Project - Rural Banking in India

8/13/2019 Project - Rural Banking in India

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Template for Preparation of Project Report for MBA course

Contents

1. Cover page

2. Title page

3. Acknowlegement

!. Bonafie "etter

#. A$stract

%. Ta$le of contents

&. "ist of Ta$les

'. "ist of (igures

). "ist of *+m$ols, A$$reviations an -omenclature

1. C/apters

11. References0Bi$liograp/+

12. -*TRCT-*4


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Calibre Infotech, Coimbatore.

LC Code 0093

RURAL BANKING IN INDIA

A PROJECT REPORT

Submitted by

! BALA"I

______________________________

in partial fulfillment o f the requirement

for the award of the degree

Of

Mater in !uine Management

A#RIL $0%%


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Acknowlegement4Acknowledgment is the regards given to the peopleand organization who have helped you in completing the project

undertaken. Mainly it must consist of Acknowledgement towards theorganization you study and to the company where you have done yourproject followed by the people who have helped you in the process.


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Bonafie Certificate:

B&NA'ID( C(R)I'ICA)(

Certified that this project report titled RURAL BANKING IN INDIA is the

bonafide work of M BALAJI who carried out the project work under my

supervision.

*IGNA)UR( *IGNA)UR(

+(AD &' )+( D(#AR)!(N) 'ACUL) IN C+ARG(

Academic !esi"nation#!epartment# !epartment#

$ull address of the !ept % Colle"e ## $ull address of the !ept %Colle"e #


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56ecutive *ummar+- Executive summary should be of one pagesummary of the project report. It should consist of the statement ofthe problem main findings and recommendations for the further

use. It should be typed in double line spacing !ont "tyle#$imes%ew &oman and !ont "ize#'(.


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Ta$le of contents4 It is the list of all the contents in the report and all the

detailed content precedes this table of content. A "pecimen isshown below.

TAB"5 ( C-T5-T*

C7APT5R -. TT"5 PA85 -.

1. INTRODUCTION

1

1.1 GENERAL

1

1.2 . . . . . . . . . . .

2

1.2.1 General

5

1.2.2 . . . . . . . .

12

1.2.2.1 General

19

1.2.2.2 ......

25

1.2.2.3 . . . . .

29

1.2.3 . . . . . . . . .

30

1.3.. . . . . . . . . .. . . .

45

1.4 . . . . . . . . . . . . . .

58


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2. LITERATURE REVIEW

69

2.1 GENERAL

75

2.2.1 . . . . .

99

2.2 .

100

"ist of Ta$les4)ive the same name for the table as they exactly appearabove the tables in the text. $he caption of the $able must bepresent above the table. '.* line spacing should be adopted fortyping the matter under this head.

)able % Caption of the table#

'eild% 'ield$ 'ield3 'eild 'eild/ 'eild1


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Li2t of table2

%. )able %- ca4tion the table%5

$. 1

-ote4B+ t/e wor Ta$le, is meant ta$ulate numerical ata int/e $o+ of t/e project report as well as in t/e appenices 9fan+:. All ot/er non;ver$al materials use in t/e $o+ of t/e

project work an appenices suc/ as c/arts, grap/s, maps,p/otograp/s an iagrams ma+ $e esignate as figures.

"ist of (igures4 )ive the same name for the table as they exactly appearbelow the figures in the text. $he caption of the figure must be

present below the figure. '.* line spacing should be adopted fortyping the matter under this head.


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'i67re %- Caption of the $i"ure#

Li2t of 'i67re2

%. 'i67re %- ca4tion the 'i67re %5

$. 1

"ist of *+m$ols, A$$reviations an -omenclature4 '.* line spacing

should be adopted for typing the matter under this head. "tandard

symbols abbreviations etc. should be used.


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C/apters4Mainly the chapters can be broadly classified into + parts1. Introductory chapter

2. ,hapter-s on the main content of the project

3. ,oncluding chapter.

$he main text will be divided into several chapters and each chaptercan be further divided into several divisions and sub#divisions.

Each chapter should be given a relevant title.

$ables and figures in a chapter should be placed in theposition with respect to the reference where they are cited.

