Rural Banking in India:Realizing the Potential through Technology

Indian banks have awakened to the vast potential of the rural sector. Specialized
and innovative schemes to improve rural penetration have become the popular
mantra. No-frills credit cards, franchisee networks, supply chain financing for
agriculture, investments in rural infrastructure and cross-selling of products are
only some of the programs directed at the rural sector. Needless to say, at the core
of these initiatives lies sophisticated yet reasonably priced technology - playing a
significant role both in effective operations and delivery.
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 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.
The Challenges

This, however, is easier said than done. RRBs today continue to traverse an
increasingly rocky path, facing significant economic, infrastructural and business
hurdles that heighten in complexity with every passing year.
Lack of a Robust Governance Structure
While other rural financial services providers like Scheduled Commercial Banks
and private banking entrants have robust processes for functions ranging from HR
to product development, RRBs are largely insulated in operation and lag behind
their commercial counterparts in efficiency and rationalization of process as well
as governance mandates.
Manual Operations
While automation of operations at RRBs is the vision of The Reserve Bank of
India (RBI), even mechanization remains a challenge for several of these banks.
Basic automation, like the Advanced Ledger Posting Machine (ALPM), for end-ofday (EOD) reporting, is yet to reach a significant number of RRBs. Lack of
automation also hampers reporting and MIS, which in turn results in poor visibility
into business and operational parameters, critical for management-driven business
decisions.
Inadequate Infrastructure
Lack of sufficient infrastructure and consequently the inability of most RRBs to
retain qualified managers affect the growth and the discharge of their operations.
Inadequate infrastructure support also translates into high project preparation costs,
and risk aversion amongst sponsor entities.
Dynamic Market Conditions
Few RRBs are up to the rigours of channel expansion and customer segmentation
mandated to conduct business in todays fast changing times. Even the otherwise
ubiquitous ATM, is ever so often a channel not supported by RRBs.
Most RRBs also lack a robust product innovation agenda to deliver relevant
offerings, factoring in the need for customer convenience and flexibility
increasingly critical in todays highly competitive and dynamic rural marketplace.
Undefined Roadmap
The RRBs share of woes also includes budgetary constraints, mounting over-dues,
lack of adequate infrastructure facilities, and limited channels of investment.
Owing to these problems, some RRBs are not able to achieve financial viability. In
addition, they have little visibility into operational and business imperatives.

Working for growth in very challenging conditions, sustenance is possible only

when RRBs have a clear roadmap for:
Abiding relationships with customers through customer data analysis
Operations with clear cost-efficiency and productivity
Unified 360-degree view of the business
Relevant and timely product innovation
Technology can Transform
The RBIs diktat is for RRBs to achieve automation before the dawn of
2011. In fact, for RRBs established after September 2009, automation will
be a clear mandate right from day one of inception.
Rightly so - since, a robust technology solution can enable RRBs to confront
several current market and business challenges. As an ideal solution, it can
help RRBs break through the insular mould, share information, reuse data
and business logic, deliver one view of the customer, and sustain fruitful
relationships in the long term.
Knowledge Repository
RRBs can leverage technology to build a knowledge repository by
consolidating knowledge about products, customers, systems, processes,
revenue and practices. This provides them with an integrated, 360-degree
view of the entity. Such consolidated knowledge is intellectual capital which
can be realized by proactively sharing it with all stakeholders both within
and outside the bank. Employees will thus be empowered with the
knowledge necessary to sustain and grow business. They will also have the
wide-ranging information to match customers with products and enable
mapping of process to the business challenge.
Customer-centricity
RRBs can no longer adopt the one-size-fits-all approach restricting their
offerings to a skeletal spread of microfinance for Self Help Groups (SHG),
and small loans and deposits. They must cater to the markets need for a
comprehensive range of banking and insurance products arising from diverse
customer segments ranging from the agri-based sector, the cottage and small
scale industry and artisans. A primary route through which an RRB can
address all these requirements is by having an integrated back office
environment. It provides them with a holistic and actionable view of
customers, their interactions, accounts, transactions, and products, from a
single integrated hub. This can enable the RRB to mine customer data and

leverage the information to offer customers tailored financial services that

fulfill their needs. Capitalizing on already existing data will help the RRB
save money and seize cross-sell opportunities.
Process-centricity
RRBs must migrate to an IT environment that comprises an integrated suite
of core functionenabling systems that make it easy for the RRB to
standardize processes for all services. Such an environment introduces much
needed intelligence into the RRB organization and empowers it to chart a
successful and sustainable future road-map, which in turn can strengthen
profitability.
Regulation Compliance
Like every strong player in the banking domain, mitigating compliance risk
would be a clear mandate for RRBs as well. To play a meaningful role in the
financial eco-system of the country, it will be imperative that RRBs comply
with regulations like AML and KYC.
To enable regulatory compliance, RRBs can leverage technology for
effective data mining techniques to improve systems that detect violations or
outlying risk factors, consolidate processing for data-intensive jobs and
factor in compliance requirements at the product development level too.
Above all, the technology platform can enable complete visibility into
customer transactions. It can also form the basis of information sharing
between RRBs for mutual risk-mitigation from poor credit and eventual
gains.
Its the Way the World Works
Worldwide, the mandate for social and development banks like credit
unions, cooperative societies and micro-finance institutions, has been to
extend financial inclusion. This includes services to under-banked rural
areas, credit for agriculture and small scale-industry related businesses, as
opposed to the traditional approach to business from a pure-profit
perspective.
The most successful among these institutions have been the ones that have
adopted appropriate technology platforms to achieve customer-centricity,
break down silos, reuse data and business logic, while accessing an
enterprisewide view of operations. They have driven their service agenda

