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Introduction

A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal definition of a bank. Banks are a subset of the financial services industry. A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, through out the day. The banking system in India, should not only be hassle free but it should be able to meet the new challenges posed by the technology and any other external and internal factors. For the past three decades, India s banking system has several outstanding achievements to its credit. The Banks are the main participants of the financial system in India. The Banking sector offers several facilities and opportunities to their customers. All the banks safeguards the money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashier s che!ues. The banks also offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role"accepting deposits and lending funds from these deposits.

Need of Banks

Before the establishment of banks, the financial activities were handled by money lenders and individuals. At that time the interest rates were very high. Again there were no security of public savings and no uniformity regarding loans. #o as to overcome such problems the organi$ed banking sector was established, which was fully regulated by the government. The organi$ed banking sector works within the financial system to provide loans, accept deposits and provide other services to their customers. The following functions of the bank explain the need of the bank and its importance%

& To provide the security to the savings of customers. & To control the supply of money and credit & To encourage public confidence in the working of the financial system, increase savings speedily and efficiently. & To avoid focus of financial powers in the hands of a few individuals and institutions. & To set e!ual norms and conditions 'i.e. rate of interest, period of lending etc( to all types of customers

History of Indian Banking System

The first bank in India, called The )eneral Bank of India was established in the year *+,-. The .ast India /ompany established The Bank of Bengal0/alcutta '*,12(, Bank of Bombay '*,31( and Bank of 4adras '*,35(. The next bank was Bank of 6industan which was established in *,+1. These three individual units 'Bank of /alcutta, Bank of Bombay, and Bank of 4adras( were called as 7residency Banks. Allahabad Bank which was established in *,-8, was for the first time completely run by Indians. 7un9ab :ational Bank ;td. was set up in *,23 with head!uarters at ;ahore. Between *21- and *2*5, Bank of India, /entral Bank of India, Bank of Baroda, /anara Bank, Indian Bank, and Bank of 4ysore were set up. In *2<*, all presidency banks were amalgamated to <<form the Imperial Bank of India which was run by .uropean #hareholders. After that the =eserve Bank of India was established in April *258. At the time of first phase the growth of banking sector was very slow. Between *2*5 and *23, there were approximately **11 small banks in India. To streamline the functioning and activities of commercial banks, the )overnment of India came up with the Banking /ompanies Act, *232 which was later changed to Banking =egulation Act *232 as per amending Act of *2-8 'Act :o.<5 of *2-8(. =eserve Bank of India was vested with extensive powers for the supervision of banking in India as a /entral Banking Authority.

After independence, )overnment has taken most important steps in regard of Indian Banking #ector reforms. In *288, the Imperial Bank of India was nationali$ed and was given the name >#tate Bank of India>, to act as the principal agent of =BI and to handle banking transactions all over the country. It was established under #tate Bank of India Act, *288. #even banks forming subsidiary of #tate Bank of India was nationali$ed in *2-1. ?n *2th @uly, *2-2, ma9or process of nationali$ation was carried out. At the same time *3 ma9or Indian commercial banks of the country were nationali$ed. In *2,1, another six banks were nationali$ed, and thus raising the number of nationali$ed banks to <1. #even more banks were nationali$ed with deposits over <11 /rores. Till the year *2,1 approximately ,1A of the banking segment in India was under government s ownership. ?n the suggestions of :arsimhan /ommittee, the Banking =egulation Act was amended in *225 and thus the gates for the new private sector banks were opened. The following are the ma9or steps taken by the )overnment of India to =egulate Banking institutions in the country%B *232% .nactment of Banking =egulation Act. *288% :ationali$ation of #tate Bank of India. *282% :ationali$ation of #BI subsidiaries. *2-*% Insurance cover extended to deposits. *2-2% :ationali$ation of *3 ma9or Banks. *2+*% /reation of credit guarantee corporation. *2+8% /reation of regional rural banks.

*2,1% :ationali$ation of seven banks with deposits over <11 /rores.

THE STRUCTURE OF INDIAN BAN IN! SECTOR

STRUCTURE

The =eserve Bank of India, the nation s central bank, began operations on April 1*, *258. It was established with the ob9ective of ensuring monetary stability and operating the currency and credit system of the country to its advantage. In India, the banks are being segregated in different groups. .ach group has their own benefits, own dedicated target markets, limitations in operating in India. The commercial banking structure in India consists of #cheduled /ommercial Banks and Cnscheduled Banks.

