new project ankita

7/29/2019 New Project Ankita

1/58

1

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,


2/58

2

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


3/58

3

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


4/58

4

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.


5/58

5

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.


6/58

6

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.


7/58

7

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.


8/58

8

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.


9/58

9

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.


10/58

10

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.


11/58

11

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


12/58

12

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


13/58

13

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.


14/58

14

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.


15/58

15

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).


16/58

16

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).


17/58

17

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


18/58

18

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.


19/58

19

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.


20/58

20

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.


21/58

21

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.


22/58

22

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


23/58

23

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.


24/58

24

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


25/58

25

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.


26/58

26

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


27/58

27

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


28/58

28

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


29/58

29

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.


30/58

30

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


31/58

31

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


32/58

32

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


33/58

33

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


34/58

34

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.


35/58

35

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


36/58

36

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.


37/58

37

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


38/58

38

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.


39/58

39

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.


40/58

40

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.


41/58

41

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.


42/58

42

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


43/58

43

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.


44/58

44

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.


45/58

45

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.


46/58

46

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


47/58

47

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.


48/58

48

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.


49/58

49

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


50/58

50

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


51/58

51

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


52/58

52

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


53/58

53

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


54/58

54

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


55/58

55

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


56/58

56

MIZORAM: Mizoram Rural Bank

UTTARANCHAL: Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank


57/58

57

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.


58/58

WEBLIOGRAPHY:www.ruralbank.comwww.ruralbankinginindia.com
http://www.ruralbank.com/http://www.ruralbank.com/http://www.ruralbankinginindia.com/http://www.ruralbankinginindia.com/http://www.ruralbankinginindia.com/http://www.ruralbank.com/

new project ankita

Documents