The Bank is aiming at achieving
the twin objectives of tapping semi urban and rural potential as well as
bringing technology driven banking services to the hinterland and
especially in under banked Districts and States. Considering the rural
character, we shall offer rural specific products & services in such
locations to cater the wide spread mass segment.
IGNOU TO DEVELOP RURAL BANKING:The Indira Gandhi National Open University (IGNOU) has signed a
Memorandum of Understanding (MoU) with an autonomous institution
promoted by the central government to develop banking in rural areas,officials said Tuesday.Signed between IGNOU's School of Agriculture
(SOA) and the Bankers Institute of Rural Development (BIRD) promoted
by the National Bank for Agriculture and Rural Development
(NABARD), a post graduate diploma in rural banking would be
offered."The programme aims to develop professionals in rural banking
and bridge the gap between programmes currently available and those
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required by the market for an overall rural development," an IGNOU
official said.
PROVISION ON FINANCIAL SERVICES BYRURAL BANKS:
Since the establishment of the Rural and Community Banks in Ghana,
various financial services have been extended to the communities in
which they operate. Broadly, these services involve savings mobilisation
and credit delivery, domestic funds transfer and short-term investments in
Government Securities.In the area of Savings mobilisation, Rural and
Community Banks extend various accounts such as savings, current,
fixed deposit, Susu etc to mobilise funds from the public. As at the end
of March 2006, Rural and Community Banks in Ghana had mobilised
total deposits of 1.8trillion ($192.2million). Anum Rural Banks total
deposits for the period was 18.8billion ($2.0million). In the area of credit
delivery, Rural and Community Banks offer personal, educational,
trading, agriculture, Susu, funeral and travel loans and micro credit to
their clients. As at the end of March 2006, RCBs had extended credits
totalling 834.1billion ($90.7million) to their clients. In the same period,
Anum Rural Bank extended credits amounting 9.8billion
($1.1million).In addition to extending credits to its clients using funds
mobilised by these banks, RCBs also collaborate with the Government
Agencies to on-lend funds to people in their catchment areas under their
micro-credit schemes.
Anum Rural Bank Ltd collaborated with Government agencies to on-lend
the following micro credits.
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Emergency social relief programme - 104.6million
($11,371)
Special Farmers Fund - 220.7million
($23,989)
Asuogyaman District Assembly Fishmongers Fund- 23.7million
($2,579)
Asuogyaman District Assembly Gari Processing Fund-
50.0million ($5,435)
Asuogyaman District Assembly Women Support Fund -
48.2million ($5,234)
Asuogyaman District Assembly Poverty Alleviation Fund -
780.8million ($84,871)
Food & Agriculture Budgetary Support fund - 205.9million
($22,388)
Micro Finance & Small Loans Centre Fund (MASLOC)-
150.0million ($16,304)
Anum Rural Bank also launched Adwuma Nkosow Sika micro finance
scheme under which 1.1billion ($112,283) was disbursed to 17 groups
made up of 409 women and 119 men. Total group savings amounted to
29,900,000 ($3,250).RCBs are also involved in domestic funds transfer
in which clients are assisted to transfer funds throughout the country.
RCBs also invest in government securities on behalf of their clients.
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CHAPTER NO.5
DISTRICT COVERAGE OF RURAL BANKS
RRBs covered 525 out of 605 districts as on 31 March 2006. After
amalgamation, RRBs have become quite large covering most parts of the
State inmany cases. Assam Gramin Vikas Bank, an amalgamated RRB,
covers 25 districts,the highest in the country, while five other
amalgamated RRBs cover 10 or moredistricts each. However, 40 RRBs
covered two districts and 16 RRBs covered a singledistrict each in 2005-
06. Increased coverage of districts by RRBs makes them animportant
segment of the Rural Financial Institutions (RFI) for financial inclusion.
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CHAPTER NO.6
BRANCH NETWORK OF RURAL BANKS
The number of branches of RRBs increased to 14,494 as on 31 March
2006 from 13,920 branches as on 31 March 1989. The network of the 45
amalgamated RRBs (as on April 2007) was quite large and diverse
varying from 85 to 680 branches. The Uttar Bihar KGB, an amalgamated
RRB, has 680 branches, followed by Baroda Eastern UPGB with 539
branches. The branch network of stand-alone RRBs varied between 8 and
242 as on 31 March 2006.