/eaders and !ootnotes should be used sparingly. $he title ofthe project must be reflected in the left side of the header andchapter name must be in the right side of the headers. 0agenumbers are to be placed in the right side of the footer. $heyshould be typed single space and placed directly underneathin the very same page which refers to the material theyannotate.

-T54 Alwa+s t/e report must $e ene wit/ t/e concluing

c/apter an future en/ancements


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References0Bi$liograp/+4 $he listing of references should be typed (spaces below the heading 1&E!E&E%,E"2 in alphabetical order in

single spacing left 3 justified. $he reference material should be listedin the alphabetical order of the first author. $he name of theauthor4authors should be immediately followed by the year andother details. Any website reference must be referred preceded bythe publications reference.5ou find a specimen for a typical reference

R5(5R5-C5*'. Anupama -'6(7 8&ole of Electronic engineering in

$echnology9 IEEE#:ournal of ,omputer science ,A.

;. %upur &astogi. -;


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IN)R&DUC)I&N


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RURAL BANKING

IN)R&DUC)I&N

&ural bankin" in India started since the establishment of bankin" sector in India.

&ural banks in those days mainly focused upon the a"ro sector. 'oday(

commercial banks and &e"ional rural banks in India are penetratin" every corner

of the country are e)tendin" helpin" hand in the "rowth process of the rural sector

in the country.

BANK* 'UNC)I&NING '&R )+( D(8(L!(N) &' RURAL AR(A*

'he Areas of operation of majority of &&B*s is limited to a notified area

comprisin" a few districts in state. +BI has ,- re"ional &ural banks in India

known as &&Bs. 'he rural bank of +BI are spread in , states e)tendin" from

kashmir to /anyakumari .Apart from +BI( there are the few banks which

functions for the development of the rural areas in India. $ew of them are as

follows.

0aryana state cooperative bank ltd

1ABA&!

+indhanur 2rban +ouharda Cooperative bank

2nited bank of India

+yndicate bank

Cooperative bank


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C&(RA)I8( BANK* AND RURAL CR(DI)

'he Cooperative bank has a history of almost -- yrs. 'he Cooperative banks are

an important constituent of the $inancial system jud"in" by the role assi"ned to

them( the e)pectations they are supposed to fulfill their number and the number of

offices they operate.

'heir role in rural financin" continues to be important even today and their

business in the urban areas also has increased phenomenally in recent years

mainly due to the sharp increase in the number or primary cooperative banks.

Cooperative banks in India are re"isters under the Cooperative societies act. 'he

&BI also re"ulates the cooperative bank. 'hey are "overned by the bankin"

re"ulation act 343 and bankin" laws Act 356.

Cooperative banks in India finance rural areas under 7

$armin"

CattleMilk

0atchery

8ersonal $inance

Institutional arran"ements for &ural credit 9Cooperatives:

+hort term Cooperatives

Lon" term Cooperatives


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+hort term Cooperatives

!istrict Central Cooperative banks

+tate Cooperative banks

8rimary A"riculture credit Cooperative societies

Branches

Lon" term Cooperatives

+tate A"riculture % &ural development banks

8rimary A"riculture % &ural !evelopment banks

Branches


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C&!!(RCIAL BANK* AND RURAL CR(DI)

'he commercial banks at present provide short term cop loans account for nearly

46; to 4


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beneficiaries amon" the participatin" banks. Commercial banks have been asked

to finance all economically backward people identified by "overnment.

R(GI&NAL RURAL BANK* AND RURAL CR(DI)

'he 1arasimhan committee on rural credit recommended the establishment of

&e"ional &ural banks on the "round that they would be much better suited than

the commercial banks or cooperative banks in meetin" the needs of rural areas.

Acceptin" the recommendations of 1arasimhan committee the "overnment

passed &e"ional &ural bank Act 3


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Brid"in" the credit "ap in rural areas.

Check the outflow of rural deposits to urban areas.

&educe the outflow imbalances and increase rural employment "eneration.

R&L( &' RBI IN RURAL CR(DI)

+ince it was setup in 3,4( &BI has been takin" keen interest in e)pandin" credit

to rural sector. After 1ABA&! was setup as the ape) bank for a"riculture and

rural development( &BI has been takin" series of steps for providin" timely and

ade@uate credit throu"h 1ABA&!.