"# CO$$ERCIA% BAN /ommercial banks are type of financial institutions that lends money and provides transactional, savings, and money market accounts and that accepts time deposits. /ommercial banking play very important role in economy by mobili$ing savings from various sectors. The commercial banks are classified as follows

&u'(ic Sector Banks


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7ublic sector banks are those in which the ma9ority stake is held by the )overnment of India. 7ublic sector banks together make up the largest category in the Indian banking system. There are currently <+ public sector banks in India. They include the #BI and its - associate banks 'such as #tate Bank of Indore, #tate Bank of Bikaner and @aipur etc(, *2 nationali$ed banks 'such as Allahabad Bank, /anara Bank etc.( and IDBI Bank ;td. 7ublic sector banks have taken the lead role in branch expansion, particularly in the rural areas. It can also be seen that% & 7ublic sector banks account for bulk of the branches in India ',, percent in <112(. & In the rural areas, the presence of the public sector banks is overwhelmingE in <112, 2- percent of the rural bank branches belonged to the public sector. The private sectorbanks and foreign banks have limited presence in the rural areas.

&ri)ate Sector Banks In this type of banks, the ma9ority of share capital is held by private individuals and corporates. :ot all private sector banks were nationali$ed in in *2-2, and *2,1. The private banks which were not nationali$ed are collectively known as the old private sector banks and include banks such as The @ammu and Fashmir Bank ;td., ;ord Frishna Bank ;td etc.8 .ntry of private sector banks was however prohibited during the postBnationali$ation period. In @uly *225, as part of the banking reform process and as a measure to induce competition in the banking sector, =BI permitted the private sector to enter into the banking system. This resulted in the creation of a new set of private sector banks, which are collectively known as the new private sector banks. As at end 4arch, <112 there were + new private sector banks and *8 old private sector banks operating in India.
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Foreign Banks Foreign banks have their registered and head offices in a foreign country but operate their branches in India. The =BI permits these banks to operate either through branchesE or through whollyBowned subsidiaries. The primary activity of most foreign banks in India has been in the corporate segment. 6owever, some of the larger foreign banks have also made consumer financing a significant part of their portfolios. These banks offer products such as automobile finance, home loans, credit cards, household consumer finance etc. Foreign banks in India are re!uired to adhere to all banking regulations, including priorityBsector lending norms as applicable to domestic banks . Regiona( Rura( Bank The history of =egional =ural Banks in India dates back to the year *2+8. It s the :arasimham committee that conceptuali$ed the foundation of =egional =ural Banks in India. The committee felt the need of regionally oriented rural banks that would address the problems and re!uirements of the rural people in India. =egional =ural Banks were established under the provisions of an ?rdinance promulgated on the <-th #eptember *2+8 and the ==B Act, *2+8 with an ob9ective to ensure sufficient institutional credit for agriculture and other rural sectors. The ==Bs mobili$e financial resources from rural0semiB urban areas and grant loans and advances mostly to small and marginal farmers, agricultural laborers and rural artisans. For the purpose of
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classification of bank branches, the =eserve bank of India defines rural area as a place with a population of less than *1,111.==Bs are 9ointly owned by )overnment of India, the concerned #tate )overnment and #ponsor BanksE the issued capital of a ==B is shared by the owners in the proportion of 81A, *8A and 58A respectively. *# COO&ERATI+E BAN S

The coBoperative banks are smallBsi$ed units which operate both in urban and nonBurban centers. They finance small borrowers in industrial and trade sectors besides professional and salary classes. =egulated by the =eserve Bank of India, they are governed by the Banking =egulations Act *232 and banking laws 'coBoperative societies( act, *2-8. /oBoperative banks cater to the financing needs of agriculture, retail trade, small industry and selfBemployed businessmen in urban, semiBurban and rural areas of India. A distinctive feature of the coBoperative credit structure in India is its heterogeneity. The structure differs across urban and rural areas, across states and loan maturities The coBoperative banking structure in India is divided into following < categories% "#State Co,o-erati)e Banks The state coBoperative bank is a federation of central coBoperative bank and acts as a watchdog of the coBoperative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts from the =eserve Bank of India. The state coBoperative banks lend money to central coB operative banks and primary societies and not directly to the farmers. *#Ur'an Co,o-erati)e Banks