successfully, while also creating enough profits to ensure sustenance and

viability in the long term.
NEED FOR REGIONAL RURAL BANKS

REGIONAL RURAL BANKS EMERGE

The Government accepted the recommendations of Narasimhan Committee

and, accordingly, the ordinance of Regional Rural Banks, 1975 was promulgated
on September 26, 1975. This was replaced by the Regional Rural Banks Act, 1976
on February 9, 1976. The mandates of these rural financial institutions were to:

Take banking to the doorsteps of the rural masses, particularly in areas

without banking facilities.

Make available cheaper institutional credit to the weaker sections of society,

who were to be the only clients of these banks.

Mobilize rural savings and canalize them for supporting productive

activities in rural areas.

Generate employment opportunities in the rural areas.

 Bring down the cost of providing credit in rural areas

The regional rural banks were to form with: Central Government (50 per
cent), State governments (15 per cent) and commercial banks (35 per cent) (as
per the recommendations of Narshiham committee). The number of RRBs rose
from just six in 1975 to 196 by 1987, covering 476 districts. They financed only
the weaker sections of the rural community small and marginal farmers,
agricultural labourers, small traders, and so on. Along with commercial banks,
RRBs participated enthusiastically in poverty alleviation schemes (IRDP, for
example) and disadvantaged area (drought-prone regions and deserts) development
programmes. They quickly became an important and integral part of the rural
credit system. However, their financial viability was initially overstretched by
policy rigidities coupled with a low capital base in an environment of inadequate
infrastructure and deeper social and economic disparities.

After the financial sector reforms, several measures to improve the viability
of RRBs were initiated. More importantly, re-capitalization to cleanse their balance
sheets was taken up in 1993-94. Other important reforms are as follows:

Measures included deregulation of interest rates on advances as well as

deposits.

Permission to lend to others outside target groups.

 Provision for rationalization of branch network- relocation and merger of

loss-making branches.

Introduction of prudential norms on income-recognition.

Asset classification and provisioning.

Preparation of development action plans and signing of memorandum of

understanding with sponsor bank for sustained viability in a planned
manner.

Provision of greater role space and larger operational responsibilities to

sponsor banks in the management of RRBs

Encouragement to function as self-help promoting institutions and financing

of self-help groups and introduction of Kisan Credit Cards to simplify
provision of production credit to their clients.

REGIONAL RURAL BANKS

Between 1980 and 1987, while the number of RRBs increased a little more
than two-fold the number of branches of RRBs increased more than four-fold. It
was not totally unexpected therefore that by the end of the 1980s several of these
banks were showing losses on their books.

Table 2:- Purpose wise Advances of RRBs, Outstanding (end of Sept, 1990)
Rs. Crores
1

Short Term (crop loan)

615

Term Loan and Agriculture Activities

669

Allied Activities

555

Rural Artisans, Village & Cottage Industries

277

Retail Trade and Self-employed etc.

1052

Consumption Loan

54

Other Purpose

290

Indirect Advances

Total

43

3555

REGIONAL RURAL BANKS

AND ECONOMIC REFORMS

In the year 1989 for the first time, the conceptualization of the entire
structure of Regional Rural Banks was challenged by the Agricultural Credit
Review Committee (Khusro Committee), which argued that these banks have no
justifiable cause for continuance and recommended their mergers with sponsor
banks. At the time such a policy move was politically unthinkable, so the Reserve
Bank and the Government of India quite prudently pushed the khusro committee
report under the carpet without a public debate. With the onset of the neo-liberal
economic reforms and the liberalization of the financial system, the RRBs came
under the scanner ones again, but this time in a policy regime that was too willing
to let the market principles rule.

The committee on financial Systems, 1991(Narasimham committee)

stressed the poor financial health of the RRBs to the exclusion of every other

performance indicator.172 of the 196 RRBs were recorded unprofitable with an

aggregate loan recovery performance of 40.8 percent. (June 1993) The low equity
base of these banks (paid up capital of Rs.25 lakhs) didnt cover for the loan losses
of most RRBs. In the case of a few RRBs, there had also been an erosion of public
deposits, besides capital. In order to impart viability to the operations of RRBs, the
Narasimham Committee suggested that the RRBs should be permitted to engage in
all types of banking business and should not be forced to restrict their operations to
the target groups proposal which was readily accepted.

