ON RURAL FINANCE AND RURAL
BANKING IN INDIA
* Rural banking in India started since the establishment of
banking sector in India.
* Rural banks mainly focused upon the agro sector.
* SBI- Largest bank catering to Rural banking.
* Haryana State co-operative apex bank limited, NABARD,
Sindhanur urban souharda co-operative bank, united bank of
India are others banks operating in rural markets.
The two credit sources available to the farmers are
institutional and private. Institutional sources consist
of the co-operatives and commercial banks including
Regional Rural Banks. Non- institutional or private
sources include moneylenders, traders, commission
agents and landlords.
SOURCES OF RURAL FINANCE
Institutional Sources Of Finance
At present three agencies supply institutional finance
to farmers. They are co-operatives, commercial bank
and the RRBs.
Credit Delivery Mechanism In Rural Finance:
The RBI has been taking keen interest in expanding rural
credit. It has been taking a series of steps for providing timely
and adequate credit through NABARD. The capital base of
NABARD has been strengthened with both Government of
India and RBI contributing to it. Scheduled commercial banks
excluding foreign banks have been forced to supplement
NABARD’s efforts- through the stipulation that 40% of the net
bank credit should go to the priority sector, out of which at
last 18% should flow to agriculture.
Role Of RBI In Rural Credit
In recent years, a number of micro-finance initiatives
have been introduction out of which Micro-finance is
a novel approach to “banking with poor” as they
attempt to combine lower transaction costs and high
degree of repayments.
KISAN CREDIT CARDS
Another notable development in recent years is the
introduction of Kisan Credit Cards (KCCs) in 1998-99.
The purpose of the KCCs scheme is to facilitate short-
term credit to farmers.
It is necessary to protect the farmers from natural
calamities like drought, flood and pests, etc., as
agriculture is highly susceptible to such risks and
ensure their credit eligibility from the next season.
Towards this purpose, the government of India
introduction a comprehensive crops insurance
scheme throughout the country in 1995 covering
major cereal crops, oilseeds and pulses.
Commercial bank first took interest in rural finance
when the State Bank of India was created in 1995 to
provide, among others, credit facilities for co-
operative processing and marketing societies. An
important argument in support of bank
nationalization was that commercial bank had kept
themselves aloof from the problems of agriculture
and remained largely indifferent to the credit needs of
farmers for agricultural operations and land
COMMERCIAL BANK AND RURAL CREDIT
In the field of financing agriculture, the problems
concern quantitative and coverage aspects. The RRBs
have been under severe financial strain on account of
higher transaction costs involved in handling of a
large number of small-sized loan accounts; and
somewhat lower interest income as a result of
concessional rates of interest on small-sized loans.
Problems Of Commercial Banks In Rural Credit
The main objective of RRBs is to provide credit and
other facilities particularly to the small and marginal
REGIONAL RURAL BANKS(RRBs)
Public Sector Banks adopted a new strategy for
landing on the basis of a study on the impact of bank
credit in the rural sector viz., “Service Area Approach”
under which each semi-urban and rural branch of
commercial banks was assigned a specific area
comprising a cluster of villages within which it would
operate, adopting a planned approach.
SERVICE AREA APPROACH (SAA)
Agricultural credit to farmers and refinancing to
cooperative agricultural Rural Development Banks is
provided by National Bank for Agricultural and Rural
Development which is apex institution for agricultural
credit at the national level.
NATIONAL BANK FOR AGRICULTURE AND
RURAL DEVELOPMENT (NABARD)