+cheduled commercial banks e)cludin" forei"n banks have been forced to

supplement 1ABA&!*s efforts throu"h the stipulations that the 4-; of net bank

credit should "o to the priority sector( out of which at least ?; of net bank

credit should flow to a"riculture. Besides( it is mandatory that any shortfall in

fulfillin" the 4-; tar"et or the ?; sub tar"et would have to "o to the corpus

rural infrastructure !evelopment fund 9&I!$:. &BI has also taken steps in recent

years to stren"then institutional mechanisms such as recapitali=ation of &e"ional

&ural Banks9&&Bs: and settin" up of local area banks9LAB+:.

!icro finance

Micro $inance is a novel approach to bankin" with poor as they attempt to

combine lower transaction costs ai"h de"ree of repayment. 'he major thrust of


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these micro finance initiatives is throu"h the settin" up of +elf help "roups and

1on "overnmental >r"anisations( credit unions etc.

Ki2an Credit Card

Another notable development in recent years is the kisan Credit cards in 33?

33. 'he purpose of /issan CreditCards is to facilitate sjort term credit to farmers.

'he scheme has "ained popularity and its implementation has been taken up by

< commercial banks( ?< and ,,4 central cooperative banks.

A6ric7lt7ral in27rance

As a"ricultural is hi"hly suspectible to risks such as drou"ht( flood( pests( etc. it is

necessary to protect the farmers from natural calamities and ensures their credit

eli"ibility from the ne)t season. 'owards this purpose( the "overnment of India

introduced a comprehensive crop insurance scheme throu"h out the country in

3?6 coverin" major cereal crops( oil seeds and pulses. Major commercial cropsare covered.


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!ARK()ING &' !U)UAL 'UND* UNI)* : RRB2

ith a view to e)pandin" the scope of Mutual $und units provides a profitableavenue for banks( it has been decided by &BI on < thMay --5 to allow &&Bs to

undertake marketin" of units of Mutual $unds as a"ents.

Accordin"ly( &&Bs may with approval of their Board of !irectors enter into

a"reements with mutual funds for marketin" their units subject to the followin"

terms and conditions 7D

'he banks should act as an a"ent to customer ( forwardin" applications of the

investors for purchase E sale of M$ units to mutual fund E &e"istrar transfer

A"ents.

'he purchase of M$ units should be at the risk of customers and without the bank

"uaranteein" any assured return.

'he bank should not ac@uire such units of M$ from secondary market.

'he bank should not buy back units of Mutual funds from their customers.

'he bank holdin" custody of M$ on behalf of their customers should ensure that

its own investment and investments belon"in" to their customers are kept distinct

from each other.

&etailin" of units of M$ may be confined to some select branches of the bank to

ensure better control.


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'he bank should comply with e)tent /FC "uidelines in respect of the applicants.

'he &&Bs should put in place ade@uate and effective control mechanisms inconsultations with their sponsor banks.

&&Bs performance in respect of some important indicators was certainly better

than that of commercial banks or even cooperatives. &&Bs have also performed

better in terms of providin" loans to small and retail and petty non farm rural

activities. In recent years( they have taken a leadin" role in financin" self help

"roup and other micro credit institutions and linkin" such "roups with formal

credit sector.

&&Bs should really be stren"thened and provide 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(

includin" to a"riculture. Ideally the best use of resources raised by &&Bs throu"h

deposits would be throu"h e)tensive cross subsidation. 'his in turn really re@uires

an ape) body that would cover and oversee all &&Bs sometimes like 1ational

&ural bank of India.


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C+A#)(R %

CR(DI) AND RURAL (C&N&!


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C+A#)(R %

CR(DI) AND )+( RURAL (C&N&!

$inancial liberali=ation after 33 decimated the formal system of institutional

credit in rural in India. It represented a clear e)plicit reversal of the policy of

social and development bankin" such as it was( and contributed in no small wayto the e)treme deprivation and distress of which the rural poor in India have been

victims over last decade.