This recommendation marked a major turning point in the functioning of

RRBs as we shall see below. For the time being though, the suggestion of mergers
of the RRBs with their sponsor bank, which the Committee on Financial Systems
had put forth in a slightly modified form-sponsor banks might decide whether to
retain the identities of sponsored RRBs or to merge them with rural subsidiaries of
commercial banks to be set up on the recommendation of the committee- was put
on hold.
In the ensuing years, reforms of the RRBs largely followed the same format
as that of the commercial banks, irrespective of the fact that their very role in the
society required a special status and a different set of policies. Since the early
1990s, there was a complete freeze on recruitment of new staff in the RRBs. As a
part of comprehensive restructuring programme, recapitalization of the RRBs was
initiated in the year 1994-45, a process which continued till 1999-2000 and
covered 187 RRBs with aggregate financial support of Rs.2188.44 crore from
stakeholders.

Simultaneously,

prudential

norms

on

income-recognition,

asset

classification and provisioning for loan-losses following customary banking

benchmarks were introduced. From 1996/1997, there has been a tendency to allow
greater role and larger operational responsibilities to sponsor banks in the
management of RRBs. The rest of the section discusses a few of the major policy
changes and their observed outcomes.

PROVISION FOR RATIONALIZATION OF BRANCH NETWORK

INCLUDING RELOCATION AND MERGER OF LOSS-MAKING
BRANCHES

One of the regulations that the RRBs faced was regarding the limited area of
operations and their narrow client base. In 1993, RBI gave permission to
RRBs to relocate branches that were consistently making losses for more
than three years. This policy provided an opportunity to the RRBs shift
branch premises to more commercially promising areas from localities
where they had incurred sustained losses. As Table 3 indicates, between
1996 and 2003, about 459 offices of RRBs were closed and relocated to
semi-urban and urban centers so that the overall number of branches of
RRBs would remain constant.

In addition, there were relocations within the rural areas from remote
locations to commercial places (not captured by the data). The transfer of
banking business to semi-urban and urban centers was even more drastic

with a 6 percent decline in share of rural areas in credit amount outstanding,

over the seven years, as the banks adjusted their clientele.
Table 3:- Relocation OF RRBs Business from Rural to Semi-Urban & Urban
Areas

Distribution of Credit
Outstanding
Number of offices

(%)

1996

2003

1996

2003

Rural

12448

11989

77.45

71.51

Semi-Urban

1844

2183

17.72

21.76

Urban

373

477

4.78

6.50

Metropolita

22

0.06

0.24

14672

14671

100.00

100.00

n
All-India

Sources: RBI, Basic Statistical Returns, March 1996 and March 2003.

PERMISSION TO LEND TO OTHERS OUTSIDE TARGET GROUPS

AND DEREGULATION OF INTEREST RATES

Before the initiation of banking reforms, lending from the RRBs was largely
restricted to the priority sector. From September1992 onwards, the RRBs

were allowed to finance non-target groups to the extent not exceeding 40

percent of their incremental lending. This limit was subsequently enhanced
to 60 percent in 1994.As a result; the RRBs diversified into a range of nonpriority sector (NPS) advances, including jewel and deposit-linked loans,
consumer loans and home loans. The RRBs adopted new innovations for
credit delivery with lower risk of default such as self-help Group linked
lending, non priority sector collateralized lending, Kisan Credit Card
scheme for landed agriculturists, etc. As a proportion of total advances,
priority sector lending dipped from around 70 percent in 1990 to 57 percent
in 2001.Even among the categories that were eligible as priority sector, the
attempt was to minimize credit risk and make easy loans. Between 1995 and
2003, while short term agriculture credit under the priority sector increased
at about 29 percent per annum, term loans declined by 2.6 percent a year.

Sinha et al (2003) in a field study of 5 RRBs find that non-priority sector

advances increased sharply in the second-half of the 1990s for all the sample
banks. Of these, 4 banks have a significant 25 percent of their portfolio
invested in non-priority sector loans. The interviewed RRB managers agree
that this was a deliberate strategy to improve viability. Non-priority sector
advances are mostly collateralized and therefore carry low risk; they are
generally market based and of a higher value extended to higher-income
clients or to low income clients through deposit and jewelry linked loans;
and banks have freedom to charge cost-covering interest rates on nonpriority sector advances. The bank managers candidly accept that the RRBs
have been able to raise their profitability by refusing to serve low-income
clients!

 RISING INVESTMENTS IN BANKS PORTFOLIOS

The RRBs in following the trend set by the commercial banks increased the
share of investment assets in the portfolio. Not only did the share of
investments in government securities increase beyond the SLR norms,
simultaneously there was diversion of an increasing share of the investment
portfolio into other approved securities such as PSU bonds and debentures.
The importance of investments in the portfolio of the RRBs can be gauged
from the fact that the interest on investments was about 52 percent of the
total income in 2003 while interest on advances was 37 percent of the
income. Mujumdar (2001) attacks this reverse flow of funds from the rural
to the urban areas as the most retrogressive policy initiated by the RBI.
Priority sectors including agriculture, small industry, retail trade, the
whole range of non- farm activities in the rural sector have no access to
the capital market and hence the emphasis should be to promote flow of
resources from the urban to the rural areas. However, an indulgent RBI has
yielded to the biased perspective that there arent enough avenues to invest
bank resources in the rural sector.
RURAL BANKING FACES TWIN CHALLENGES

Banking in rural India is faced with the twin challenges of regulation 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. Initiatives like cheque transaction where the electronic image and not the
actual cheque is sent have in mind the urban customer, 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. The other handicap was that
while Rs 1- crore business in microfinance required 30 people in terms of
manpower, the same volume of business in other portfolios required only one
person. Also, contract farming and supply chain integration has not gone the way
they should have. Power, telecommunications, banking and transportation had
reduced the urban-rural divide. Besides traditional banking services, people in the
rural and semi-urban areas are expressing interest in liability and investment
products. Rural India is fast transforming a nation of savers into a nation investor.