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CHAPTER NO.7
THE CHALLENGES IN RURAL BANKING
The Indian Economy recorded an estimated growth of 3.7% during 2002-
03 and 5.6% against the previous year. The deceleration in the
performance was largely attributed to negative growth of 4.4% in
agriculture sector. This steep downfall of GDP brought to the surface
about the vulnerability of Indian Economy to agricultural sector growth,
despite its strengths on other macro-economic indicators/sectors. When
the Indian Economy achieved 5.6% GDP growth in 2001-2002, the
contribution of agriculture & allied sectors was 5.7% vis-is 2.6% of
industrial sector. At the same time, the Tenth Five Year Plan(2002-2007)
envisages to realize an ambitious average GDP growth rate of 8% per
annum. In order to achieve this ambitious target of 8% during Tenth Five
Year Plan, all energies of country need to be focused for total
revitalization and revamping of agricultural sector and the rural financial
institutions to ensure average 7% sustainable growth per annum from this
sector alone in next five years. Otherwise, the dream target of 8% GDP
growth for Indian Economy continues to be elusive without substantial
and sustainable contribution form agricultural sector.The country's
ultimate irrigation potential has been assessed at 139.9 million ha.. So far,
about 68% of the potential only has been harnessed. On the contrary, in
terms of agricultural productivity, India lagged far behind, not only from
major developed economies but also from most of the other developing
economies within South Asia. Integrated efforts by all concerned are
therefore necessary to bridge the yield gaps by taking various
comprehensive measures on the technology and public policy fronts for
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improving substantially the efficiency of use of land and water resources.
The other challenges is given below:
BANKING in rural India is faced with the twin challenges ofregulation and distribution. Regulation with respect to
banking has been designed for delivery in urban India and
distribution required more manpower to be deployed in rural
areas, observed Mr Nachiket Mor, Executive Director, ICICI
Bank Ltd,
while speaking at the National Conference of Rural Markets,organised by the Confederation of Indian Industry.Initiatives
like cheque truncationwhere the electronic image and not
the actual cheque is sent have in mind the urban
customer, he said. "About 500-600 million people in India
still do not have bank accounts. For the rural segment, one
needs to design no-frills products and deliver hard core
value," he said.
The other handicap was that while Rs 1-crore business inmicrofinance required 30 people in terms of manpower, the
same volume of business in other portfolios required onlyone person. Also, contract farming and supply chain
integration has not gone the way they should have, he said.
ICICI Bank has an exposure of about Rs 6,000 crore in termsof rural business, which is growing at 70-80 per cent every
year, he said. The bank is currently running five pilots forintroducing biometric smart cards.
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While Mr Mor preferred to depict the rural-urban divide infinancial services as black and white, Mr Uday Kotak,
Executive Vice-Chairman and Managing Director, Kotak
Mahindra Bank, said the divide was more in the shade of
grey.
Power, telecommunications, banking and transportation hadreduced the urban-rural divide, he said. Besides traditional
banking services, people in the rural and semi-urban areas
are expressing interest in liability and investment products.
He said, "Rural India is fast transforming a nation of savers
into a nation of investors".
Talking of the way ahead in terms of rural business, MrKotak said that partnerships would be a key factors.
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CHAPTER NO.8
CASE STUDY
A CONTROL-CASE STUDY OF RURAL BANKS IN
GHANA
If current agricultural trends continue, by the year 2020 sub-SaharanAfricas food shortage will increase twenty times, to 250 million tons
(Pinstrup-Anderson 1993). The lower calorie intake could lead topoverty, malnutrition and hunger. In an attempt to alleviate some of thesepotential problems, several institutional and non-institutional sources ofrural credit have been made available to Africans. It is hoped that, in thelong term, credit will enable the poor to invest in agricultural and non-agricultural productive assets, to adopt new technologies and farmingmethods, and to minimize environmental degradation. Ghana, like othersub-Saharan countries, has traditionally experienced low productivity,low income levels, low domestic savings, unemployment, andmalnutrition.In 1976, the Ghanaian government, through the Bank of Ghana,established Rural Banks to channel credit to productive rural ventures andpromote rural development. Rural development is a strategy intended toimprove the economic and social life of the rural poor (World Bank1975). Rural credit has been used in Ghana to enable the poorto weather shocks without selling the productive assets the poor need forprotection against future shocks (FAO 1994).According to the MoshiConference (1969), the purpose of rural development is a rise in thestandard of living and favorable changes in the way of life of the people
concerned. However, there is some anecdotal evidence that manybeneficiaries of Rural Bank credit are salaried workers, whose likelihoodof loan repayment is believed to be better than that of the small-scalerural producer. There is also some evidence that loan recipients use thecredit for purposes other than those for which the loans are intended. Todate, no one has analyzed the effectiveness of Ghanaian Rural Bankcredit.