The term Crban /oBoperative Banks 'C/Bs(, though not formally defined, refers to primary coBoperative banks located in urban and semiBurban areas. These banks, till *22-, were allowed to lend money only for nonBagricultural purposes. This distinction does not hold today. These banks were traditionally centered on communities, localities, work place groups. They essentially lend to small borrowers and businesses. Today, their scope of operations has widened considerably. The origins of the urban coBoperative banking movement in India can be traced to the close of nineteenth century. Inspired by the success of the experiments related to the coBoperative movement in Britain and the coB operative credit movement in )ermany, such societies were set up in India. /oBoperative societies are based on the principles of cooperation, mutual help, democratic decision making, and open membership. /oBoperatives represented a new and alternative approach to organi$ation as against proprietary firms, partnership firms, and 9oint stock companies which represent the dominant form of commercial organi$ation. They mainly rely upon deposits from members and nonBmembers and in case of need, they get finance from either the district central coBoperative bank to which they are affiliated or from the apex coBoperative bank if they work in big cities where the apex bank has its 6ead ?ffice. They provide credit to small scale industrialists, salaried employees, and other urban and semiBurban residents

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./y Rura( Banking


The important of the rural banking in the economic development of a country cannot be overlooked. As )andhi said Greal India lies in villageH and village economy is the backbone of Indian economy. Iithout the development of the rural economy, the ob9ective of economic planning cannot be achieved. 6ens, banks and other financial institutions are considered to be a vital role for the development of the rural economy in India. Activities of modern economy are significantly influenced by the functions and services of banks. Banking sector constitutes the core part of economic system. Indian economy is agricultural economy and real India lies in villages. Jillage economy is the backbone of Indian economy. .ven after -1 years of independence, the rural economy in India is still handicapped in terms of infrastructure and other chronic problems of cultivators. In fact, economic progress and industrial development are determined by the rural sector. 4ore than +1A of Indians depend on agricultureE -1A of industries are agro basedE 81A of national income is contributed by rural sector and the agricultural sector is the largest foreign exchange earner to India. Banks operate with a number of branches at the urban rural areas. At the rural areas, the rural branches are intended to mobili$e savings from the rural people dwellers and bring development to these rural communities this trying to halt ruralB urban face drift. In India, over -8A of the population resides in villages. And approx., +1A of the villagers do not have bank accounts. 7romoting development in rural areas is a slow and complex process. It
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re!uires simultaneous action in various sectors, in an environment undergoing rapid, sometimes volatile change. The change comes from internal as well as external processes such as privati$ation and globali$ation, by forces appearing scattered and disparate .Ihat is the lot of rural societies in this changeK @ust to ad9ust to a rapidly changing and highly competitive international economy, or to have a more innovative and proactive roleK Ihen even wellBinformed researchers debate on the character of the present global processes, admitting that they do not yet fully understand what is happening in the global economy, how can we then expect the rural poor to understand new global trends, respond to new challenges and tap opportunitiesK For this reason alone, it is important for all stakeholders to work together and identify which aspects of globali$ation will affect the livelihoods and welfare of the rural poor and how. But we need deep analysis. Ie must critically analy$e global processes from the point of view of indigenous and endogenous knowledge systems, and ask whether local knowledge systems and social systems can cope with ever rapid change.

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RURA% DE+E%O&$ENT
The term rural development refers to a wide array of developmental programs aimed at developing rural areas through the creation of infrastructure facilities to ameliorate the condition of rural people. The very concept of rural development on the global level had its origin in the midB*+th century in .ngland. A group of people called LMuakers or friends organi$ed themselves on the principles of selfless sacrifice. They believed in the dignity of all human beings. This philosophy was propagated throughout the world. In India rural development is recogni$ed as a sine !ua non for faster economic development and welfare of common masses. =ural development is not merely development of rural areas but also the development of the rural people into selfBreliant and selfBsustaining modern little communities. =ural development is, therefore, the development of rural areas in such a way that each component of rural life changes in a desired direction and in sympathy with the other component. Besides, rural development also encompassed structured changes in the socioB economic situation in the rural areas in order that human welfare, which is the primary goal of all development, is secured at the earliest. =ural development, thus, should embrace all the ob9ectives of enrichment and betterment of the overall !uality of the rural life through appropriate development of manpower resources, infrastructural facilities and provision of minimum needs and livelihood.
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It has been the constant endeavor of the planners to give ade!uate thrust to rural development as the sector is directly related to agriculture. The focus has never shifted from developing the country s vast tracts of rural lands, where the ma9ority of population exists.