MORE RECENT MEASURES

It is only in the past few years that the unwanted effects of reform measures
on rural banking have begun to be recognized in certain official quarters. That the
improved performances of the RRBs 163 out of 196 RRBs were earning profits
in 2003-2004 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. Moreover, 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.

Among 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 Parliamentary Estimates Committee (2002-03) had come up with a
number of useful suggestions to tackle the shrinking credit delivery to the priority
sector and the rural areas:

 Among RRBs which are making absolute profit, the credit-deposit ratio
should not be lower than 75% 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 57 % of the total lending..There could be no rationale
for fixing the same norms for lending to priority/agricultural sector by the
RRBs as in the case of commercial banks. The RBI should apply proper
checks to ensure that the present level of 57% of lending by the RRBs to the
priority sector is not allowed to decline further. And 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. In 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 Government/the RBI. The committee recommended
that the RRBs should take steps for compiling and maintaining data
regarding credit facility extended to small and marginal farmers and other

weaker sections of the society to monitor that credit facilities being provided
by the RRBs reach the targeted beneficiaries.

A number of RRBs were charging compound interest on agriculture loans.

Even on the subsidy part, certain RRBs were charging compound interest,
which was in utter violation of the guidelines issued by the RBI. The
committee is of the view that this trespass should be dealt with severely
More distressing is the fact that even though in the case of a number of
banks this irregularity was pointed out in the Inspection Reports by
NABARD, neither had the RRBs taken any corrective measures in this
regard nor was any serious note of it taken by the sponsor banksIt
appears the RBI, NABARD and the sponsor banks seem content with
issuing of circulars and conducting mandatory inspections without ensuring
compliance of the guidelines issued by them and rectification of
irregulations noticed during inspections.

On the issue of NPAs of the RRBs, the committee expressed its

dissatisfaction at the current levels. While the official statistics highlights the
decline in NPAs from 34 percent in March 1996 to 3.99 percent in March
2006.Very few of the above recommendations were, in fact, accepted by the
RBI/Government of India. From the year 2003-04, the RBI revised upwards the
lending target for priority sector to 60 percent of the total advances for the RRBs.
Ambitious overall credit targets were laid down for the RRBs by the Union
Government.

The farm credit target for the RRBs at Rs 11,900 crore for the fiscal year
2005-2006 is 40 percent higher than Rs 8,500 crore target set during the fiscal year
2004-2005. But little else happened. In reviewing the action taken by the RBI/GOI
on the proposals of the Estimates Committee (2002-2003), the committee in 20042005 finds that no specific action has been taken on most of the major
recommendations.

NO FURTHER MERGER OF RRBS

There is a need for policy refinement regarding further merger of RRBs. The
Vyas Committee had recommended merger of all RRBs in the same State.
Currently, RRBs of the same sponsor bank are merged at State-level. By
April 2007, the number of RRBs was reduced to 96. If sponsor banks are to
have the requisite initiative to support their RRBs fully, they would need
assurance that there will be no further mergers. The Committee is of the
view that further merger of all RRBs at State-level is not required. It may
also not be desirable if there has to be a firm reinforcement of the rural
orientation of these institutions with a specific mandate on financial
inclusion. The Committee, therefore, recommends that the process of merger
should no proceed beyond the level of sponsor bank in each State.

RECAPITALIZATION OF RRBS WITH NEGATIVE NET WORTH

Recapitalization 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 31March 2006, is that 40 RRBs would
require Rs. 1,718 crore.

WIDENING NETWORK AND EXPANDING COVERAGE

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.

COMPUTERIZATION

With a view to facilitate the seamless integration of RRBs with the main
payment system, there is a need to provide computerization 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, nonfund based business, career progression, transfer policy etc.

TAX INCENTIVES

From 2006-07, RRBs are liable to pay income tax. To further strengthen the
RRBs, profits transferred to reserves could be exempted from tax till they
achieve standard capital adequacy ratios. Alternatively, 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 Act.

Implementation of RBI initiatives for financial inclusion:-

All recent circulars relating to financial inclusion, viz., no frills accounts,

GCC, One Time Settlement (OTS) for loans up to Rs 25, 000, use of
intermediaries, etc., should be implemented by RRBs.

 NRFIP FOR RRBS

The strategy recommended earlier for NRFIP for commercial banks would
be equally applicable for RRBs. The process of undertaking a survey,
identification of excluded households, dissemination of the information,
settings 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 Endeavour to cover to 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.