$inancial liberali=ation is a crucial component of the pro"rams of economic

reforms that are bein" imposed on the people of less developed countries. 'he

demand that the financial markets be liberali=ed @uickly is hi"h on the a"enda of

imperialism in India as well advocates of economics reform see financialliberali=ation as bein" at the core of structural adjustment. 'here are many

components of the packa"e of reforms associated with financial liberali=ation in

India.

It is well known that the burden of indebtedness in rural India is very "reat( and

that despite major structural chan"es in credit institutions and forms of rural

credit in the post independence period the e)ploitation of the rural life in India.

&ural households need credit for a variety of reasons. 'hey need credit to meet


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their short term re@uirements of workin" capital and lon" term investment in

a"riculture and other income bearin" activities. A"riculture and non a"ricultural

activities in rural areas typically are seasonal and household need credit to

smoothens out seasonal fluctuations in earnin" and e)penditure. &ural house

holds particularly those vulnerable to what appear to others to be minor shocks

with respect to income and e)penditure( need credit as an insurance a"ainst risk.

In a society that has no law of free( compulsory and universal school education(

no arran"ement for free and universal preventive and curative health care( a weak

system for the public distribution of food and very few "eneral social security

pro"rams( rural households need credit for different types of consumptions. 'hese

includes e)penditure of food( housin"( health and education. In the Indian conte)t

another important purpose of borrowin" is to meet e)penses on variety of social

obli"ations and rituals.

0istorically there have been four major problems with respect to the supply of

credit to the Indian country side. $irst the supply of formal sector credit to

country side as a whole been ade@uate. +econdly( rural credit markets in India

themselves have been very imperfect and fra"mented. 'hirdly as for"oin"

su""ests( the distributions of formal sector credit has been une@ual particularly

with respect to re"ion and class( and "ender in the countryside. $ormal sector

credit needs specially to reach backward areas( Income poor households( people

of the oppressed castes and tribes. And women. $ourthly the major source ofcredit to rural households particularly income poor workin" households has been


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the informal sector. Informal sector loans typically are advanced at very hi"h rate

of interest. $urther terms and conditions attached to theses loans have "iven rise

to an elaborate structure if coercion economic and e)tra economic in the

countryside.

'hat these constitute what may be called the problem of rural credit has been well

reco"ni=ed in fact in official evaluation and scholarship since the end of the 3 th

century. Given the issues involved the declares objectives of the public policy

with re"ards to the rural credit in the post independence period where in the

words of a former Governor of &BI H 'o ensure that sufficient and timely credit

at reasonable rate of interest is made available to as lar"e a se"ment of rural

population as possible. 'he policy instruments to achieve these objectives were

to be first the e)pansion of the institutional structure of formal sector lendin"

institutions( secondly directed lendin" and thirdly concessional or subsidiarycredit. 8ublic policy was thus aimed not only at meetin" rural credit needs but

also pushin" out financial sector and the e)ploitation to which it subjected

borrowers. &ural credit policy in India envisa"ed the provision of ran"e of credit

services includin" lon" term and short term credit and lar"e scale and small scale

loans to rural house holds.


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C0A8'&

BANKING #&LIC IN RURAL INDIA

%99 )& )+( #R(*(N)


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C+A#)(R $

BANKING #&LIC IN RURAL INDIA %99 )& )+( #R(*(N)

'he period from 353 to the present can be considered in to three phases in

bankin" policy the first was the period followin" nationali=ation of India*s 4

major commercial banks in 353. 'his was also early phase of the "reen

revolution in rural India and one of the objectives of the nationali=ation of banks

was for the state to "ain access to the new li@uidity particularly amon" rich

farmers in the country side. 'he declared objective of the new policy with respect

to rural bankin" what came to be known as H social and development bankin"

1) 'o provide bankin" services in previously unbanked or under banked rural

areas

2) 'o provide substantial credit to specific activities includin" a"ricultural andcotta"e industries.

3) 'o provide credit to certain disadvanta"ed "roups such as $or " !alit and

scheduled 'ribe households.

'he introduction of social development bankin" policy entailed a radical shift

from prevalent practice of the objective and functionin" of commercial banks.