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CHAPTER NO.9
RECOMMENDATIONS OF RURAL BANKS
RRBs should extend their services into unbanked areas and increase their
credit to deposit (CD) ratio. As on 31 March 2006, 37 RRBs had CD ratio
of less than 40%, 44 RRBs between 40% and 60% and 52 RRBs above
60%.The CD ratio variations ranged from 20% to 116%. As RRBs
operate with branches in remote, interior and tribal-dominated areas, they
have a special role to play in financial inclusion. The NRFIP, details of
which are specified earlier, is of high relevance for RRBs, particularly
those having CD ratio of less than 40%. The post-merger scenario of
RRBs poses a series of challenges for them and needs to be addressed.
The following areas would require attention from the point of view of
financial inclusion.
Setting exclusive targets for microfinance and financial inclusion, Providing funding support & Providing technology support
Koforidua, Nov. 28, GNA - The Deputy Eastern Regional Minister,ZMr Ahmed Babal Jamal, has called on rural and community
banks to make their products more attractive to attract more
customers.
He said some rural and community banks were collapsing due tothe unattractiveness of their products, unskilled human resource
and lack of committed staff.Mr Jamal has, therefore, appealed to
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the management and Board of Directors of the banks to obtain
qualified human resource and equip them with skills and
knowledge to ensue maximum productivity.
The Deputy Regional Minister made the call at the opening of the16th Biennial General Meeting of the Association of Rural Banks
at Koforidua on Friday. He said a good number of rural and
community banks had operated profitably and satisfactorily and
had made significant impact on the communities they servedthrough the provision of potable water, electricity, toilets, school
buildings and the award of scholarships to brilliant but needy
students among other services.
Mr Baba-Jamal said the main objective of rural banks was aimed atstimulating and transforming the rural subsistence economy into
sustained medium-scale enterprises capable of creating
employment, initiating and promoting agricultural and cottage
industries through financial intermediation.
He said after nearly three and half decades of the rural bankingconcept some accomplishments had been made towards the
realization of the set objectives.
Mr Baba-Jamal said the government had introduced a lot of microfinance schemes through the rural banks aimed at alleviating
poverty and urged the banks to offer good services to the people
and help them to manage the money profitably.
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The President of Association of Rural Banks, Mrs Rose E.Newman, said the meeting constituted a solid platform for them to
summon a new spirit of responsibility, sacrifice, service and
commitment. She said most of their members were making great
strides in the banking industry and urged them to work extra hard
for them to reach greater heights.
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CHAPTER NO.10
RURAL BANKING IN INDIA
Rural banking in India started since the establishment of banking sector
in India. Rural Banks in those days mainly focussed upon the agro sector.
Regional rural banks in India penetrated every corner of the country and
extended a helping hand in the growth process of the country.SBI has 30
Regional Rural Banks in India known as RRBs. The rural banks of SBI is
spread in 13 states extending from Kashmir to Karnataka and Himachal
Pradesh to North East. The total number of SBIs Regional Rural Banks in
India branches is 2349 (16%). Till date in rural banking in India, there are
14,475 rural banks in the country of which 2126 (91%) are located in
remote rural areas.India lives in its villages, and the founding fathers
deemed it imperative to enable financial inclusion for the rural
population. The Regional Rural Bank (RRB) emerged from Indias early
aspirations for a stronger institutional arrangement to develop a savings
culture in the rural eco-system, provide rural credit and agriculture
finance, while enabling poverty elevation. The formation of the
Narasimham Committee in 1975, and eventually the passing of the RRB
Act in 1976 were key milestones in this journey. Legislation mandated
joint ownership of RRBs by the Central Government, State Government
and a sponsor commercial bank, in the ratio of 50%: 35%: 15%,
respectively.From a modest beginning of just 6 RRBs with 17 branches
covering 12 districts in 1975, the numbers grew to 196 RRBs with 14,446
branches working in 518 districts across the country, in 2004. However,
given the multiagency shareholding and entailed restrictions, several
RRBs failed to sustain viable operations and others merged vertically or
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horizontally, resulting in the total number of RRBs stabilizing at 91, in
2007, with over 14,000 branches, spread across 585 of the 622 identified
districts.Thus, history has clearly established that the original mandate of
promoting profitable banking with a rural focus will be an enduring