STRATEGIC MICROFINANCE PLAN WITH NABARD SUPPORT

RRBs have potential and capability to emerge as niche operators in

microfinance. They are playing major role in SHG-Bank Linkage
Programmed especially also as SHPIs. It is significant that as an institution
they have the expertise and potential to fulfill both the requirements of
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 the programmed 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 SGHs. 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.

SEPARATE CREDIT PLAN FOR EXCLUDED REGIONS

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 agriculture services and
BDSs for the farm and nonfarm sectors respectively including
entrepreneurship development and formation and strengthening of
producers organizations like dairy cooperatives. Refinance and promotional

support may be provided by NABARD to RRBs on a large scale for

implementation of these credit plans.

NABARD TO SUPPORT HR DEVELOPMENT IN RRBS:-

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 to train their staff through the training institutions like the
bankers Institute of Rural Development (BIRD) at Lucknow and the
Regional Training Colleges at Mangalore and Bolpur, specially set for
meeting the training requirement of RRBs. NABARD my design suitable
training programmes to enable RRBs to meet the challenges in post merger
environment. This training may also cover members of the Board of RRBs.
This support should be provided by NABARD working in close tandem
with GOL, RBI and the sponsor banks.
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, developing 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.

REGIONAL RURAL BANKS TODAY

There are around 133 RRBs spread over 23 states/Union Territories and with a
network of 14,494 branches, accounting for 44.5 per cent of the total rural network
of all scheduled commercial banks (including RRBs). The rural and semi-urban
branches of RRBs constitute 98 per cent of their network. Their deposits and
advances as on March 31, 2003, were Rs. 71,329 crore and Rs.22, 028 crore
respectively. Thus RRBs have done well in mobilizing rural deposits and infusing
the thrift habit in their clients.

Out of 196 RRBs, in 2002-2003 the number of profit making banks stood at
167 in 2001-2002 as compared with 170 in 2000-2001.However 111 RRBs out of
total 133 registered profits in the year 2005-06. The combined Net Profit of RRBs
for the year 2001-2002 aggregated Rs.608 crores as against the combined net
profit of Rs.601 crores in the previous year. The aggregate accumulated losses of
RRBs declined from Rs.2752.59 crores as on 31 March 2001 to Rs 2637 crores as
on 31 March 2006.

As a result of the various reforms measures, the RRBs showed substantial

turn-around in their performance. The RRBs also displayed qualitative
improvement in their NPA management and gross NPAs as percentage of gross
advances stood at 3.99% as on 31-3-2006, down from 32.8 at March-end
1998.Similarly, the recovery performance of the RRBs steadily improved with the

percentage of recovery to demand raised at 80% as on 2005-2006 from 61.2% at

end-June 1998(41.2% at end-June 1993).

The bulk of the loans from RRBs have been to priority sectors, which
accounted for over 70 per cent of the total. Agriculture alone took up 46 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 cooperative and commercial banks. As on March 31, 2002, the outreach of RRBS in
terms of number of deposits and advances was 50.02 million and 11.94 million
respectively. Clientele 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--vis other Banks.

Per-employee, 885 accounts are handled by RRBs against the national

average of 464 accounts per employee in the banking industry.

RRBs have also taken a lead role in financing of Self Help Groups (SHGs)
mostly comprising of women leading to their economic and social empowerment.
The share of RRBs in SHG-Bank linkage programme is equally commendable.

BACKGROUND

NABARD was established on 12th July 1982 to implement the National

Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural
Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve
Bank of India, and Agricultural Refinance and Development Corporation (ARDC).

MISSION

NABARD being an Apex Development 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 objective of providing
refinance to eligible institutions is to supplement their resources for delivering
credit for agriculture, cottage & village industries, SSIs, rural artisans, etc. thus
influencing the quantum of lending in consonance with the policy of Govt. of
India. It directs the policy, planning and operational aspects in the field of credit
for agriculture and integrated rural development.

STRUCTURE

NABARD operates throughout the country through its 28 Regional Offices

and one Sub-office, located in the capitals of all the states/union territories. It has
336 District Offices across the country, one Sub-office at Port Blair and one
special Cell at Srinagar. It also has 6 training establishments.

NABARD ROLE AND FUNCTIONS

OVERVIEW

NABARD is set up by the Government of India as a development bank with

the mandate of facilitating credit flow for promotion and development of
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. With a capital base of
2,000 crore provided by the Government of India and Reserve Bank of India.

NABARDS ROLES AND FUNCTIONS ARE SUMMARIZED BELOW

DEVELOPMENT AND PROMOTIONAL FUNCTIONS

Credit is a critical factor in development of agriculture and rural sector as it

enables investment in capital formation and technological up gradation. Hence,
strengthening of rural financial institutions, which deliver credit to the sector, has
been identified by NABARD as a thrust area. Various initiatives have been taken
to strengthen the cooperative credit structure and regional rural banks, so that
adequate and timely credit is made available to the needy.