First Fi)e 0ear &(an 1"23",334 Top priority was given for agriculture, including pro9ects that combined irrigation and power generation.

T/e Second Fi)e,0ear &(an 1"235,564 Importance to industry 'Theodore <118(

T/e T/ird Fi)e 0ear &(an 1"25",534 Aimed at a substantial rise in national income, while expanding the industrial base and rectifying the neglect of agriculture in the previous plan. It aimed at selfBsufficiency in food grains

T/e 7t/ fi)e year -(an 1"252,894 Ade!uate priority to agriculture, including irrigation, which received <5 percent of public outlays

T/e 3t/ Fi)e 0ear 1"287,8:4 In effect for only one year providing guidance to investments
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T/e 5t/ -(an 1"2:6,:74 Allocated <3 percent of public development funding to irrigation. The ma9or ob9ective of the plan was poverty eradication and increase in employment opportunities, especially in rural areas ')overnment of India <118(.

T/e 8t/ -an 1"2:3,:24 Importance to energy and social sector neglecting agriculture.

T/e :t/ -(an 1"22*,254 Affected by policy changes of government and among many things priority was accorded to agriculture and rural development ')overnment of India <118( 6owever, the momentum came from the 2th '*22+B<11*( and *1th '<11<B <11+( five year plans for rural development 'Theodore <118(. There has been a paradigm shift in the policy of rural development. The rural poor are now being treated as a resource, whose ideas and experiences form an integral part of development strategy. 'Theodore <118(. To ensure sustainable development of rural areas, the allocation for rural development was increased substantially. As against a budgetary allocation of =s.*<,<-8crores during <11*B1< the amount was increased to =s.*31+1 crores in <115B13 and to =s.*822, crores in <113B18 ')overnment of India <118(.

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Im-ortance of rura( de)e(o-ment

=ural development is a national necessity and has considerable importance in India because of the following reasons. *. About threeBfourth of IndiaNs population live in rural areas, thus rural development is needed to develop nation as whole <. :early half of the countryNs national income is derived from agriculture, which is ma9or occupation of rural India. 5. Around seventy per cent of Indian population gets employment through agriculture. 3. Bulks of raw materials for industries come from agriculture and rural sector. 8. Increase in industrial population can be 9ustified only in rural populations motivation and increasing the purchasing power to buy industrial goods. -. )rowing disparity between the urban elite and the rural poor can lead to political instability.

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Sc/emes for Rura( De)e(o-ment

The )overnment of India has designed and implemented a large number of schemes for creation of employment, eradication of poverty and for ensuring overall development in rural areas. /ommercial Banks are the main players in the implementation of these schemes.

Ser)ice Area A--roac/ 1SAA4 The =BI started #AA for rural lending in *2,,. It refers to a system of assigning special areas to each bank branch in which it can concentrate for productive lending and thus contribute to the development of the area. The #AA is intended to bring about a ma9or change in the !uality and productivity of rural lending. It aims at making available ade!uate and timely credit for meaningful activities and ensuring effective recycling of bank funds.

%ead Bank Sc/eme 1%BS4

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The ;B# was introduced by the =BI in *2-2 with the ob9ective of enabling the commercial banks to assume the role of leadership for the development of banking and credit facilities throughout the country on the basis of area approach. Cnder this scheme, all the districts in the country have been allotted to different banks. A lead bank is assigned the role of a catalytic agent of economic development through the expansion of bank branches and diversification of credit facilities in the district allotted to it. It is made responsible for surveying the resources and potential for banking development in the district.

Differentia( Interest Rate 1DIR4 The DI= scheme was introduced in *2+< with a view to provide bank credit to the weaker sections of the society at a concessional rate by 7#Bs. The banks identify beneficiaries who will be eligible for loans under the scheme and conditions under which loans should be given. Different interest rates are charged by /Bs on advances to different categories of borrowers on the basis of income and repayment capacity.