An important feature of the policy of social and development bankin" was that


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it recast completely the role of commercial banks in rural bankin". 8rior to

353 the country side was not considered to be problem of commercial

bankin". It was only 353b that a multi institutional approach to the credit in

the country side became policy with commercial banks( &e"ional &ural banks

and cooperative institutional establishin" wide "eo"raphical and functional in

the Indian country side.

'he &eserve bank of India issued specific directives with respect to social and

development bankin". 'hese included settin" tar"ets for the e)pansion of rural

branches imposin" ceilin"s on interest rates and settin" "uidelines for the

sectoral allocation of credit. &ural credit was an important component of the

"reen revolution packa"e this phase saw a substantial "rowth in credit

advances for a"riculture. +pecifically advances to a"riculture and allied

activities increased for 4-; as H 8riority sector. Advances to country sidesincreased substantially althou"h they were as was the "reen revolution itself in

respect of re"ions crops and classes. 'he main crops that "ained from "reen

revolution as is well reco"ni=ed were wheat and &ice. 'he application of new

technolo"ies was primarily in the irri"ated areas if the north west and south in

India.


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In 3


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support services and the persistence of employment insecurity and poverty in

rural society.

'he second phase also involved an e)pansion and consolidation of the

institutional infrastructure of rural bankin". After bank nationali=ations there

was unprecedented "rowth of commercial bankin" in terms of both

"eo"raphical spread and functional reach.

'he third phase and current phase which be"an in 33 is that of

liberali=ation. 'he policy objectives of this phase are encapsulated in the

&eport of the committee of $inancial system( which was chaired ironically by

M 1arasimham 9&BI( 33:. In its very first para"raph the report called for H a

vibrant and competitive financial system to sustain the on"oin" reform in the

structural aspects of the real economy. 'he committee said 7 should use the

instrumentality of the fiscal rather than the credit system and accordin"ly(

'hat H directed credit pro"rammed should be phased out. It also

recommended that interest rates be dere"ulated( the capital ade@uacy norms be

chan"ed( the branch licensin" policy be revoked that a new institutional

structure that is market driven and based profitability be created and that the

part played by various private Indian and forei"n banks be enlar"ed.


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C+A#)(R 3

R(C&RD &' #R&GR(** &' RURAL

BANKING


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C+A#)(R 3

R(C&RD &' #R&GR(** &' RURAL BANKING

8olicies of the current phase of financial liberali=ation have had an immediate

direct and dramatic effect on rural credit. 'here has been a contraction in rural

bankin" in "eneral and in priority sector lendin" and preferential lendin" to the

poor in particular.

Considerin" few indicators Appendi) table documents "rowth of bank

offices deposits and "ross bank credit In rural areas as well as the share of

rural areas in the all India total from !ec 353 to March--( for all

scheduled commercial banks. 'he impact of bank nationali=ation on the

"rowth of scheduled commercial banks n rural areas is clear the share of ruralbank office in total offices jumped from


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&BI annual Bankin" statistics. !ata in this document are provided on Credit

Monitorin" includin" all outstandin" loans and non performin" assets on

March ,stof the reference year. !ata under credit sanctioned and credit

utili=ed are e@ual. 'he conse@uence of this method of collection and

presentation of data is that there are no data at all on loan advances by banks

each year. 'he data on the stock of credit show marked declaration in credit

provision to the countryside since 33( had data on the actual amount each

year we would have had a clearer picture of the collapse in rural bankin" in

the period of liberali=ation.

'he period after nationali=ation was characteri=ed by an e)pansion of bank

credit to rural areas the credit outstandin" from rural branches in the 3nce a"ain the peak was reached 33-D3 when rural deposits accounted for

6.6; of a""re"ate deposits. 'he pace of deposit mobili=ation in rural areas

fell in 33-*s.

