Definition of 'Microfinance'

A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance. Microfinancing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid. Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. While these interest rates are generally lower than those offered by normal banks, some opponents

Instruments of RBIs Monetary Policy *INTRODUCTION ~The Reserve Bank Of India is the apex bank of the country. ~It plays an instrumental role on the financial markets of the country through its monetary policy. ~There are various instruments of RBIs Monetary policy. *INSTRUMENTS OF MONETARY POLICY: ~The RBI aims to achieve its objectives of economic growth and control of inflation through various methods. ~These methods can be grouped as: ^General or Quantitative Methods. ^Selective or Qualitative methods. 1) GENERAL OR QUANTITATIVE METHODS: ^ These methods maintain and control the total quantity or volume of credit or money supply in the economy. ^They are also called as credit control measures. ^The following are the different credit control measures adopted by the RBI:

i)BANK RATE: ^Bank rate (also known as discount rate)is the rate at which RBI rediscounts eligible papers like approved securities, bill of exchange and commercial papers held by the commercial banks. ^Thus it is the rate at which the RBI lends money to the commercial banks for their liquidity requirements. ^Changes in the bank rate affect the banks borrowing rate from the RBI which in turn influences the banks lending rates. Thus bank rate acts as a guideline to the banks for fixing their interest rates. ^Inflation leads to increase in the bank rate recession causes it to decline. ^In April 2010 the bank rate was fixed at 6%p.a. ii)OPEN MARKET OPERATIONS: ^Open Market Operations indicate the buying/selling of government securities in the open market to balance the money supply in the economy. ^During inflation, RBI sells the government securities to the commercial banks and other financial institution. This reduces their cash lending and credit creation capacities. Thus, Inflation can be controlled. ^During recessions, RBI purchases government securities from commercial banks and other financial institution. This leaves them with more cash balances for lending and increases their credit creation capacities. Thus, recession can be overcome. iii)REPO RATES AND REVERSE REPO RATES: ^ Repo rate and Reverse Repo rate are gaining significance in determining interest rate trends of commercial banks. ^Repo (SALE AND REPURCHASE AGREEMENT): ~ Repo is a swap deal involving immediate sale of securities and a simultaneous re purchase of those securities at a future date at a predetermined price. ^ Such deals take place between the RBI and other commercial banks and financial institution. ^ Commercial banks and financial institution also park their funds with RBI at a certain rate This rate is called the reverse Repo Rate. ^Repo rates and reverse repo rate used by RBI to make liquidity adjustments in the market.

^ At present, the Repo rate is 6.25% and the Reverse Repo rates is 3.75%. iv) CASH RESERVE RATIO: ^ The money supply in the economy is influenced by the cash reserve ratio. ^ It is the ratio of a banks time and demand liabilities to be kept in reserve with the RBI. ^ The RBI is authorised to vary the CRR between 3% and 15%. ^ A high CRR reduces the flow of money in the economy and is used to control inflation. ^ A low CRR increases the flow of money and is used to overcome recession. ^ At present, the CRR ratio is 5.75%. v)STATUTORY LIQUIDITY RATIO: ^SLR is the ratio requirement peculiar to India. ^Under SLR, banks have to invest a certain percentage of its time and demand liabilities In Government approved securities. ^The present level of SLR is 24%. ^The reduction in SLR enhances the liquidity of commercial banks. vi) DEPLOYMENT OF CREDIT: ^The RBI has taken various measures to deploy credit in different of the economy. ^The certain percentage of bank credit has been fixed for various sectors like agriculture, export, etc. 2) SELECTIVE / QUALITATIVE MEASURES: ~The RBI directs commercial banks to meet their social obligations through selective/ qualitative measures. ~These measures control the distribution and direction of credit to various sectors of the economy. ~The following are the various selective measures: i) CEILING ON CREDIT:

^ The RBI has imposed ceiling on bank credit against the security of certain commodities/ Securities. ^This imposes a limit on the amount of credit to different sectors. ^Such measures ensure financial discipline in the banking sector. ii) MARGIN REQUIREMENTS: ^A loan is sanctioned against collateral security. ^Margin is that proportion of the value of the security against which loan is not sanctioned. ^ Higher margin indicates lesser amount of loan. ^The margin (that varies from 20% to 80%) can be increased /decreased to encourage/discourage the flow of credit to a certain sector. iii) DISCRIMINATORY RATES OF INTEREST: ^ The RBI has introduced differential rates of interest for different use of credit. ^Through this method, resources can be directed to priority sectors and speculative use of bank finance can be avoided. iv) DIRECTIVES: ^RBI uses strict disciplinary action against banks that fail to follow its directives. ^The directives may be related to: ~Minimum margin requirement ~Maximum limit on advances to borrowers ~% of CRR and SLR ~Minimum lock-in period, etc. v) MORAL SUASION: ^This is the most actively used technique of monetary control. ^The RBI issues periodic letters and discussions to the banks about the trends in the economy, especially in money and credit.

