INTRODUCTION TO RURAL BANKING

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. Typically, an agent of the bank will visit these
rural locations and offer to make transactions in an official capacity.

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. The demand for rural banking is
still high in some areas.

Regional Rural Banks were established under the provisions of an ordinance

 promulgated on 26th September !"# and the RRB $ct, !"6 with an
ob%ective to ensure sufficient institution credit for agriculture and other rural
sectors. The RRBs mobili&e financial resources from rural ' semi(urban areas
and grant loans and advances mostly to small and marginal farmers,
agricultural labourers and rural artisans. The area of operation of RRBs is
limited to the area as notified by )overnment of *ndia covering one or more
districts in the state.

1 | RU RA L B AN KI NG
 

$s stated earlier RRBs are %ointly owned by )overnment of *ndia, the

concerned State )overnment and sponsor Banks +2" scheduled commercial
 banks and one State cooperative Bank- the issued capital of a RRB is shared
 by the owners in the proportion of # /, #/ and 0#/ respectively.

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OVERVIEW OF REGIONAL RURAL BANKS

The institution of Regional Rural Banks +RRBs was created to meet

the e1cess demand for institutional credit in the rural areas, particularly
among the economically and socially marginali&ed sections. $lthough the
cooperative banks and the commercial banks had reasonable records in terms
of geographical coverage and disbursement of credit, in terms of population
groups the cooperative banks were dominated by the rural rich, while the
commercial banks had a clear urban bias. *n order to provide access to low(
cost banking facilities to the poor, the arasimham 3orking )roup +!"#
 proposed the establishment of a new set of banks, as institutions which
4combine the local feel and the familiarity with rural problems which the
cooperative possess and the degree of business organi&ation, ability to
mobili&e deposits, access to central money markets and moderni&ed outlook 
which the commercial banks have5. The multi(agency approach to rural credit
was also to sub serve the needs of the input(intensive agriculture strategy
+)reen Revolution which had initially focused on betting on the strong7 but
 by the mid(seventies was ready to spread more widely through the *ndian
countryside.

Table-1 Expansion o Re!ional Ban"in!#-1$%&-1$$'#

De()1$%& De()1$*' De()1$*& +a,)1$$'

Ban"s  *& 1** 1$

B,an(.es 1% /0%$ 10' 1/

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By !!, there were !6 RRBs with over 8, predominantly rural branches
in 8"6 districts with an average coverage of three villages per branch. These
 banks had disbursed over Rs.0, # crore in credit and mobili&ed over Rs.8, 
crore in deposits. 9erhaps the most significant achievement of the RRBs during
this period was in enablin! 2.e 3ea"e, se(2ions o 2.e ,4,al (o554ni26
a((ess 2o ins2i242ional (,e7i2)  The bulk of the loans from RRBs were to the
 priority sectors, which accounted for over " per cent of the total. $griculture
and allied activities took up more than # percent of the total advances.

The year !! marks the end of the e1pansion phase of regional
 banking, beyond which there has been no growth in the number of Regional
Rural Banks +including branches.

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ROLE OF RURAL BANKS IN ECONO+IC

DEVELO8+ENT

The importance of the rural banking in the economic development of a

country cannot be overlooked. $s )andhi%i said 4Real *ndia lies in villages,5
and village economy is the backbone of *ndian economy. 3ithout the
upliftment of the rural economy as well as the rural people of our country, the
ob%ectives of economic planning cannot be achieved. *n fact, the real growth
of *ndian economy lied in the emancipation of rural masses from acute
 poverty, unemployment, and socio(economic backwardness. :eeping this end
in view, various important plans and programs of rural development have
 been conceived and implemented by the government of *ndia since the
commencement of first five(year plan from !#(#6. But an appraisal of the
achievement of these programs clearly reveals that much programs failed to
achieve the desired ob%ectives due to the backward economic condition and
lack of ade;uate finance to the poor people in the rural areas. <ence, bank and
other financial institutions are of vital importance for development of rural
economy of a country.

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OB9ECTIVES OF RURAL BANKS

The RBBs $ct has made various provisions regarding the incorporation,
regulation and working of RRBs. $ccording to this $ct, 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 laborers, artisans, and small entrepreneurs and for other related
matters.

T.e ob:e(2i;es o RRBs (an be s455a,i<e7 as ollo3s#

+i To provide cheap and liberal credit facilities to small and marginal farmers,
agriculture laborers, 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 mobili&e
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.