>ne of the objectives of bankin" after nationali=ation was to e)pand the flow

of credit to a"riculture and small industries( or what were termed as H8riority


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C+A#)(R

R(GI&NAL RURAL BANK*


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C+A#)(R

R(GI&NAL RURAL BANK*

&e"ional &ural banks as we have noted were created in the 3


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the "rayin" of bank personnel and the thinkin" of their ranks. $ield officer of

&e"ional &ural Bank in the 3


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C+A#)(R /

!ICR& CR(DI) AND *(L' +(L#

GR&U#


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C+A#)(R /

!ICR& CR(DI) AND *(L' +(L# GR&U#

It is clear from the precedin" sections that neo liberal bankin" reforms amounts in

theory and practice to a reversal of the public policy objectives of e)tendin" the

reach of rural credit( providin" cheap ad timely credit to the rural

households9 particularly economically vulnerable households:( overcomin"

historical problems of imperfect and fra"mented rural credit makers( and

displacin" the informal sector from its powerful position in rural credit markets.

As we have seen there was a lar"e scale retreat by the formal sector from the

Indian countryside in the post 33. $rom official policy statements ( it appears

that the "overnment envisa"es only one major policy instrument to fill the "ap

left by the formal credit sector in the countryside the establishment of micro

credit projects in &ural India.

'he micro credit approach is viewed as bein" able to rectify the major weakness

of the bankin" system itself( most notably the Htwin problems of non viability and

poor recovery performance of e)istin" credit institutions. Micro Credit is the

favored alternative to the present system because first it is assumed that the

transactions costs of banks and financial institutions can be lowered si"nificantly

if these cost are passed on to 1G>s or +elf 0elp Groups and secondly( because


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1G>s are e)pected to perform better than formal sector institutions in respect of

recovery of loans.

'he terms micro credit and micro finance have risen spectacularly to fame in the

development profession and in development literature in the last decade and a

half. 'he declaration of orld bank sponsored Microcredit summit held in

ashin"ton ! C . in 33< defined micro credit pro"rammed as those He)tendin"

small loans to poor people for self employment projects that "enerate income(

allowin" them to care for themselves and their families. In India the task force

on supportive and &e"ulatory frame work for Micro finance in India defined

Micro finance as the Hprovision of thrift( credit and other financial services and

products of very small amounts to poor in rural( semi urban or urban area

enablin" them to raise their income levels and improve livin" standards. 'he

&eserve bank of India used the same definition.

hile micro credit loans are "enerally advanced for self employment projects(

they are sometimes advanced for consumption as well. 1evertheless the

advocates of micro credit do consider it necessary for micro credit institution to

"et borrowers to make the transition from consumption loan to production loans.

'he characteristic features of micro credit operation are small loans to poor house

holds in rural and urban areas for income "eneration throu"h self employment

Micro Credit institutions may also provide facilities for savin"s and other


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employment. Micro credit as discussed in international literature( is associated

with the followin" recurrin" empirical features 7

Kery +mall loans

1o collateral

Borrowers from amon" the rural and urban poor

Loans for income "eneration throu"h market based self employment

'he formation of borrowers "roups

8rivati=ation( "enerally throu"h the mechanism of 1G> control over

disbursement and the determination of the terms and conditions attached

to each.

arlier we reviewed the claims in support of 1G> control micro credits( that is

lower transactions costs and a better repayment record than that of formal sector

financial institutions. 'he International evidence on administrative costs of

1G>*s shows that these costs were hi"h and relatively hi"her than those of

commercial banks. 1G> cannot match the economies of scale of a

comprehensive system of bankin" . +econdly the costs of administration of 1G>

controlled micro credit have actually risen when 1G> actively is scaled up


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return relative to tiny investment can meet e)istin" repayment schedules. 'his

pattern of repayment can put the poorest out of pale of micro credit since the

ability to pay the first few installments depends on the initial resource base of the

borrower. 1e)t hi"h repayment on hi"h transactions costs. As mentioned earlier(

1G>s invest heavily in supervisin" monitorin" and enforcin" loan repayment.

hen the activities of 1G> controlled micro credit projects are scaled up the

relative burden of administration cost trends to increase. An evaluation of +A

bank( a bank setup by the self employed omen*s association showed that the

proportion of overdue to total advances was actually mar"inally hi"her than the

correspondin" ratio for the public sector banks. +calin" up 1G> controlled micro

credit project it appears can "enerate problems similar to those faced by tradition

bankin" institutions. 'he corrective measures bein" taken by +A bank to

address the problem of overdue loans involve "reater supervision and monitorin".