In order to reinforce the credit function and to make credit more productive,
NABARD has been undertaking a number of developmental and promotional
activities such as:-

 Help cooperative banks and Regional Rural Banks to prepare development

actions plans for themselves.
Enter into MoU with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe.
Help Regional Rural Banks and the sponsor banks to enter into MoUs
specifying their respective obligations to improve the affairs of the Regional
Rural Banks in a stipulated timeframe.
Monitor implementation of development action plans of banks and
fulfillment of obligations under MoUs.
Provide financial assistance to cooperatives and Regional Rural Banks for
establishment of technical, monitoring and evaluations cells.
Provide Organization development intervention (ODI) through reputed
training institutes like Bankers Institute of Rural Development (BIRD),
Lucknow

www.birdindia.com, National Bank Staff College, Lucknow

www.nbsc.in and College of Agriculture Banking, Pune, etc.

Provide financial support for the training institutes of cooperative banks.
Provide training for senior and middle level executives of commercial
banks, Regional Rural Banks and cooperative banks.
Create awareness among the borrowers on ethics of repayment through
Vikas Volunteer Vahini and Farmers clubs.
Provide financial assistance to cooperative banks for building improved
management information system, computerization of operations and
development of human resources.

CREDIT FUNCTIONS

REFINANCE AGAINST INVESTMENT CREDIT

This is a long-term refinance facility. It is intended to create income

generating assets in the following

Investment in agriculture and allied activities such as minor irrigation

projects, farm mechanization, 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.

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

Activities of voluntary agencies and self help groups working among the
rural poor.

Investment in share capital/securities of institutions involved in agriculture

and rural development

The credit is normally provided for a period of 3 to15 years

Sr.no.

Year

Amount (Rs.Lakhs)

1995-96

83.000

1996-97

128.484

1997-98

261.364

1998-99

467.486

ELIGIBLE INSTITUTIONS

NABARD provides refinance support to SCARDBs, SCBs, RRBs, CBs,

scheduled primary urban cooperative banks, North East Development Finance
Corporation Ltd. (NEDFI) etc. against their investment credit in the rural sector

PURPOSES

Some of the major purposes covered under investment credit are farm
mechanization, minor irrigation, plantation / horticulture, animal husbandry,
storage / market yards, fisheries, post harvest management, food / agro processing,
non-farm sector including rural industries, microfinance, purchase of land ( for
small/marginal farmers, share croppers etc.), rural housing and disbursements
under poverty alleviation programmes like SGSY and SC/ST Action plan etc. Hitech projects and agri export zones are identified as thrust areas and NABARD
helps in techno-financial appraisal of such projects besides providing refinance.

In recent years, refinance support has been extended to new activities like
financing of diesel generator sets in Madhya Pradesh and LPG kits to rural
households all over the country.

CRITERIA

The technical feasibility of the project, financial viability and generation of

incremental income to ultimate borrowers thereby, enabling them to have a
reasonable surplus after repayment of the lone installments are the necessary
conditions to be satisfied for sanctioning investment credit. The period of loan
ranges between 3 and 15 years depending on the purpose for which it is provided.

The refinance is provided to SCARDBs, SCBs, CBs and RRBs. However,

the beneficiaries of the programme are partnership concerns, companies, stateowned corporations or cooperative societies. But, finally the assistance reaches the
individuals, who are members of the primary credit institutions.

The refinance is usually 50% to 95% of the project cost. The balance will be
met by the banks or the concerned state governments or the Government of India
in the case of SCARDBs.With a view to ensure credit flow to certain thrust areas,
the quantum of refinance is enhanced to 100% as in the case of special category
beneficiaries like SC/ST members and self help groups

SUPERVISORY FUNCTIONS

OVERVIEW

As an apex bank involved in refinancing credit needs of major financial

institutions in the country engaged in offering financial assistance to agriculture
and rural development operations and programmes, NABARD has been sharing
with the Reserve Bank of India certain supervisory functions in respect of
cooperative banks and Regional Rural Banks (RRBs)

As part of these functions, it:

Undertake inspection of Regional Rural Banks (RRBs) and cooperative

bank (other than urban/primary cooperative banks) under the provisions of
Banking Regulation Act, 1949.

Undertakes inspection of state Cooperative Agriculture and Rural

Development Banks (SCARDBs) and apex non-credit cooperative societies
on a voluntary basis.

Undertakes portfolio inspections, system study, besides off-site.

Surveillance of cooperative banks and Regional Rural Banks (RRBs).

Provides recommendations to Reserve Bank of India on opening of new

branches by State Cooperative Banks and Regional Rural Banks (RRBs).

 Administering the Credit Monitoring Arrangements in SCBs and CCBs

CORE FUNCTION

NABARD has been entrusted with the statutory responsibility of conducting

inspections of State Cooperative Banks (SCBs), District Central Cooperative
Banks (DCCBs) and Regional Rural Banks (RRBs) under the provision of the
Banking Regulation Act, 1949. In addition, NABARD has also been conducting
periodic inspections of state level cooperative institutions such as State
Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex
Weavers Societies, Marketing Federations, etc.on a voluntary basis.

OBJECTIVES OF INSPECTION

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

NABARD/RBI/Government.

 To examine 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.