^Thus the RBI acts as a reminder to the banking sector to follow credit control norms and meet its social obligation.

Instruments of the Monetary Policy

The instruments at the disposal of the RBI for managing money supply, interest rates and exchange rates are: Liquidity Management Cash Reserve Ratio Open Market Operations Managing Credit Expansion

Interest rate Management Repo Rate Bank rate Rates paid on government securities

Forex Management Tweaking the basket of currencies against which rupee rate is determined Market Intervention

Liquidity Management Cash Reserve Ratio: Banks reserve liquidity through their power to create credit. Presently in India, banks are required to maintain the following reserves: o o Cash Reserve ratio: 8.25% of demand and time deposits (w.e.f. 24.05.2008) Statutory Liquidity ratio: 25% of demand and time deposits

Just as additional cash inflows enable the banking system to create credit, any increase in CRR will require the banking system to contract credit by a large amount. SLR (Statutory Liquidity ratio) is a requirement peculiar to India. In addition to ensuring that banks can fall back on the readily saleable government deposits in the event of a run on the bank, it was a prescription to divert bank deposits to meet government investment expenditure. Open Market Operations:

Banks as well as other financial institutions, such as insurance companies, mutual funds and corporate with surplus cash are big investors in government securities. When RBI wishes to inject liquidity into the market, it has another option of buying government securities. When RBI offers to buy the securities at a rate that is better than the rate prevailing in the market, some of the investors can sell their holdings and the cash inflow would lead to credit creation of a large magnitude. Similarly, when RBI sells government securities at a higher rate than market rate, RBI absorbs funds and the banking system contracts credit by a large magnitude to reduce liquidity. This is known as open market operation. Managing Credit Expansion: CRR and OMO reduce liquidity in the system and reduce the ability of banks to create credit. RBI also controls sector specific expansion of credit by specifying maximum amounts that can be lent, minimum margins to be maintained and higher risk weights. When RBI feels that banks have overextended themselves to certain sectors, the flow of credit to certain sectors is leading to an imbalanced growth of the economy or it wants to control the price of certain commodities by preventing hoarding by wholesalers with borrowed funds, RBI makes sector specific or commodity specific interventions. Interest Rate Management Repo rate: Repo rate or repurchase rate is a swap deal involving the immediate sale of securities and simultaneous purchase of those securities at a future date, at a designated price. It could also be an overnight deal with sale taking place on day one and repurchase on day two. The repurchase price is adjusted for the interest payable for the use of funds for the period of contract. Reverse repo involves the immediate purchase and future sale of those same securities. RBI uses repo and reverse repo to control liquidity on a day-to-day basis. Bank rate: RBI provides refinance to banks against funds deployed by banks in specified sectors such as export finance portfolio of the banks. In the past, the bank rate used to be the primary interest rate tool of RBI. But over a period of time the repo rate has presently emerged as the primary interest rate tool and bank rate has lost much of its relevance. Changes in the bank rate are a signal to the market regarding the direction in which the RBI would like interest rates to move. Rates paid on government securities: RBI, as a banker to the government, helps government to borrow from the market by selling their securities. RBI also determines the timing, size, and rate paid on the issues. Rates offered by RBI on government securities are both a reflection of the market and also an indicator to the market on the direction of interest rate movements. Foreign Exchange Management Tweaking the basket of currencies:

The exchange rate of rupee is calculated by RBI based on the exchange rates of basket of currencies of countries with which India has significant trade transactions. RBI maintains confidentiality about the weightage given to each currency in the basket and when RBI wishes to manage the extent of volatility in the exchange rate of rupee, RBI adjusts the weightages properly. Market intervention: Large balance of payment surpluses and build up of Forex reserves are bound to strengthen the rupee in the exchange market. This market force cannot be counted by RBI for long periods of time. However, by intervening in the market by offering to buy any amount of foreign currency at a particular rate, RBI can prevent the sudden strengthening of rupee. RBI seeks to smoothen the movement of rates in either direction so than importers and exporters have time to adjust to the changing exchange rate scenario and are not caught by surprise by violent rate movements, which could cripple them.