In short hi"her and better repayment re@uires more staff and closer monitorin" or

hi"her transaction cost.

In India 1"o controlled micro credit is not yet as wide spread and does not

represent "eneral policy towards rural credit as it is and does for instance in

Ban"ladesh. 1evertheless( the scale of bank finance throu"h self help "roup has

e)panded rapidly in the last few years( and considered Hthe lar"est and faster

"rowin" e)ample of micro finance in the world. itness the proliferation of +elf

help "roups from less than ---- in 335D3< the umber of self help "roup with


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bank finance has "rown - lakhs in --4. 1ABA&! has set a "oal of creatin"

million self help "roup by -.

Andhra 8radesh has been somethin" of a leader in establishin" self help "roups

by -- over 6-; of the self help "roup in the country were in Andhra 8radesh.

!espite the "rowth in numbers with over , lakhs self help "roup by -- only

-.5; of the total bank credit in Andhra 8radesh was channeled to self help "roup

in --.

'he results of a recent case study of the costs and benefits of participation in

women*s self help "roup in Andhra 8radesh are note worthy. !rawin" on detailed

interviews with women from different self help "roups in two villa"es of the

'elan"ana re"ion( involves various features of self help "roup in practice ( amon"

them the e)clusion of the poorest of the e)istin" class and caste hierarchies by

"roups. 'he state "overnment allocated very little by way of funds and manpowerto monitor self help "roups. 'ransactions costs were inevitably borne by 1G>*s

or members of the "roups( includin" income poor women. $rom these villa"e

studies it emer"es that micro credit advances were small short term and hi"h cost.

Interest rates on these loans were typically ,-; p.a. as compared to t ,5; of the

informal lenders.

'here is as yet no lar"e scale evaluation of micro credit institutions and finance as

an alternative mechanism for meetin" credit and bankin" needs in rural India.


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'his is an important area for further research. 'he conclusion of the case study

however are salutary( for they indicate the shortcomin"s of relyin" solely on

micro credit to alleviate poverty and empower women.

e have shown that despite associations to the contrary 1G> controlled micro

credit or"ani=ation do not incur lower transactions costs than banks. Banks have

many advanta"es over private micro credit or"ani=ations as providers of small

loan. 'hey have advanta"es of scale( the bankin" system in India has a reach and

spread that 1G> controlled microcredit cannot be"in to match banks can cross

subsidi=e loans banks are better placed to coordinate bankin" activity with

development administration( local "overnment and self help "roups and banks

are better able than private micro credit to offer a wide ran"e of financial services

to borrowers. $or the state to withdraw from the field and hand over small scale

credit to 1G> controlled micro credit or"ani=ations is in effect to undermine and

weaken major national asset the widespread rural bankin" system.


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C+A#)(R

8ILLAG( *)UDI(*


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C+A#)(R

8ILLAG( *)UDI(*

Case studies based on primary data help to identify the impact of chan"es in

financial policy and bankin" structure on patterns of indebtedness amon" rural

households. >n reviewin" the major results from five papers each reportin" the

findin"s of detailed villa"e surveys on rural credit in the contemporary period.

'he studies cover Ba"hra and 2daipur villa"e of Giridih district in Jharkand(

panahar abd Muidara villa"es of Bankura district in est Ben"al(Mora=a villa"e

of /annur district in /erala( Gokilapuram of 'heni district in tamilnadu and

!hamar of &ohtak district and Birdhana of $atehbad district in 0aryana.

Gokilapuram villa"e in 'amilnadu is hi"hly irri"ated a"riculturally advanced and

commerciali=ed villa"e. 'he hi"h development of productive forces is combines

with a very une@ual distribution of resources a lar"e portion of households are

landless while a small minority control the major share of land and other assets.

'he availability of data from census type surveys the stin 3


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After land reform in the 3


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proportions were 55; in Gokilapuram


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survey. In each of the two study villa"es( only one household received any formal

sector credit in the year precedin" survey. 'he formal sector has virtually washed

its hands of any responsibility to the villa"es.