Sma(( Farmers De)e(o-ment Agency 1SFDA4 The #FDAs have been established to help those cultivators who have small, yet potentially economically viable holdings. The small farmers have always been neglected by both the organi$ed and unorgani$ed sectors of banking. Therefore, the establishment #FDA is a significant development in the field of rural finance, for it forms an important link in the chain of organi$ed financial institutions through which money flows into the rural sector of the economy

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Se(f He(- !rou-s 1SH!s4 The #6) linkage programme initiated by :ABA=D during *22*B2< as a pilot pro9ect has taken the shape of a movement and has si$e pitched up the desired movement. Cnder this concept, the poor, particularly women are organi$ed into small homogenous groups for taking their own decisions about the saving and credit operations. .xternal lending like bank credit is infused into the groups only after proper evaluation of the functioning of the groups and ascertaining their maturity. The concept has been found to be an effective and successful approach in reaching the unreached and for empowerment of women and poverty alleviation. ?n cumulative basis, the number of #6)s receiving financial support from commercial banks increased to 85,,3<< in <115B13 from 5-*,1-* in <11<B15 with an increase of 32 percent '=BI <113(.

+ikas +o(unteer +a/ini C(u's 1+++s4 The JJJ programme introduced by :ABA=D in the year *2,<, offers a forum in the rural areas for banks and borrowers 0 rural poor to come together, to have a continuous and positive dialogue for initiating appropriate measures to achieve the desired development. The core ob9ective of the programme is propagation of revival of repayment ethics. 7romotion of people s participation is the essence of the programme.

isan Credit Card 1 CC4

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.nsuring timeliness and ade!uacy of credit to farmers is the most serious challenge faced by the banks while financing this sector. The Financial #ector =eforms 'F#=s( ushered in as part of the liberali$ation of the Indian economy have infused a spirit of competitiveness among the banks in their endeavor for sharpening customer orientation. F// is an innovative key product designed and introduced to expand and simplify the credit delivery system of banks by the :ABA=D. As the pioneering credit delivery innovation, the F// scheme aims at provision of ade!uate and timely credit support from the banking system to the farmers for their cultivation needs. It was introduced in *22, and it was revised in ?ctober <113 to cover term loans for agriculture and allied activities. As on 5*st 4arch <113, /Bs, ==Bs and /oBoperative banks issued F//s at the tune of *5<.35 lakhs, 5,.22 lakhs and <3<.-, lakhs respectively. #o total F//s issued upto 5*st 4arch <113 came to 3*3 lakhs '=BI <113(.

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FINANCIN! IN RURA% INDIA

=ural banking in India started since the establishment of banking sector in India. =ural Banks in those days mainly focused upon the agro sector. =egional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. Till date in rural banking in India, there are *3,3+8 rural banks in the country of which <*<- '2*A( are located in remote rural areas Financial aids for the poor clusters in rural areas today are in the following forms% :ationali$ed Banks 7rivate Banks /redit #ocieties /oBoperative Banks
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Rura( Finance &enetration in India

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BRANCH NET.OR AREAS


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IN RURA%

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BAN S RO%E TO.ARDS RURA% SECTOR

Nationa(i;ed Banks < Regiona( Rura( Banks 1RRB= !ramin4

SBI

#BI has a breathtaking rural branch network of -,-11 with 2+< speciali$ed branches. These deployment. branches have been set up in different parts of the country with the sole purpose of developing agriculture through credit

#BI has developed rural agricultural business units, education programmes for local farmers and GkisanH cards. #BI has gradually evolved to become the leader in agricultural finance with a portfolio of =s. *,,111 crore in loans to around 81 lakh farmers.

?ne of their recent endeavors is the tieBup with :ational Agricultural /ooperative 4arketing Federation ':AF.D( to finance farmers for cultivation of various crops like soyabean, paddy, 9ute and potato.

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#BI has 51 =egional =ural Banks in India known as ==Bs. The rural banks of #BI is spread in *5 states extending from Fashmir to Farnataka and 6imachal 7radesh to :orth .ast. The total number of #BIs =egional =ural Banks in India branches is <532 '*-A(.

CANARA BAN

/anara has launched aggressive grassBroot level plans, in a bid to achieve *11A financial inclusion in *,311 villages all over India, which could bring + lakh families into their net.

Cnder this programme, every adult member of a rural household in the selected villages would be encouraged to open a N:o FrillsN account with minimum entryBlevel formalities.

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&ri)ate 'anks, Commercia(

ICICI

I/I/I Bank, the country s second largest bank, has adopted the franchise model of operation in rural markets.

A one man office 'known as GkendraH( in the village forms an interface between the villager and the Bank s products and facilities. /rop loans, housing loans, automobile loans, farm e!uipment, seed financing and insurance policies are all on offer.

The number of borrowers has risen from *51 in <111 to over 3<,111 today, and the rural loan book has crossed =s. *-,111 crore. And the bank s default rate in the rural retail sector is * O < A as compared to < O 5A in the rural wholesale sector and 8A for the banking sector as a whole.