IMPORTANT SCHEMES OF NABARD

RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF)

In 1995-96 RIDF-I set up with a corpus fund of Rs. 2000 crore for the
purpose of financing rural infrastructure projects such as irrigation projects,
construction of rural roads and bridges, etc. The RIDF fund has been continued in
subsequent years. The RIDF IX (last in the Series) was introduced in 2003-04.
The RIDF came to an end with the commencement of the Lok Nayak Jai
Prakash Narayan fund in February 2004.

LOK NAYAK JAI PRAKASH NARAYAN FUND (AGRICULTURE

INFRASTRUCTURE AND CREDIT FUND)

The fund came into existence in Feb-2004.It replaced the RIDF.NABARD

has prepared this scheme with the following three components:

 Finance for infrastructure through State Governments (Rs. 30000

crore).

Activities includes minor irrigation, rain fed agriculture, and flood control,
public sector cold storage facilities, etc. Eligible clients are state
Governments, state undertakings, and local bodies.

Finance for investments in agriculture and commercial infrastructure

through banking system (Rs.18000 crore).

Activities includes priority areas like micro irrigation, rain fed agriculture,
post-harvest related support, agriculture marketing, investment credit, etc.
Eligible clients are corporate, NGOs, and individual, etc.

Development measures and Risk Management Mechanism (Rs. 2000

crore).

REHABILITATION OF COOPERATIVE BANKS SCHEME

NABARD undertakes a rehabilitation programme for weak CCBs and

SCBs. Under this programme, it assists CCB and SCBs, which are financially and
administratively weak due to large overdue and untrained staff.

KISAN CREDIT CARD (KCC) SCHEME

This scheme was introduced in 1998-99 with a view to facilitate the flow of
timely and adequate 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 414 lakh KCCs involving
credit of about Rs.97, 710 crore up to March 2004.

The KCC scheme is an ongoing scheme, which is envisaged to gradually

replace the traditional system and procedures in the issue of shot-term crop loan.

REFINANCE UNDER SGSY

NABARD has issued operational instructions to cooperative banks and

RRBs with regard to implementation of self employment projects under SGSY on
similar lines as was issued by RBI to commercial banks.

SELF-HELP GROUPS SCHEME

NABARD has been active in promoting and linking more and more selfhelp groups (SHGs) to the banking system. The banks provide finance to SHGs.
NABARD provides 100% refinance assistance to banks at an interest rate of 6.5%
p.a. for financing SHGs.

The concept pf SHGs promoted by NABARD for financing the poor was
introduced in 1991-92 under this scheme, the SHGs are linked with formal credit
agencies (banks). By March 2004, over 1.7 crore rural poor families accessed
financial services and credit through 10.79 lakh credit linked SHGs. Around 90%
of these SHGs are exclusive women SHGs. More than 30,000 branches and 500
banks which participate in the programme have extended loans amounting to
Rs.3,904 crore by March 31,2004 backed by refinance support of Rs.2,124 crore
from NABARD.

MILESTONES OF NABARD

Some of the milestones in NABARDs activities are:-

 With its effective overseeing and monitoring of the implementation of the

Government of Indias programme to double the flow of credit to agriculture
over.

A three-year period from 2004-2005, the total disbursement of credit

reached Rs. 1, 25,309 during 2004-2005. Ground level credit flow to
agriculture and allied activities reached Rs 1, 57,480 crore in 2005-2006.

Refinance disbursement to commercial banks, state cooperative banks, state

cooperative agriculture and rural development banks, RRBs and other
eligible financial institutions aggregated Rs 8,622.37 crore.

As on 31 January 2007 through the Rural Infrastructure Development

Fund (RIDF), Rs. 59,795.35 crore have been sanctioned for 2,31,702
projects covering irrigation, rural roads and bridges, health and education,
soil conservation, drinking water schemes, etc. Development among hosts of
other infrastructures, RIDF will create 20971 schools, 6239 primary health
centers and provide drinking water supply in 7267 villages.

Watershed Development Fund, with cumulative sanctions of Rs. 578.95

crore for 427 projects in 124 districts of 14 states, has created a Peoples
Movement in rural India.

 Farmers now enjoy financial access and security through 582.50 lakh Kisan
Credit Cards that have been issued through a vast rural banking network.

District Rural Industries Project (DRIP) has generated employment for

23.34 lakh persons with 10.95 lakh units in 105 districts.

NABARD TODAY

Initiates 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.

Promotes research in the fields of rural banking, agriculture and rural

development.

Functions as regulatory authority, supervising, monitoring and guiding

cooperative and regional rural banks.

Undertakes monitoring and evaluation of projects refinance by it.

Prepares 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.

Coordinates the rural financing activities of all the institutions engaged in

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

COMMERCIAL BANKS CONTRIBUTION

STATE BANK OF INDIA

State Bank of India Caters to the needs of agriculturists and landless

agricultural specialized branches which have been set up in different parts of the
country exclusively for the development of agriculture through credit deployment.
These branches include 427 Agricultural Development Branches (ADBs) and 547
branches with Development Banking Department (DBDs) which cater to
agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad
catering to the needs of hi-tech commercial agricultural projects.