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+vii To cater to the needs of the backward areas which are not covered by the
other efforts of the )overnment.

ROLES OF REGIONAL RURAL BANKS

8ROVISION OF CREDIT

The main function of RRBs is to provide short term and long(term finance
to farmers. The finance is provided for the following purposes=

 Short term finance to meet working capital needs such as payment of 
wages, purchase of seeds and fertili&ers, transportation e1penses, etc.
 >edium term finance to meet medium term needs such as purchase of 
cattle, digging of wells etc.
 ?ong term finance to meet fi1ed capital needs such as purchase of land,
 purchase of tractors, etc.
They provide finance at low interest rates. This has resulted in less
dependence on money lenders in respect of agricultural credit.

RESEARC= AND DEVELO8+ENTS

The RRBs finances research and development in the field of agriculture. Such
R @ A activities help to develop new and better inputs, techni;ues and
technology, as a result, better ;uality of seeds, fertili&ers and farm e;uipment
is developed. This helped to improve the production and productivity of 
agricultural crops.

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CO++UNIT> DEVELO8+ENTS

RRBs have helped in improving the life in rural areas. They provide
social education to farmers and others in villages so that they give up their 
 bad habits like gambling, drinking li;uor etc.

Through workshops and documentaries the RRBs have made attempts

to make rural masses about social evils like child marriages, reckless spending
during festivals, marriages etc.

+ARKETING SERVICES

The RRBs assists the farmers in their marketing activities. They

 provide advice to the farmers in respect of packing, transportation- etc. the
marketing advice helps the farmers to take proper marketing decisions. This
in turn helps the farmers to get better prices for their products.

SU88L> OF FUNDS

The RRBs not only provide funds, but they also make efforts to supply
good ;uality inputs like seeds ,fertili&ers, pesticides, etc. this helps to improve
the productivity of land. The inputs are provided at good rates as part of the
discount on bulk purchases is passed on to the farmers.

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LI+ITATIONS
OF RURAL
BANKING

The institutional agriculture credit in *ndia is faced with many

 problems. The *ndian continues to depend on the money lenders for his
financial re;uirements in spite of the institutional framework.

The various problems are=

INADE?UATE FINANCE

$ basic feature of the credit problem is its overall inade;uacy-

 particularly of the institutional credit. The credit provided by the cooperative
 banks and commercial banks is not sufficient to meet the re;uirements of the
farmers. The banks mostly provide short term credit and not the long term
credit. There is a need of more long term finance from land development
 banks.

 ot only the right ;uantity of long term institutional finance is

available, but also it is not available at the right time.

8ROBLE+ OF SECURIT>

 ormally the banks insist on security to sanction loans to the farmers.

The security may be in form of land or other assets. The small and marginal

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farmers find it difficult to obtain funds as they have limited amount of land to
offer as security.

8ROBLE+ OF +AINTAINING BRANC=ES

The commercial banks as well as the cooperative banks find it difficult to

maintain branches in rural areas. This is due to low banking business and high
overheads in form of staff salaries, offices rent, and other overheads. <ence
the banks do not give much importance to set up branches in certain rural
areas. The commercial banks also have face problems in sanctioning and
monitoring of a large no. of small advances in their rural branches, as it is
time consuming and unprofitable.

LACK OF TRAINED +AN8OWER 

The banks often face problem of untrained manpower in rural areas.

The staff and the officers often lack knowledge of the financial re;uirements
of the farmers and again they may have a negative attitude towards the
farmers. *n order to achieve about the financial re;uirements of the farmers.

8ROBLE+ OF RECOVER>

There is the problem of recovery of credit provided to the farmers both

the rich farmers as well as the poor ones. The large and rich farmers
deliberately avoid repaying loans and the small farmers find it difficult to
repay their loans. $lso ;uite often, there is political pressure on the banks to

10 | R U R A L B A N K I N G
 

write off the loans. This result in demotivation to the banks to provide credit
in rural areas.

CORRU8T OFFICIALS

The officials of banks adopt corrupt practices. They often provide

finance to their friends and relatives. Small and marginal farmers face great
difficulty in obtaining finance. <ence they have to depend upon the money
lenders for their financial re;uirements. ot only have the officials favored
their friends and relatives to obtain loans. But they are also corrupt in
sanctioning loans. They do ask for the bribes and adopt other corrupt practices
at the time of sanctioning, and disbursement of loans.