1e)t the two studies that capture over time show a clear decline in access to

formal resource of credit( particularly credit from scheduled commercial banks(

in recent years. In 8anahar and Muidara the share of formal sector in total debt

fell from 4; in 336D35 to


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In 8anahar and Muidara trader money lenders have come to dominate the

informal credit market. In 336 35 ,; of the total principal borrowed by the

surveyed households was borrowed from traders. Money lenders accounted for


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principal borrowed at hi"her than ,5; per annum doubled between 3


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C+A#)(R ;

IN*)I)U)I&NAL CR(DI) '&R RURAL

INDIA


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&$&1C+


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R('(R(NC(*

Ba"chi( Amiya /umar9--4: H&ural Credit and +ystematic&isk( in

&amachandran and +waminathan.

C 8 Chandrsekar C 8 and &ay ( +ujit /umar 9--4: ( H$inancial +ector

&eform and the 'ransformation of Bankin"( in &amachandran and

+waminathan.

Chandrasekar C 8 and J Ghosh -- 'he Market that failed A !ecade1eoliberal conomic reforms in India 1ew !elhi 7 Left word books.

Chavan ( 8 and & &amakumar( -- HMicro credit and &ural poverty7

Analysis of empirical evidence ( conomic and political eekly (

,


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Chavan( 8allavi9--4:( Bankin" +ector Liberalisation and the Growth

and &e"ional !istribution of &ural Bankin" ( in &amachandran and

+waminathan.

!hana"are( ! 1 ( 33- HGreen &evolution and +ocial Ine@ualities. In

poverty and Income distribution ( ed / + /rishnaswamy 55D??.

Bombay 7>)ford university press for +ammeksha trust.

!re=e( J ( 33- H8overty in India and the I&!8 delusion( conomicand political eekly ( 6 9,3:7 A3DA-4.

Greeley( M ( 33< Hpoverty and ell Bein"7 8roblems for poverty

reduction in role of Credit.( In ho needs creditN 8overty and finance

in Ban"ladesh( eds ood and+harif( pp London7 Oed Books.


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Griffin( / 3


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Indian +chool of omen*s studies and development ( --4( H omen

workers in &ural 0aryana( A field based study.

Ja"an Mohan( K ( --4 H &e"ional &ural banks 7 the vehicles for

brid"in" the bankin" !ivide +tate bank of India Monthly &eview.

Johnson + and &o"aly B 33< Micro finance and poverty &eduction( 2

/ and Ireland7 >Q$AM and Action Aid.

/elkar( G ! 1athan and & Jahan( --4( H&edefinin" omen*s

P+amman*( Microcredit and "ender &elations in rural Ban"ladesh.

Madras Institute of !evelopment studies 9MI!+: 3?-. +tructure and

Intervention. An valuation of !8A8 ( I&!8and related pro"rams In

&amanathapuram and !harmapuri !istricts of 'amilnadu.


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1air( ' ( 333 P&ural $inancial Intermediation and Commercial banks7

A review of &ecent trends*( Gujarat Institute of !evelopment &esearch

workin" studies workin" paper 1o,--( March ( thiruvananthapuram.

1arayana( ! .( ---. Bankin" +ector reforms and the emer"in"

Ine@ualities in Commercial Credit !eployment in India*( Centre for

!evelopment studies .

&amachandran( K / and Madhura +waminathan( 33( P$orei"n Banks*

Kiolations.

&an"arajan( C 9335: P&ural India( the role of Credit*( &eserve Bank of

India Bulletin( May7 Bombay7 &eserve Bank of India.


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&awal( Kikas 9--4: H Bankin" and credit &elations in &ural west

Ben"al( in &amachandran and +waminathan.

+iebel( 0 ! and 0 & !ave --( HCommercial Aspects of +0G

Bankin" in India.

ade( r. ---( HInternational Institutions and the 2+ &ole in the lon"

Asian Crisis of 33- D---.

ood G ! and I A +harif( eds( 33


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A44endi< table % N7mber of &ffice2, a66re6ate de4o2it2 and 6ro22 credit o7t2tandin6, all

2ched7le2 commercial ban2, in India %99 to $00$.ear No of ban &ff Credit &7t2tandin6 De4o2it2 Cr. De4 ratio=

R7ral = to R7ral >in = to R7ral >in = to R7ral All

353 44,


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Project - Rural Banking in India

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