Objectives and Framework In India, the objectives of monetary policy evolved as maintaining price stability and ensuring adequate flow of credit to the productive sectors of the economy. With progressive liberalisation and increasing globalisation of the economy, maintaining orderly conditions in the financial markets emerged as an additional policy objective. Thus, monetary policy in India endeavours to maintain a judicious balance between price stability, economic growth and financial stability. The monetary policy framework in India from the mid-1980s till 1997-98 can be characterized as a monetary targeting framework on the lines recommended by Chakravarty Committee (1985). Because of the reasonable stability of the money demand function, the annual growth in broad money (M 3) was used as an intermediate target of monetary policy to achieve the final objectives. Monetary management involved working out M3 growth consistent with projected GDP growth and a tolerable level of inflation. In practice, however, the monetary targeting approach was used in a flexible manner with feedback from the developments in the real sector. For example, if the real GDP growth was expected to be higher, M3 projection was revised upwards. In the 1990s, the increasing market orientation of the financial system and greater capital inflows imparted instability to the money demand function. Consequently, there was a shift to multiple indicators approach in the late 1990s. Under this approach, interest rates or rates of return in different markets along with movements in currency, credit, fiscal position, trade, capital flows, inflation rate, exchange rate, refinancing and transactions in foreign exchange available on a high frequency basis are juxtaposed with output data for drawing policy perspectives. The multiple indicators approach continued to evolve and was augmented by forward looking indicators and a panel of parsimonious time series models. The forward looking indicators are drawn from the Reserve Banks industrial outlook survey, capacity utilization survey, professional forecasters survey and inflation expectations survey. The assessment from these indicators and models feed into the projection of growth and inflation. Thus, the current framework of monetary policy can be termed as augmented multiple indicators approach 1.

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and

stability.[1][2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it.

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.[1] Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (to achieve policy goals).

History of monetary policy

Monetary policy is associated with interest rates and availabilility of credit. Instruments of monetary policy have included short-term interest rates and bank reserves through the monetary base.[6] For many centuries there were only two forms of monetary policy: (i) Decisions about coinage; (ii) Decisions to print paper money to create credit. Interest rates, while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy during this time. Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high economic growth.[1] In India, the central monetary authority is the Reserve Bank of India (RBI). is so designed as to maintain the price stability in the economy. Other objectives of the monetary policy of India, as stated by RBI, are:
Price Stability Price Stability implies promoting economic development with considerable emphasis on price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables the developmental projects to run swiftly while also maintaining reasonable price stability. Controlled Expansion Of Bank Credit One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirement for credit without affecting the output.

Major Operations
Open Market Operations An open market operation is an instrument of monetary policy which involves buying or selling of government securities from or to the public and banks. This mechanism influences the reserve position of the banks, yield on government securities and cost of bank credit. The RBI sells government securities to contract the flow of credit and buys government securities to increase credit flow. Open market operation makes bank rate policy effective and maintains stability in government securities market.

CRR Graph from 1992 to 2011[2] Cash Reserve Ratio Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances .Higher the CRR with the RBI lower will be the liquidity in the system and vice-versa.RBI is empowered to vary CRR between 15 percent and 3 percent. But as per the suggestion by the Narshimam committee Report the CRR was reduced from 15% in the 1990 to 5 percent in 2002. As of October 2011, the CRR is 6 percent.[3]

SLR Graph from 1991 to 2011[4] Statutory Liquidity Ratio

Every financial institute have to maintain a certain amount of liquid assets from their time and demand liabilities with the RBI. These liquid assets can be cash, precious metals, approved securities like bonds etc. The ratio of the liquid assets to time and demand liabilities is termed as Statutory Liquidity Ratio.There was a reduction from 38.5% to 25% because of the suggestion by Narshimam Committee. The current SLR is 24%.[5]

Bank Rate Graph from 1991 to 2011 Bank Rate Policy[6] Bank rate is the rate of interest charged by the RBI for providing funds or loans to the banking system. This banking system involves commercial and co-operative banks, Industrial Development Bank of India, IFC, EXIM Bank, and other approved financial institutes. Funds are provided either through lending directly or rediscounting or buying money market instruments like commercial bills and treasury bills. Increase in Bank Rate increases the cost of borrowing by commercial banks which results into the reduction in credit volume to the banks and hence declines the supply of money. Increase in the bank rate is the symbol of tightening of RBI monetary policy. Bank rate is also known as Discount rate. The current Bank rate is 6%. Credit Ceiling In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, priority sector lending. Credit Authorization Scheme Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes the banks to advance loans to desired sectors.[7] Moral Suasion

Moral Suasion is just as a request by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation. Repo Rate and Reverse Repo Rate Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. As the rates are high the availability of credit and demand decreases resulting to decrease in inflation. This increase in Repo Rate and Reverse Repo Rate is a symbol of tightening of the policy. As of October 2011, the repo rate is 8.25 and reverse repo rate is 7.25.