LACK OF A ROBUST GOVERNANCE STRUCTURE

3hile other rural financial services providers like Scheduled ommercial

Banks and private banking entrants have robust processes for functions
ranging from <R to product development, RRBs are largely insulated in
operation and lag behind their commercial counterparts in efficiency and
rationali&ation of process as well as governance mandates.

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UNDEFINED ROAD+A8

The rural banks share of woes also includes budgetary constraints, mounting
over(dues, lack of ade;uate infrastructure facilities, and limited channels of
investment. Cwing to these problems, some banks are not able to achieve
financial viability. *n addition, they have little visibility into operational and
 business imperatives. 3orking for growth in very challenging conditions,
sustenance is possible only when they have a clear roadmap for=

• $biding relationships with customers through customer data analysis.

• Cperations with clear cost(efficiency and productivity.

• Dnified 06(degree view of the business.

• Relevant and timely product innovation.

URBAN-ORIENTATION OF STAFF

$ crucial practical difficulty e1perienced in their working by the RRBs is the

urban orientation of their staff which is rarely inclined to serve in rural areas.

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There is no true local involvement of the bank staff in the village where they
serve.

REGIONAL RURAL BANKS TODA>

There are around 00 RRBs spread over 20 states'Dnion Territories and with a
network of 8,8!8 branches, accounting for 88.# per cent of the total rural
network of all scheduled commercial banks +including RRBs. The rural and
semi(urban branches of RRBs constitute !E per cent of their network. Their 
deposits and advances as on >arch 0, 20, were Rs. ",02! crore and
Rs.22, 2E crore respectively. Thus RRBs have done well in mobili&ing rural
deposits and infusing the thrift habit in their clients.

Cut of !6 RRBs, in 22(20 the number of profit making banks

stood at 6" in 2(22 as compared with " in 2(2.<owever 
RRBs out of total 00 registered profits in the year 2#(6. The combined
 et 9rofit of RRBs for the year 2(22 aggregated Rs.6E rores as
against the combined net profit of Rs.6 rores in the previous year. The
aggregate accumulated losses of RRBs declined from Rs.2"#2.#! rores as
on 0 >arch 2 to Rs 260" rores as on 0 >arch 26.

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$s a result of the various reforms measures, the RRBs showed

substantial turn(around in their performance. The RRBs also displayed
;ualitative improvement in their 9$ management and gross 9$s as
 percentage of gross advances stood at 0.!!/ as on 0(0(26, down from
02.E at >arch(end !!E.Similarly, the recovery performance of the RRBs
steadily improved with the percentage of recovery to demand raised at E/ as
on 2#(26 from 6.2/ at end(Fune !!E+8.2/ at end(Fune !!0.

The bulk of the loans from RRBs have been to priority sectors, which
accounted for over " per cent of the total. $griculture alone took up 86 per 
cent of the priority sector advances. The involvement of RRBs in providing
credit support to small and retail trade and other non(farm rural activities is
 better than that of co(operative and commercial banks. $s on >arch 0, 22,
the outreach of RRBS in terms of number of deposits and advances was #.2
million and .!8 million respectively. lientele for loans and deposits in the
rural sector are low(value, but large volume. RRBs have served this clientele
in a more productive and efficient manner vis(G(vis other Banks.

9er(employee, EE# accounts are handled by RRBs against the national

average of 868 accounts per employee in the banking industry.

RRBs have also taken a lead role in financing of Self <elp )roups
+S<)s mostly comprising of women leading to their economic and social

14 | R U R A L B A N K I N G
 

empowerment. The share of RRBs in S<)(Bank linkage programme is

e;ually commendable.

 RECENT +EASURES

*t is only in the past few years that the unwanted effects of reform measures
on rural banking have begun to be recogni&ed in certain official ;uarters. That
the improved performances of the RRBs H 60 out of !6 RRBs were earning
 profits in 20(28 was largely a result of the banks abrogating their credit
intermediation role rather than a sign of their genuine health and vibrancy is
 pitifully obvious. >oreover, the agrarian distress and stagnation of the rural
economy has become too stark and imminent and, of course, the political
ramifications of the crisis can no longer be ignored.

$mong the various official committees that were set up review the situation
and make policy recommendations on the future course of development of the
RRBs, the 9arliamentary Istimates ommittee +22(0 had come up with a
number of useful suggestions to tackle the shrinking credit delivery to the
 priority sector and the rural areas=

15 | R U R A L B A N K I N G
 

• $mong RRBs which are making absolute profit, the credit(deposit ratio
should not be lower than "#/ and for those which are making profits but
still have accumulated losses, an increasing trend of the ratio should be
ensured and their investment portfolio should get reduced accordingly.

• The priority sector lending by RRBs has been declining and as per latest
figures, priority sector lending to agriculture and other allied activities
comes to about #" / of the total lending. There could be no rationale for 
fi1ing the same norms for lending to priority'agricultural sector by the
RRBs as in the case of commercial banks. The RB* should apply proper 
checks to ensure that the present level of #"/ of lending by the RRBs to
the priority sector is not allowed to decline further. $nd it should look into
the desirability of enhancing the percentage of lending to the priority
sector.

• The committee is constrained to note that the percentage of loans to small

and marginal farmers out of total loans disbursed by the RRBs has been
declining steadily. The RRBs do not maintain separate details of number 
of accounts of small and marginal farmers. *n the absence of such
information it is difficult to understand as to how RRBs ensure credit
disbursement to small'marginal farmers and other weaker sections of 
society as per the guidelines issued by the )overnment'the RB*. The
committee recommended that the RRBs should take steps for compiling
and maintaining data regarding credit facility e1tended to small and
marginal farmers and other weaker sections of the society to monitor that

16 | R U R A L B A N K I N G
 

credit facilities being provided by the RRBs reach the targeted

 beneficiaries.

Cn the issue of 9$s of the RRBs, the committee e1pressed its dissatisfaction
at the current levels. 3hile the official statistics highlights the decline in
 9$s from 08 percent in >arch !!6 to 0.!! percent in >arch 26.Jery few
of the above recommendations were, in fact, accepted by the
RB*')overnment of *ndia. Krom the year 20(8, the RB* revised upwards
the lending target for priority sector to 6 percent of the total advances for the
RRBs. $mbitious overall credit targets were laid down for the RRBs by the
Dnion )overnment.

The farm credit target for the RRBs at Rs ,! crore for the fiscal year 
2#(26 is 8 percent higher than Rs E,# crore target set during the fiscal
year 28(2#. But little else happened. *n reviewing the action taken by the
RB*')C* on the proposals of the Istimates ommittee +22(20, the
committee in 28(2# finds that 7no specific action has been taken7 on most
of the ma%or recommendations.

  Wi7enin! ne23o," an7 Expan7in! Co;e,a!e#-

$s on  $pril 2", RRBs were covering #0# 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 BK'B model
in a time bound manner.

17 | R U R A L B A N K I N G
 

$s on  $pril 2", E" districts in the country were not covered by RRBs
and their area of operation may be e1tended to cover these districts.

• Co5p42e,i<a2ion#-

3ith a view to facilitate the seamless integration of RRBs with the main
 payment system, there is a need to provide computeri&ation support to them.
Banks will be eligible for support from the Kinancial *nclusion Kunds on a
matching contribution of #/ in regard to districts other than tribal districts
and "#/ in case of branches located in tribal districts under the Tribal Sub
 plan.

  S2,en!2.enin! Boa,7s o +ana!e5en2#-

Kurther ,now that RRBs are being merged and are becoming large si&e
entities, it is necessary that their Boards of >anagement are strengthened and
 powers delegated to them on policy and business operations ,vi&. 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 etc.

  Tax In(en2i;es#-

Krom 26(", RRBs are liable to pay income ta1. To further strengthen the
RRBs, profits transferred to reserves could be e1empted from ta1 till they
achieve standard capital ade;uacy ratios. $lternatively, RRBs may be allowed
ta1 concessions to the e1tent of 8/ of their profits, as per provisions under 
sec.06 + +viii of the *ncome Ta1 $ct.

  I5ple5en2a2ion o RBI ini2ia2i;es o, inan(ial in(l4sion#-

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$ll recent circulars relating to financial inclusion, vi&., no frills accounts,

), Cne Time Settlement +CTS for loans up to Rs 2#, , use of 
intermediaries, etc., should be implemented by RRBs.

  NRFI8 o, RRBs#-

The strategy recommended earlier for RK*9 for commercial banks would be
e;ually applicable for RRBs. The process of undertaking a survey,
identification of e1cluded households, dissemination of the information,
settings of bank(wise' branch(wise targets etc., could be followed. RRBs will
have certain handicaps in e1ecuting the plan. They would re;uire
 promotional, funding and technology support in different areas as outlined
 below. RRBs may Indeavour to cover to a large part of their incremental
lending thru7 the group mode +S<)s'F?)s as it will enhance their outreach to
the financially e1cluded. ?ending thru7 group mode would also keep 9$s at
low level.

• Sepa,a2e (,e7i2 plan o, ex(l47e7 ,e!ions#-

The ommittee recommends that RRBs operating in predominantly tribal

areas and having high levels of e1clusion may prepare annual credit plans
having a separate component for e1cluded groups, which would integrate
credit provision with promotional assistance such as agriculture services and
BASs for the farm and nonfarm sectors respectively including
entrepreneurship development and formation and strengthening of producer7s
organi&ations like dairy cooperatives. Refinance and promotional support may
 be provided by $B$RA to RRBs on a large scale for implementation of 
these credit plans.

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OVERVIEW OF NABARD IN RELATION TO RURAL

  BANKING

BACKGROUND

 $B$RA was established on 2th Fuly !E2 to implement the

 ational Bank for $griculture and Rural Aevelopment $ct !E. *t replaced
the $gricultural redit Aepartment +$A and Rural 9lanning and redit ell

20 | R U R A L B A N K I N G
 

+R9 of Reserve Bank of *ndia, and $gricultural Refinance and

Aevelopment orporation +$RA.

+ISSION

 $B$RA being an $pe1 Aevelopment Bank promotes agriculture and

rural development through refinance support to all banks for investment credit
and to co(operatives and RRBs for production credit. The ob%ective of 
 providing refinance to eligible institutions is to supplement their resources for 
delivering credit for agriculture, cottage @ village industries, SS*s, rural
artisans, etc. thus influencing the ;uantum of lending in consonance with the
 policy of )ovt. of *ndia. *t directs the policy, planning and operational aspects
in the field of credit for agriculture and integrated rural development.

STRUCTURE

 $B$RA operates throughout the country through its 2E Regional

Cffices and one Sub(office, located in the capitals of all the states'union
territories. *t has 006 Aistrict Cffices across the country, one Sub(office at
9ort Blair and one special ell at Srinagar. *t also has 6 training
establishments.

NABARD ROLE AND FUNCTIONS

 $B$RA is set up by the )overnment of *ndia as a development bank 

with the mandate of facilitating credit flow for promotion and development of 

21 | R U R A L B A N K I N G
 

agriculture and integrated rural development. The mandate also covers

supporting all other allied economic activities in rural areas, promoting
sustainable rural development and ushering in prosperity in the rural areas.
3ith a capital base of 2, crore provided by the )overnment of *ndia and
Reserve Bank of *ndia.

NABARD@S ROLES AND FUNCTIONS

DEVELO8+ENT AND 8RO+OTIONAL FUNCTIONS

redit is a critical factor in development of agriculture and rural sector 

as it enables investment in capital formation and technological up gradation.
<ence, strengthening of rural financial institutions, which deliver credit to the
sector, has been identified by $B$RA as a thrust area. Jarious initiatives
have been taken to strengthen the cooperative credit structure and regional
rural banks, so that ade;uate and timely credit is made available to the needy.

*n order to reinforce the credit function and to make credit more

 productive, $B$RA has been undertaking a number of developmental and
 promotional activities such as=(

22 | R U R A L B A N K I N G
 

• <elp cooperative banks and Regional Rural Banks to prepare development

actions plans for themselves.
• Inter into >oD with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe.
• <elp Regional Rural Banks and the sponsor banks to enter into >oDs
specifying their respective obligations to improve the affairs of the Regional
Rural Banks in a stipulated timeframe.
• >onitor implementation of development action plans of banks and
fulfillment of obligations under >oDs.
• 9rovide financial assistance to cooperatives and Regional Rural Banks for 
establishment of technical, monitoring and evaluations cells.
• 9rovide Crgani&ation development intervention +CA* through reputed
training institutes like Bankers *nstitute of Rural Aevelopment +B*RA,
?ucknow www.birdindia.com, ational Bank Staff ollege, ?ucknow
www.nbsc.in and ollege of $griculture Banking, 9une, etc.
• 9rovide financial support for the training institutes of cooperative banks.

• 9rovide training for senior and middle level e1ecutives of commercial banks,
Regional Rural Banks and cooperative banks.
• reate awareness among the borrowers on ethics of repayment through Jikas
Jolunteer Jahini and Karmer7s clubs.
• 9rovide financial assistance to cooperative banks for building improved
management information system, computeri&ation of operations and
development of human resources.

23 | R U R A L B A N K I N G
 

CREDIT FUNCTIONS

REFINANCE AGAINST INVEST+ENT CREDIT

This is a long(term refinance facility. *t is intended to create income

generating assets in the following=

• *nvestment in agriculture and allied activities such as minor irrigation

 pro%ects, farm mechani&ation, land development, soil conservation, dairy,
sheep rearing, poultry , piggery, plantation'horticulture, forestry, fishery,
storage and market yards, biogas and other alternative sources of energy,
sericulture, apiculture, animals and animal driven carts, agro(processing,
agro(service centers, etc.

24 | R U R A L B A N K I N G
 

• *nvestment for artisans, small scale industries, tiny sector, village and
cottage industries, handicrafts, handlooms, power looms, etc.

• $ctivities of voluntary agencies and self(help groups working among the

rural poor.

• *nvestment in share capital'securities of institutions involved in

agriculture and rural development the credit is normally provided for a
 period of 0 to# years.

SU8ERVISOR> FUNCTIONS

$s an ape1 bank involved in refinancing credit needs of ma%or financial

institutions in the country engaged in offering financial assistance to
agriculture and rural development operations and programmes, $B$RA has
 been sharing with the Reserve Bank of *ndia certain supervisory functions in
respect of cooperative banks and Regional Rural Banks +RRBs

As pa,2 o 2.ese 4n(2ions i2#

• Dndertake inspection of Regional Rural Banks +RRBs and cooperative

 bank +other than urban'primary cooperative banks under the provisions
of Banking Regulation $ct, !8!.

25 | R U R A L B A N K I N G
 

• Dndertakes inspection of state ooperative $griculture and Rural

Aevelopment Banks +S$RABs and ape1 non(credit cooperative
societies on a voluntary basis.
• Dndertakes portfolio inspections, system study, besides off(site.

• Surveillance of cooperative banks and Regional Rural Banks +RRBs.

• 9rovides recommendations to Reserve Bank of *ndia on opening of new

 branches by State ooperative Banks and Regional Rural Banks +RRBs.
• $dministering the redit >onitoring $rrangements in SBs and Bs

CORE FUNCTION

 $B$RA has been entrusted with the statutory responsibility of 

conducting inspections of State ooperative Banks +SBs, Aistrict entral
ooperative Banks +ABs and Regional Rural Banks +RRBs under the
 provision of the Banking Regulation $ct, !8!. *n addition, $B$RA has
also been conducting periodic inspections of state level cooperative
institutions such as State ooperative $griculture and Rural Aevelopment
Banks +S$RABs, $pe1 3eavers Societies, >arketing Kederations, etc.on a
voluntary basis.

OB9ECTIVES OF INS8ECTION

26 | R U R A L B A N K I N G
 

• To protect the interest of the present and future depositors.

• To ensure that the business conducted by this banks is in conformity with

the provisions of the relevant acts, rules, regulations bye(laws etc.
• To ensure observance of rules guidelines etc. formulated and issued by
 $B$RA'RB*')overnment.
• To e1amine the financial soundness of the banks.

• To suggest ways and means of strengthening the institutions so as to

enable them to play more efficient role in rural credit.

I+8ORTANT SC=E+ES OF NABARD

RURAL INFRASTRUCTURE DEVELO8+ENT FUND RIDF

*n !!#(!6 R*AK(* set up with a corpus fund of Rs. 2 crore for the
 purpose of financing rural infrastructure pro%ects such as irrigation pro%ects,
construction of rural roads and bridges, etc. The R*AK fund has been
continued in subse;uent years. The R*AK *L +last in the Series was
introduced in 20(8.

The R*AK came to an end with the commencement of the ?okayak Fai
9rakash arayan fund in Kebruary 28.

27 | R U R A L B A N K I N G
 

LOK NA>AK 9AI 8RAKAS= NARA>AN FUND AGRICULTURE

INFRASTRUCTURE AND CREDIT FUND

The fund came into e1istence in Keb(28.*t replaced the

R*AK.$B$RA has prepared this scheme with the following three
components=

Finan(e o, in,as2,4(24,e 2.,o4!. S2a2e Go;e,n5en2s Rs) /''''

(,o,e)
$ctivities includes minor irrigation, rain fed agriculture, and flood control,
 public sector cold storage facilities, etc. Iligible clients are state
)overnments, state undertakings, and local bodies.

  Finan(e o, in;es25en2s in a!,i(4l24,e an7 (o55e,(ial in,as2,4(24,e

2.,o4!. ban"in! s6s2e5 Rs)1*''' (,o,e)

$ctivities includes priority areas like micro irrigation, rain fed agriculture,
 post(harvest related support, agriculture marketing, investment credit, etc.
Iligible clients are corporate, )Cs, and individual, etc.

  De;elop5en2 5eas4,es an7 Ris" +ana!e5en2 +e(.anis5 Rs) 0'''

(,o,e)

RE=ABILITATION OF COO8ERATIVE BANKS SC=E+E

28 | R U R A L B A N K I N G
 

 $B$RA undertakes a rehabilitation programme for weak Bs and

SBs. Dnder this programme, it assists B and SBs, which are financially
and administratively weak due to large overdue and untrained staff.

KISAN CREDIT CARD KCC SC=E+E

This scheme was introduced in !!E(!! with a view to facilitate the

flow of timely and ade;uate short(term credit to the farmers. This scheme is
operated through cooperative banks, RRBs and commercial banks. The
cooperative banks, RRBs and commercial banks together issued about 88
lakh :s involving credit of about Rs.!", " crore up to >arch 28.

The : scheme is an ongoing scheme, which is envisaged to

gradually replace the traditional system and procedures in the issue of short(
term crop loan.

29 | R U R A L B A N K I N G
 

SELF-=EL8 GROU8S SC=E+E

 $B$RA has been active in promoting and linking more and more
self(help groups +S<)s to the banking system. The banks provide finance to
S<)s. $B$RA provides / refinance assistance to banks at an interest
rate of 6.#/ p.a. for financing S<)s.

The concept of S<)s promoted by $B$RA for financing the poor 

was introduced in !!(!2 under this scheme, the S<)s are linked with
formal credit agencies +banks. By >arch 28, over ." crore rural poor 
families accessed financial services and credit through ."! lakh credit
linked S<)s. $round !/ of these S<)s are e1clusive women S<)s. >ore
than 0, branches and # banks which participate in the programme have
e1tended loans amounting to Rs.0,!8 crore by >arch 0,28 backed by
refinance support of Rs.2,28 crore from $B$RA.

CURRENT SCENARIO OF NABARD

• *nitiates measures towards institution building for improving absorptive

capacity of the credit delivery system including monitoring formulation of 
rehabilitation schemes restructuring of credit institutions, training of 
 personnel etc.

• 9romotes research in the fields of rural banking, agriculture and rural

development.

• Kunctions as regulatory authority, supervising, monitoring and guiding

cooperative and regional rural banks.

30 | R U R A L B A N K I N G
 

• Dndertakes monitoring and evaluation of pro%ects refinance by it.

• 9repares on annual basis rural credit plans for all the districts in the
country. These plans form the base for annual credit plans of all rural
financial institutions.

• oordinates the rural financing activities of all the institutions engaged in

developmental work at the field level and maintain liaison with the
government of *ndia, state governments, Reserve Bank of *ndia and other 
national level institutions concerned with policy formulation.

GRA+EEN BANK 

31 | R U R A L B A N K I N G
 

NOBEL 8EACE 8RIE WINNER +U=A++AD >UNUS

3henever rural banking is discussed the contribution of >uhammad

Munuas7 is to be remembered. >uhammad Munus7 ideas about lending to the
 poor to lift millions out of poverty. <ave changed lives in his native
Bangladesh and beyond. :nown as the 4banker to the poor,5 Munus, winner of 
the 26 obel 9eace 9ri&e, has helped people rise above poverty by giving
them small, usually unsecured loans through his )rameen Bank.

Through Munus7s efforts and those of the bank he founded, poor people
around the world, especially women, have been able to buy cows, a few
chickens or the cell phone they desperately needed to get ahead.