I/I/I is looking at tying up with microBfinance institutions and local selfBhelp groups 'or creating them if already do not exist(.

I/I/I has gone further in tying up with large corporate ma9ors having significant presence rural India and providing loans0banking services to their distributors0traders and also it is working in tandem with postal department.

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Foreign Banks

Foreign Banks like /itibank, 6#B/ and #tandard /hartered are now looking Gvillage wardH. /iti is reported to be in the hunt for several rural branch licenses. There is a new focus on the #4. segment as well.

4ore or less, all the banks are using an agentBbased model, as the typical branchBbased model does not work here due to cost economics.

4any banks have solutions for 4obileBbased services to reach rural consumers directly into their hand

Coo-erati)e Banks Credit Coo-erati)es


=ural /redit /ooperatives have existed in India for a long time. A shortage of supply of rural credit was prevalent in India. To meet the demand for short and long term rural credit the /oBoperative /redit #tructure '//#( was set up. Ihile short term credit is supplied by the #tate /ooperative Banks '#/B(, District /entral /ooperative Banks 'D//B( and 7rimary Agricultural /redit #ocieties '7A/#(, long term credit is supplied by the 7rimary /ooperative Agriculture and =ural Development Banks '7/A=DB(

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CHA%%EN!ES IN RURA% DE+E%O&$ENT

#ome of the ma9or challenges which intermediaries ';ocal Financial Institutions( face today in India are % T/e Su--(y Di(emma% The exclusion of large numbers of the rural population from the formal banking sector may be for several reasons from the supply side% 7ersons are unBbankable in the evaluation0perception of bankers The loan amount is too small to invite attention of the bankers The person is bankable on a credit appraisal approach but supporting the accounts and expanding branch network is not feasible and viable 6igh transaction costs particularly in dealing with a large number of small accounts ;ack of collateral security Inability to evaluate and monitor cash flow cycles and repayment capacities due to information asymmetry, lack of data base and absence of credit history of people with small means 6uman resources related constraints both in terms of inade!uacy of manpower and lack of proper orientation0expertise Adverse security situation prevailing in some parts of slums and other such localities

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T/e Demand Di(emma% There are several reasons for the rural poor remaining excluded from the formal banking sector% 6igh transaction costs at the client level due to expenses such as travel costs, wage losses, incidental expenses system .asy availability of timely and doorstep services from money lenders0informal sources system. 7rior experience of re9ection by0indifference of the formal banking ;ack of awareness and lack of social capital :onBavailability of ideal products 6assles related to documentation and procedures in the formal

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ENAB%IN! $EASURES

.nhancing the growth rate in agriculture to 3.* per cent, as envisaged in the Approach 7aper to the .leventh Five Pear 7lan, and improving its robustness would re!uire substantial investment in irrigation and water management technologies, diversification and boosting productivity of different crops through improved seeds and plantBcare practices. The move towards inclusive growth is a big challenge for the financial system of the country, including commercial banks. Banks would need to adopt an innovative, customerB friendly approach to increase their effective reach so that the share of organised finance increases. A participatory and partnershipBbased model for financial inclusion, coupled with communityBlinked financial initiatives is the need of the hour. In the near future customerBfriendly products, delivery channels, relationship banking, dependency on IT systems and competitive pricing would be the driving forces. Banks will to move to a highBtech banking. The Internet would be the engine of the banking revolution in the decades to come and eBcommerce would be its fuel. Therefore, the key to survival of banks in future will be the retention of customer loyalty by providing valueBadded services tailored to their needs.

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First, traditionally banks have viewed rural areas as a segment purely in need of upliftment. This was based on the underlying philosophy of a social obligation. 6owever, the future lies with those who see the poor as their customers, namely, financial inclusion. By Lfinancial inclusion is meant the provision by the financial system, of financial products and services at an affordable price, to those who have been financially excluded. As banking services are in the nature of a public utility service, it is essential that banking and payment services are provided to the entire population without discrimination. The harsh reality is that the spread of banking facilities in India is uneven, with a substantial portion of the households, especially in the rural areas, still outside the coverage of the formal banking system. Almost 31 per cent of the adult population of the country is unable to access mainstream financial products.5 The =eserve Bank of India has recently adopted a decentralised approach in this regard with close involvement of #tate )overnments and banks and has used multiple channels to expand the outreach of banks. It is important to mention that the Cnion Bank has launched a new initiative called LJillage Fnowledge /entres . 6ere, technology is used to help the farmer improve his productivity. The Bank s staff at these village knowledge centres act as relationship managers, liaising between local authorities and farmers, facilitating the opening of accounts and ensuring that credit is provided to the needy. #uch examples need to be followed by other banks.

#econdly, commercial banks should change their marketing concept. Cnder the new concept of marketing, the task of management should not so much be skill in making the customer do what suits the rest of the business, as to be skillful in conceiving and making business do what suits the interest of the customers.
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Thirdly, stress should be laid on deposit mobilisation from the agricultural sector itself to finance its own credit re!uirements. #uch a move will entail two steps"curtailment of unproductive expenditure and deposit of savings by the agriculturists in banks. It is common knowledge that villagers spend huge sums on unproductive social ceremonies, drinking, litigation, etc. Their outlook needs to be changed with the help of banking staff and utili$ing the services of the mass media. Jillagers must be convinced that money spent on such social obligations is a waste and they themselves would gain in the long run if they would save and invest. The services of officers and staff of the community development pro9ects may also be utilised for this purpose.

Fourthly, the more important aspect of the whole drive is the deposit of savings by the agriculturist in the banks. Jast sums of money are lying idle even today in rural areas. Ie think that, in spite of different agencies engaged in providing agricultural finance, the village moneylender continues to be a necessary evil. These moneylenders have great influence on the villagers. To mobiliser the savings of the villagers, the services of these moneylenders" both professional and agricultural"can be utilised. The nationali$ed banks may appoint them as their agents. The banks should then ask them to encourage the villagers to deposit their money in the banks and approach the banks for loans through them. The banks may give them a sort of delcredere commission, depending upon the !uantum of business done by them, as is done in the case of agents of the ;ife Insurance /orporation, )eneral Insurance /orporation, :ational #avings ?rgani$ation, etc. #uch a step would help in mobili$ing savings. The appointment of moneylenders as agents has an added advantage. These moneylenders have been living in villages for a long
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time and are, therefore, accustomed to the rural way of life. They know the local language and can, therefore, mix well with the villagers but this is not the case with the !ualified, educated and sophisticated bank staff. 4any a time, superiority complex on the part of the bank employees drives away the villagers. As a corollary to this, it is also suggested that, as far as possible, the staff to be deputed in the rural branches, should be drawn from the villages or semiBurban areas themselves and better living conditions be assured for the bank employees.

Fifthly, there is need for a reorientation in the credit policy of banks. 7riority sector lending should be restricted only to the core sector. Banks should provide credit not merely on the basis of collateral security such as land and buildings but they should also advance loans to the agriculturists after assessing the Labsorptive capacity and the increase in productivity that is feasible with the help of such loans. /rops should also be accepted on a loan of security. To assess the Labsorptive capacity of the farmers commercial banks should maintain a staff of agricultural experts.

#ixthly, the commercial banks should also provide credit to the agriculturists on the basis of L9oint guarantee given by the village panchayat or by a few wellBknown farmers of the village. The acceptance of such a basis will greatly help the farmers, particularly small farmers, in securing loans from commercial banks. This will also result in more purposeful advent of the commercial banks in the rural sector and will bring them into relationship with cooperative institutions. It will also ensure a fair understanding between them and encourage commercial banks to operate on the principle of collective service for a collective need.
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#eventhly, one problem experienced by banks is that, many a time, villagers divert the loans from productive to unproductive uses. This needs to be stopped and it needs to be ensured that the credit is used for the purposes for which it is meant. Banks may think in terms of advancing credit to agriculturists in the form of agricultural inputs. Ihile giving credit to farmers in the form of agricultural inputs, it should be ensured that inputs are supplied in ade!uate !uantities and in time and complementary and supplementary facilities are also available.

Finally, it needs to be remembered that stray attempts would not solve the problem of agricultural credit. The credit system as a whole"government, commercial and cooperative"must be so knit together that it does not suffer either from a gap or an overlap. It is only then that the real fruits of credit facilities will be en9oyed by the country at large in the form of agricultural development which still the key to India s prosperity in future.