There are many functions of the central Bank.

1. it has the right to note issu. 2. it is the bank of the gobernment. 3. it is the advicer for the governmant to regulat the new money policies. 4. it is the last help for the commercial banks in case of thier financial crisis. 5. it provides the remittence facility. 6. it provides the facility of currency exchange. 7. it is responsible for the economic growth.. 8. it regulaytes the laws to balance the inflation and deflation in the economy

Read more: http://wiki.answers.com/Q/What_are_functions_of_central_bank#ixzz1x1JNPjI7

REGIONAL RURAL BANKS The Narasimham committee on rural credit recommended the establishment of Regional Rural Banks (RRBs) on the ground that they would be much better suited than the commercial banks or co-operative banks in meeting the needs of rural areas. Accepting the recommendations of the Narasimham committee, the government passed the Regional Rural Banks Act, 1976. A significant development in the field of banking during 1976 was the establishment of 19 Regional Rural Banks (RRBs) under the Regional Rural Banks Act1976. The RRBs were established with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto . Objective Functions Regional Rural Banks in India Regional Rural Banks in Tamil Nadu

RRBs established with the explicit objective of

Bridging the credit gap in rural areas Check the outflow of rural deposits to urban areas Reduce regional imbalances and increase rural employment generation

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. Each RRB will operate within the local limits specified by notification. If necessary a RRB will also establish branches or agencies at places notified by the Government. Each RRB is sponsored by a public sector bank which provides assistance 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 of personnel during the initial period of its functioning. Functions 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 (a) 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

(b) 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. 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. Regional Rural Banks in India
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The State Bank of India is one of the major commercial banks having regional rural banks. There are 30 Regional Rural Banks in India, under the State Bank of India and it is spread in 13 states across India. The number of branches the SBI Regional Rural Banks is more than 2000. Several other banks, apart from the State Bank of India also functions as the promoter of rural development in India.

The RBBs Act has made various provisions regarding the incorporation, regulation and working of RRBs. According to this Act, the RRBs are to be set-up mainly with a view to develop rural economy by providing credit facilities for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas. Such facility is provided particularly to the small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs and for other related matters. The objectives of RRBs can be summarized as follows: (i) To provide cheap and liberal credit facilities to small and marginal farmers, agriculture labourers, artisans, small entrepreneurs and other weaker sections. (ii) To save the rural poor from the moneylenders. (iii) To act as a catalyst element and thereby accelerate the economic growth in the particular region. (iv) To cultivate the banking habits among the rural people and mobilize savings for the economic development of rural areas. (v) To increase employment opportunities by encouraging trade and commerce in rural areas. (vi) To encourage entrepreneurship in rural areas. (vii) To cater to the needs of the backward areas which are not covered by the other efforts of the Government? (viii) To develop underdeveloped regions and thereby strive to remove economic disparity between regions.