Munus is the first obel 9ri&e winner from Bangladesh, a poverty(

stricken nation of about 8 million people located on the Bay of Bengal.

Munus received a 9h.A. in economics from Janderbilt Dniversity in

!" and taught at >iddle Tennessee Dniversity from !6! to !"2. $fter 
returning to Bangladesh, he %oined the Dniversity of hittagong as head of the
Iconomics Aepartment. <e also holds honorary doctorate degrees from
do&ens of universities around the world.

Munus has won do&ens of international awards, including the Simon

Bolivar 9ri&e, the *ndira )andhi 9eace 9ri&e, the Seoul 9eace 9ri&e and the
Kreedom $ward of the *nternational Rescue ommittee.

<e has also been appointed as an *nternational )oodwill $mbassador 

for D$*AS by the Dnited ations and inducted as a member of Krance7s
?egion d7<onneur.

32 | R U R A L B A N K I N G
 

Krom !!0 to !!#, Munus was a member of the *nternational $dvisory

)roup for the Kourth 3orld onference on 3omen, a post to which he was
appointed by the D.. secretary general. <e has served on the )lobal
ommission of 3omen7s <ealth, the $dvisory ouncil for Sustainable
Iconomic Aevelopment and the D.. I1pert )roup on 3omen and Kinance.

*n addition to )rameen Bank, Munus has created numerous other 

companies in Bangladesh to address poverty and development issues. Those
companies are involved in a range of industries, including mobile telephony,
*nternet access, capital management and renewable energy.

)rameen Bank was the first lender to hand out microcredit, giving very
small loans to poor Bangladeshis who did not ;ualify for loans from
conventional banks. o collateral is needed and repayment is based on an
honor system.

)rameen, which means rural in the Bengali language, says the method
encourages social responsibility.

A LOOK AT GRA+EEN BANK 

W=AT IS IT# The )rameen Bank hands out microcredit, or very small

loans, to the poor peoples of Bangladesh who, do not ;ualify for loans from
conventional banks. o collateral is needed and repayment is based on an honor 
system.

33 | R U R A L B A N K I N G
 

=OW DID IT START# *n !"8, Munus, then an economics professor recently

returned from the Dnited States, lend a total of N2" to 82 villages who, made
 bamboo furniture. The loans, which were all paid back, allowed them to cut
out the middlemen and purchase their own raw materials. Imboldened by his
e1periment, Munus won government approval in !E0 to open )rameen,
Bengali for 4rural.5

W=O ?UALIFIES#  $nyone can ;ualify, but they must belong to a five(
member group. Cnce the first two members begin to pay back their loans, the
others can get theirs. 3hile there is no group responsibility for returning the
loans, the bank believes it creates a sense of social responsibility, ensuring all
members pay back their loans.

DOES IT WORK# )rameen claims a !! percent repayment rate. $ccording

to a recent )rameen survey, #E percent of the families of )rameen borrowers
have crossed the poverty line.

W=O OWNS T=E BANK# The government of Bangladesh owns 6 percent

of the bank while the borrowers own the other !8 percent.

34 | R U R A L B A N K I N G
 

W=AT ARE T=E NU+BERS#  The bank has handed out N #."2 billion
since its inception to 6.6 million people had been repaid N #." billion.
3omen account for !" percent of the loan takers. )rameen Bank has 2,226
 branches, works in ",0" villages and has a total staff of E,"!#.

CONCLUSION

RRBsO 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. *n recent years, they have taken a leading role in financing Self(
<elp )roups +S<)s 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. $nd 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. *deally, the best use of the resources raised by RRBs
through deposits would be through e1tensive cross(subsidi&ation. This, in turn,

35 | R U R A L B A N K I N G
 

really re;uires an ape1 body that would cover and oversee all the RRBs, something
like a ational Rural Bank of *ndia +RB*.

The contribution of $B$RA to the *ndian rural banking has been immense in the
 past few years. The concept of )R$>II B$: has helped the banking sector
to reach the remote areas in our country. *t was helped in financial inclusion of the
 people. $nd it increases the savings habits amongst the people. *t helps in
mobili&ation of funds in the economy.

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 ra% institutions and
the banks operating in rural areas. Cnly then will the RRBs fulfill the promise that
is so essential for rural development.

36 | R U R A L B A N K I N G