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Statement of t/e -ro'(em


=ole of banks in rural development

O'>ecti)e of t/e study

The main ob9ective of the rural development programme is to raise the economic and social level of the rural people. The specific ob9ectives are *. To assess the problems encountered by banks <. To examine the reasons why banks isolate themselves opening branches the rural areas. 5. To help integrate the rural and urban sector of the economy. 3. To determine the impact of rural banking scheme on the rural dwellers. 8. To determine the extent of the rural banking
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Ty-e of Data Co((ected

There are two types of data used. They are primary and secondary data. 7rimary data is defined as data that is collected from original sources for a specific purpose. #econdary data is data collected from indirect sources.

7=I4A=P #?C=/. Interview

#./?:DA=P #?C=/.# These include books, the internet, the company website etc,

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%imitations of t/e study

*. This study is limited to only few banks. <. #ince data is collected from only one person it can be influenced by personal views.

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#?CT6 I:DIA: BA:F

HISTOR0

#outh Indian Bank is one of the premier banks in Trissur that was started during the #wadeshi 4ovement in the city. The bank was among the first banks to be set up in the Deccan region of the country.
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The ob9ective with which the bank was set up was to allow the people the scope of investment in an Indian Bank and also to discourage and reduce the dependence on the unauthori$ed sector of the society An enterprising and industrious group of people of Trissur city started the #outh Indian Bank in the erstwhile state of /ochin. 7resently, the I/I/I Bank ;td holds **.<8 percent shares of #outh Indian Bank of Trissur. The bank turned into a scheduled private sector bank under the Act of =eserve Bank of India in the year*23-. =BI also gave a permission to open a /urrency /hest on its behalf in the year *22<. The bank has started the system of plastic money by initiating the credit card system in the region of #outh India. The bank established the Industrial Finance branch in the year *225. It was the first private sector bank in the region to initiate such a program

#outh Indian Bank was the first from the state of Ferala .To start an overseas branch in the year *225 to cater to the needs of the import and export houses of the country. From a small banking institution, the #outh Indian Bank has grown to 38 extension counters and 381 branches catering to the needs of *2 Indian states and union territories

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Data Ana(ysis

*. Ihat are the basic problems encountered by banks in rural areasK Ans. The basic problem encountered by banks in rural areas is illiteracy.

<. /an you tell why banks isolate themselves from operating in rural areasK Ans. In rural areas the deposits made are smaller as compared to the urban areas and hence the profitability margin is low.

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5. 6ow have the banks helped building awareness in the rural areasK Ans. They conduct campaigns to make people aware of the benefits of banks.

3. Ihat impact has the rural banking made on the rural dwellersK Ans. The people in the rural areas have started depositing their funds in banks and hence it safeguards them from the moneylenders.

8. Are the varieties of products offered in the rural sector good enoughK Ans. 4any schemes have been introduced especially for the rural sector for the development of the rural sector .But there is scope for more customi$ation.

-. Ihy do people in the rural areas prefer money lenders instead of banksK Ans. In rural areas people prefer money lenders instead of banks because getting loan from banks re!uires a lot of documentation and it is also a lengthy procedure. 6ence, they prefer money lenders for easy access of money.

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Recommendations

Banks should hold more campaigns in the rural areas and make people aware of the benefits of banks and the various types of schemes introduced for the rural sector. They should educate the employees working in the rural sector by providing them special training. Banks can change their marketing concept according to different areas. In rural areas they should try to speak with the customers in their regional languages so that the rural people feel more comfortable

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4ore customi$ed products should be brought in so that people are attracted towards banks. All the banks should work together for the growth of the rural sector. Banks should also try to provide loans to rural people without collateral security.

Conc(usion

As rightly said by the Father of :ation% >IndiaNs soul exists in villages. The country cannot develop until villages are developed and villages are selfB reliantH. If India wants to be onBthe path of development, itNll have to start from path of rural development in particular and agriculture in general. #o banks need to put in special efforts in the rural sector.
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Bi'(iogra-/y

B??F#
=ohtagi Anshu, G=ural Banking and ?verdues 4anagementH, /yber Tech 7ublications /hakrabarty 4anan, G=ural Banking IndiaH, :ew century 7ublications

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Iebsites
www.southindianbank.com http%00www.preshstore.com0index.phpK

routeQproduct0productRproductSidQ,5 www.docudesk.com

A--endi?

*. Ihat are the basic problems encountered by banks in rural areasK <. /an you tell why banks isolate themselves from operating in rural areasK 5. 6ow have the banks helped building awareness in the rural areasK 3. Ihat impact has the rural banking made on the rural dwellersK
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8. Are the varieties of products offered in the rural sector good enoughK -. Ihy do people in the rural areas prefer money lenders instead of banksK

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