Reform Measures Introduced For Regional Rural Banks

Some of the suggestions listed above may not be implemented for certain practical reasons/problems by the concerned authorities. We may also discuss few of them here. RRBs were set-up mainly to improve the economic conditions of the regions by providing adequate credit to the neglected sections of the population. Poverty Alleviation programmes are mainly intended to help such sections of the society. Hence, the suggestion to reduce the target has no valid reasons. Priority Sector Advances Till 1996, RRBs were permitted to provide credit only to "Target Group" borrowers who are the main beneficiaries under priority sector advances. RRBs are now required to provide compulsory credit to priority sector only to the extent of 40 per cent of their outstanding advances as in the case with commercial banks. Security norms against all advances are prudential banking policy to ensure safety of funds. Hence, banks are expected to follow such a policy. NRI Deposits The RRBs are slowly moving away from provider of credit to Investor of funds. Unless, RRBs collectively reveal a marked shift towards increased lending operations, the funds mobilized from NRIs will remain idle funds or flow into increased investment activity. Further, this facility may merely shift funds from PSU banks to RRBs and not from foreign banks or private sector banks since PSU bank branches are the main competitors in rural and semi- urban areas. Foreign/ new private sector banks do not open branches in those areas. RBI, however, permitted RRBs to maintain non-resident rupee accounts from the year 2001. Exposure Norms Exposure norms are universal banking feature. In India, it is now reduced to 20 per cent. However, some of the international Banks have actually fixed a lower limit for their operations. It is not a prudent measure to put all or most of the eggs in a single basket. Institutions like IDBI, SIDBI or ICICI provide long-term finance. Although many of these institutions are directly or indirectly owned by Government, there is no guarantee that these institutions will not lose money in their operations. For example, IFCI has large quantum of possible loss asset in their balance sheet. Similarly, investment institutions like UTI may also lose money if capital market fares badly as it happened to it in 1998. More so RRBs are not expert bankers in credit appraisal or in investment decisions. Hence, it is not desirable to relax the norms. In all, 142 RRBs showed improvement in their performance either by way of increase in profits or reduction in losses or by shifting from loss position to profit position. The number of RRBs, which has wiped out the accumulated losses increased to 80 as on 31 March 2001 from 55 at the end of the previous year. These RRBs together have also built up reserves of more than Rs. 1,265 crore as on 31 March 2001. Another 90 RRBs have attained current viability and reduced their accumulated losses to Rs. 1,700.46 crore as at the end of 31 March 2001 from Rs. 1,872.49 crore at the end of the previous year. RRBs as a group have earned an aggregate net profit of Rs. 600.62 crore during 2000-01 as against Rs. 429.96 crore in the previous year.

The accumulated losses of RRBs as a group declined from Rs. 2,978.90 crore as on 31 March 2000 to Rs. 2,792.59 crore as on 31 March 2001. Impact of Restructuring Programme on RRBs During 2001-02, 167 RRBs earned profit of Rs. 699.93 crore as against only 32 RRBs earning profit of Rs. 29 crore during 1994-95. The losses incurred by the RRBs reduced from Rs. 423 crore (164 RRBs) to Rs. 92.05 crore (29 RRBs) during the same period. The RRBs as a group made a profit of Rs. 73 crore for the first time during 1997-98 and improved the same further to Rs. 601 crore and Rs. 699.93 crore during the last two years, i.e., 2000-01 and 2001-02. The viability based categorization of RRBs as on 31 March 2001 shows that of the 196 RRBs, 80 RRBs have wiped off their accumulated losses and in a way attained a sustainable viability whereas 90 other RRBs have achieved a turn around and attained a current viability status leaving only 29 RRBs which continued to incur losses. The total loans disbursed by RRBs have increased from Rs. 1,440 crore in 1993-94 to Rs. 6,938 crore in 19992000 and further to Rs. 8,783 crore in 2000-01. The total outstanding advances of RRBs stood at Rs. 15,816 crore as on 31 March 2001compared to Rs. 5,253 crore as on 31 March 1994. The recovery performance of RRBs improved consistently from around 40% as on 30 June 1992 to around 65% in 1999-2000 and further improved to 70.59% as on 30 June 2001. The NPAs of RRBs have also declined at 19 per cent of total loans outstanding as on 31 March 2001 as against 43 per cent as on 31 March 1996. Despite the limitations most RRBs, barring a few chronically weak banks have performed reasonably well during 2001 and still better in 2002. They have realized that there is no future for them unless they help themselves. All RRBs have improved their performance due to the policy measures initiated. The infusion of additional funds has helped the individual banks selected during 1994-95 in improving their earning capacity. Even in case of non-selected banks the efficiency level appears to have been perceptibly improved. To speed up the process further policy measures such as appropriate legal support, strengthening of the labour laws and personnel policies, professionalizing RRB boards allowing greater freedom to the boards in self governance, freedom relating to certain aspects of loaning processes, creation of more conducive recovery climate, etc., are needed. The structural composition may also need to be more flexible in terms of ownership and branch network. Greater responsibility and opportunities for RRBs are emerging out of the Banking Sector Reforms and efficient banks may gain more strength while the weaker ones may find their existence difficult

The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to co operative, the expectations the co operative is supposed to fulfil, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India plays an important role even today in rural financing. The businessess of cooperative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

Farming Cattle Milk Hatchery Personal finance

Cooperative banks in India finance urban areas under:

Self-employment Industries Small scale units Home finance Consumer finance Personal finance

Some facts about Cooperative banks in India

Some cooperative banks in India are more forward than many of the state and private sector banks. According to NAFCUB the total deposits & lendings of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele.