INDIAN INSTITUTE OF TECHNOLOGY ROORKEE

Rural Banking
(In India)
Introduction

•Rural banking in India started since the establishment of

banking sector in India.
•As the name suggests, includes banking organizations
operating in rural or sub-urban background.

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Introduction

•The area of operation is limited to few districts or a region of a

state.

•Started with the main focus on Agricultural sector.

•Gradually raise its participation in trade, commerce, industry

and other productive activities in the rural areas.

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Current Status

•Rural population of about 780 million with limited access to

financial services.
•A high proportion of rural lending is from informal sources.
•About 500-600 million people in India still do not have bank
accounts.
•Rural economy(Agriculture + on-agriculture) constitute about
50% of GDP.
•Current demand for credit in Rural India is around Rs.1,33,000
Crs.
•Commercial bank branches cover only 7% of rural sector and
large market is still untapped.

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A Peek Over Past

•Informal lending : large set of lenders ranging from

moneylenders, financiers, landlords, traders and shopkeepers,
friends and relatives.
•High interest rates.
•Interest overpass the principal amount.
•Debt passes from one generation to another.
•Wrong calculation of interest amount.

•Exploitation of village poor by these above given means is

excellently described in the famous novel “Godaan” by Munshi
Premchand.

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•In 1975 GOI setup Narasimham Committee To learn various
cultural issues which are hindering commercial banks to lend to
farmers.
•On the basis of this committee’s recommendations, a Regional
Rural Banks Ordinance was passed in September 1975, which
was replaced by the Regional Rural Banks Act 1976.
•Regional ndRural banks came into existence in 1975 on Gandhi
Jayanti (2 Oct) with the formation of “Prathama Gramin
Bank”.

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 Rural
Banking

Regional Rural Banks

Cooperative Banks

National Bank For Agricultural

and Rural
Development(NABARD)
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Regional Rural Banks(RRBs)

•Established under the provisions of an Ordinance passed on

26 September 1975 and the RRB Act. 1976 to provide sufficient
banking and credit facility for agriculture and other rural
sectors.
•These were set up on the recommendations of The
Narasimham Working Group during the tenure of Indira
Gandhi's government with a view to include rural areas into
economic mainstream.
•These are the Banks which mainly operate over a small region
sometimes limited to rural regions of few districts.

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•RRBs are mainly owned by central government, state
governments and sponsor Banks.

Share of Various Organizations

Central Govenmetn State Government Sponser Banks

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•Initially the upper ceiling over interest rate charged but from
august 1996 RRBs were given full freedom to their own rates of
interest.
•The interest rates mainly revolves around 14-18% for
advances.
•Due to their low their low capital to risk weighted Assets
Ratio(CRAR) They subsequently gets helps from Governments
and their sponsor banks to maintain a CRAR ratio of 7-9%.

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Credit Flow Of RRBs

%
Agricultural % Agricultural Growt
YEAR Total Credit(Cr.) Credit to total h in
Credit(Cr.) Credit
Agricultural Total Credit
Credit

2008-2009 43367.13 26439.17 61 13.77 12.4

2009-2010 56079.24 34639.94 62 31.02 29.31
2010-2011 71724.19 43965.45 61 26.92 27.90
2011-2012 82538.39 53058.14 64 20.68 15.08
2012-2013 102161.70 64902.91 57 22.32 23.77
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 Trends of Deposits of RRBS During 2005 to 2009
112828

94412

81620

64195
58286

2005 2006 2007 2008 2009

2005 2006 2007 2008 2009

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Organizational Structure

•Board of Directors
•Chairman & Managing Director
•General Manager
•Chief Manager/Regional Managers
•Senior Manager
•Manager
•Officer / Assistant Manager
•Office Assistant (Multipurpose)

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Current Scenario

•Mostly running into losses.

•Currently, RRB's are going through a process of amalgamation
and consolidation to prevent losses.
•At Present there are 56 RRBs in India.
•Some of the Most famous RRBs are:-
Allahabad UP Gramin Bank
Punjab Gramin Bank
Dena Gujarat Gramin Bank
Uttarakhand Gramin Bank
Prathama Bank
Etc.

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Cooperative Banks

•Cooperative banking is retail and commercial banking

organized on a cooperative basis.
•Co-operative Banks in India are registered under the Co-
operative Societies Act.
•They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
•In urban areas, they mainly serve small industry and self-
employed workers.
•“Anyonya sahkari mandali” established in 1889 in the province
of Baroda, is the earliest known cooperative credit union in
India.

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•These Institutions mainly accepts Deposits and Lend Money to
the members only.
•Follows all Prudential Rules and Regulations.
•Provides Financial means to the People to prevent them from
debt trap of money lenders.

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•Two of the major success of cooperatives are:-
Gujarat Dairy Cooperatives(Amul).
Maharashtra’s sugar co-operative.

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Organizational Structure

•Urban Cooperative Bank : monitored by RBI

•Rural Cooperative Bank :
• Short Term Cooperatives:-
State Cooperative Banks
District Central Cooperative Banks
Primary Agricultural Credit Societies

Long Term Cooperatives:-

State Cooperative Agriculture and Rural
Development Banks (SCARDS).
Primary Cooperative Agriculture and Rural
Development Banks (PCARDBS).

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Facilities

•They Mainly finance rural activities such as:-

 Farming
 Cattle
 Milk
 Hatchery
 Personal Loans

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Self Help Groups(SHGs)

•Local cooperative village groups mainly for woman's intended

to provide economic
support and to promote savings
in rural areas.
• It can be registered or
•unregistered.
•Borrowings are made without
without any collateral.

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National Bank for Agriculture and Rural
Development
•NABARD is an apex development bank in India.
•A committee setup by RBI under the chairmanship of Shri
B.Sivaraman conceived and recommended the establishment
of NABARD.
•It was established on 12 July 1982 by a special act by the
parliament and its main focus was to uplift rural India by
increasing the credit flow for elevation of agriculture & rural non
farm sector.
•GOI holds 99% stake in this bank. st
•Started with capital of 100 crs and on 31 march 2014,it stood
upto 4700 crs.

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Roles

•Facilitates credit flow for promotion and development of

agriculture, cottage and village industries.
•It regulates the cooperative banks and the RRB’s.
•NABARD refinances the financial institutions which finances
the rural sector.
•Acts as Fatherly figure for other developmental activities going
over in region.
•SHG Bank Linkage
•Programme.

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Lending Facilities

•Short Term Landings:- Refinance at concessional rate of

interest to State Cooperative Banks (SCBs) and Regional Rural
Banks (RRBs) by way of sanction of credit limits. Each
withdrawal against the sanctioned credit limit is repayable
within 12 months.
•Medium Term landings:- It provides medium-term loans to
SCBs for periods of 3 to 5 years. Mainly for agricultural
purposes.
•Long Term Agricultural Credits:- Long-term credit for agricul-
ture is provided mainly through investment in the debentures of
SLDBs.

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Non-Agricultural Finance

•The NABARD provides short- term finance for:

The production and marketing activities of selected cottage and small-
scale industries (mostly handloom weavers’ co-operative societies)
The purchase and distribution of fertilizers.

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Kisan credit card

•A Kisan Credit Card is a credit card facility to provide

affordable credit for farmers in India.
•It was started by the Government of India, Reserve Bank of
India (RBI), and National Bank for Agriculture and Rural
Development (NABARD) in 1998-99 to help farmers access
timely and adequate credit.
•Various private banks can also offer such cards to farmers.

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Number of KCCs
40
Series 1
35

30

25

20

33.79
15 30.24
27.11
24.31
10

0
40238 40603 40969 41334

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Importance of Rural Banking

•Nearly about 70% Indians resides in Villages.

•Farmers are often need of banking facilities such as loans,

insurances etc., if banking facilities lacks in rural areas farmers
will have to suffer which makes economy to suffer.

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•To widen the economic base the time has come to deepen its
root since no space is left over the surface to expand.

•In conditions of Droughts or some other calamities such

services are life saving.

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•In Absence of such services Farming will be worse affected
which in turn will be affecting you as the prices of vegetables
and other agricultural products will rise.
•It also saves farmers from the hands of money lenders and
zamindars, and prevents them from falling into the cycle of
borrowing and repaying.

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Possible Suggestions

•Services such as Gold loans should also be introduced.

•The process of loans should be made simple considering the

illiteracy of people of rural background.

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 “The importance of the rural banking in the economic
development of a country cannot be overlooked. As
Gandhiji said “real India lies in villages,” and village
economy is the backbone of Indian economy. Without
the development of the rural economy, the objectives of
economic planning cannot be achieved”

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Thank You

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