phenomenon, only when the RRB is able to deliver customer-relevant
products with optimal operational efficiency and ensure the functioning
of a sustainable and viable business. With 80% of RRBs in rural India, it
serves the larger cause of financial inclusion as well.Apart from SBI,
there are many other banks which function for the development of the
rural areas in India. These banks are listed belowApart from SBI, there
are many other banks which function for the development of the rural
areas in India. These banks are listed below:
ANDHRA PRADESH: Andhra Pradesh Grameena Vikas Bank Andhra Pragathi Grameena Bank Deccan Grameena Bank Chaitanya Godavari Grameena Bank Saptagiri Grameena Bank
CHHATTISGARH: Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank Durg-Rajnandgaon Gramin Bank
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HARYANA: Harayana Gramin Bank Gurgaon Gramin Bank
JAMMU & KASHMIR: Jammu Rural Bank Ellaquai Dehati Bank Kamraz Rural Bank
JHARKHAND: Jharkhand Gramin Bank Vananchal Gramin Bank
MADHYA PRADESH: Narmada Malwa Gramin Bank Satpura Kshetriya Gramin Bank Madhya Bharath Gramin Bank Chambal-Gwalior Kshetriya Gramin Bank Rewa-Sidhi Gramin Bank Sharda Gramin Bank Ratlam- Mandsaur Kshetriya Gramin Bank Vidisha Bhopal Kshetriya Gramin Bank Mahakaushal Kshetriya Gramin Bank Jhabua Dhar Kshetriya Gramin Bank
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KARNATAKA: Karnataka Vikas Grameena Bank Pragathi Gramin Bank Cauvery Kalpatharu Grameena Bank Krishna Grameena Bank Chikmagalur-Kodagu Grameena Bank Visveshvaraya Gramin Bank
ORISSA: Kalinga Gramya Bank Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank Rushikulya Gramya Bank
MEGHALAYA: Ka Bank Nogkyndong Ri Khasi- Jaintia
NAGALAND: Nagaland Rural Bank
TRIPURA: Tripura Gramin Bank
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UTTAR PRADESH: Purvanchal Gramin Bank Kashi Gomti Samyut Gramin Bank Uttar Pradesh Gramin Bank Shreyas Gramin Bank Lucknow Kshetriya Gramin Bank Ballia Kshetriya Gramin Bank Triveni Kshetriya Gramin Bank Aryavart Gramin Bank Kisan Gramin Bank Kshetriya Kisan Gramin Bank Etawah Kshetriya Gramin Bank Rani Laxmi Bai Kshetriya Gramin Bank Baroda Western Uttar Pradesh Gramin Bank Devipatan Kshetriya Gramin Bank Prathama Bank Baroda Eastern Uttar Pradesh Gramin Bank
BIHAR: Madhya Bihar Gramin Bank Bihar Kshetriya Gramin Bank Uttar Bihar Kshetriya Gramin Bank Kosi Kshetriya Gramin Bank Samastipur Kshetriya Gramin Bank
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GUJARAT: Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank
HIMACHAL PRADESH: Himachal Gramin Bank Parvatiya Gramin Bank
PUNJAB: Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank
KERALA: Narmada Malwa Gramin Bank North Malabar Gramin Bank
TAMIL NADU: Pandyan Grama Bank Pallavan Grama Bank
MAHARASHTRA: Marathwada Gramin Bank Aurangabad -Jalna Gramin Bank Wainganga Kshetriya Gramin Bank
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Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank Ratnagiri-Sindhudurg Gramin Bank
RAJASTHAN: Baroda Rajasthan Gramin Bank Marwar Ganganagar Bikaner Gramin Bank Rajasthan Gramin Bank Jaipur Thar Gramin Bank Hodoti Kshetriya Gramin Bank Mewar Anchalik Gramin Bank
WEST BENGAL: Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank Uttar Banga Kshetriya Gramin Bank
ARUNACHAL PRADESH: Arunachal Pradesh Rural Bank
MANIPUR: Manipur Rural Bank
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MIZORAM: Mizoram Rural Bank
UTTARANCHAL: Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank
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CHAPTER NO.11
CONCLUSION
RRBs' performance in respect of some important indicators was certainly
better than that of commercial banks or even cooperatives. RRBs have
also performed better in terms of providing loans to small and retail
traders and petty non-farm rural activities. In recent years, they have
taken a leading role in financing Self-Help Groups (SHGs) and other
micro-credit institutions and linking such groups with the formal credit
sector.
RRBs should really be strengthened and provided with more resources
with which they can undertake more of these important activities. And
most certainly they should be kept apart from a profit-oriented corporate
motivation that would reduce their capacity to provide much needed
financial services to the rural areas, including to agriculture. Ideally, thebest use of the resources raised by RRBs through deposits would be
through extensive cross-subsidisation. This, in turn, really requires an
apex body that would cover and oversee all the RRBs, something like a
National Rural Bank of India (NRBI).
The number of rural branches should be increased rather than reduced;
they should be encouraged to develop more sophisticated methods of
credit delivery to meet the changing needs of farming; and most of all,
there should be greater coordination between district planning authorities,
panchayati raj institutions and the banks operating in rural areas. Only
then will the RRBs fulfill the promise that is so essential for rural
development.
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