Their branches have covered a whole gamut of agricultural activities like

crop production, horticulture, plantation crops, farm mechanization, land
development and reclamation, digging of wells, tube wells and irrigation projects,
forestry, construction of cold storages and godowns, processing of agri-products,
finance to agri-input dealers, allied activities like dairy, fisheries, poultry, sheep-

goat, piggery and rearing of silk worms. The branch also has farmers meet in
villages to explain to farmers about various schemes offered by the bank.

To give special focus to agriculture lending Bank has set up agri business
unit. Bank has also agri specialists in various disciplines to handle projects/ guide
farmers in their agri ventures. Advances are given for very small activity covering
poorest of the poor to hi-tech activities involving large fund outlays. They are the
leaders in agri finance in the country with a portfolio of Rs. 18,000 crores in agri
advances to around 50 lakhs farmers.
State Bank of India has sponsored 30 RRBs, which operate in 102 districts
of 16 States viz. Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chattisgarh,
Himachal Pradesh, Jammu & Kashmir, Jharkhand, Karnataka, Madhya Pradesh,
Meghalaya, Mizoram, Nagaland, Orrissa, Uttaranchal and Uttar Pradesh, with a
network of 2336 branches.

VARIOUS SCHEMES OFFERED BY STATE BANK OF INDIA

CROP LOAN (ACC)

PURPOSE

To provide financial assistance to meet cultivation expenses for various crops.

ELIGIBILITY FOR CROP LOAN

Agriculturists, Tenant farmers and share Croppers who actually cultivate the lands
are eligible for these loans. All categories of farmers Small/Marginal (SF/MF)
and others are included.

LOAN AMOUNT

Loan amount is worked based on the cost of cultivation incurred for each crop per
acre of crop cultivated and 90% of the cost of cultivation (Scale of Finance) is
given as loan.

KISAN CREDIT CARD SCEME (KCC) :-

PURPOSE

To extend adequate and timely support to farmers for their short term credit needs.

ELIGIBILITY FOR THE LOAN

Farmers with excellent repayment record for 2 years and new farmers with
sizeable deposits with branches for 3 to 4 years are eligible. Borrowers with good
track record in other Banks are also eligible. Farmers who have defaulted in
repayment but have liquidated the outstanding are also eligible.

LOAN AMOUNT

Loan amount is decided based on the cropping pattern, ancillary and contingency
needs of the farmer for the full year. 90% of the cost of cultivation (Scale of
Finance) is given as loan per acre. 100% of the cost is available as loan up to Rs.
50,000/- and 85% of the cost is available as loan above Rs. 1, 00,000/-

FARM MECHANISATION SCHEMES

PURPOSE

Credit for purchase of farm equipment and machinery for agricultural operations.
The scheme covers activities ranging from purchase of tractors and accessories,
trailers. Power tillers, combine harvesters, power sprayers, dusters, threshers etc.

ELIGIBILITY FOR TERM LOANS

Farmers owning mare than minimum acreage of perennially irrigated lands are
eligible (for power tillers 2 acres, for tractors 4 acres for > 35 HP and 6 acres for
above 35 HP and for combine 8 acres). Eligibility for purchase of other farm
equipment is decided on the income generated by the agri activity undertaken by.

LOAN AMOUNT

Up to Rs. 50,000/- 100% of the cost of the asset is provided as loan. Above Rs.
50,000/- up to 85% of the cost of the asset provided as loan.

LAND DEVELOPMENT SCHEMES

PURPOSE

To provide credit solution for land development projects in the form of direct
finance to cultivators for better productivity.

Loans under this head cover various activities like land clearance ( removal
bushes, trees, etc.), land leveling and shaping, contour/ graded bunding, bench
terracing for hilly areas, contour stone walls, staggered contour trenches, disposal
drains, reclamation of saline/ alkaline soils and fencing etc.

ELIGIBILITY FOR TERM LOANS

All farmers owning agricultural land are eligible.

LOAN AMOUNT

Up to Rs. 50,000/- 100% of the cost of the asset / project cost is provided as loan.
Above Rs. 50,000/- up to 85% of the cost of the asset / project is given as loan.

LOAN

AGAINST

WAREHOUSE

RECEIPTS

COLD

STORAGE

RECEIPTS

PURPOSE

The Bank extends financial assistance to farmers storing produce in private /

government warehouse/ cold storages against pledge of warehouse / cold storage
receipt to prevent distress sale. The maximum repayment period of the loan is 6
months.

WHO IS ELIGIBLE FOR THE LOAN

All categories of farmers availing crop loan.

LOAN AMOUNT

The lone amount will be 60% of the value (minimum support price) of the produce
stored.

MINOR IRRIGATION SCHEMES

PURPOSE

To provide credit for creating irrigation facilities from underground / surface water
sources. All structures and equipments connected with it are also financed. Loans
cover various activities like digging of new wells (open/bore wells), deepening of
existing wells (traditional/in well bore), energisation of wells (oil engine/electrical
pump set), laying of pipe lines, installing drip/ sprinkler irrigation system and lift
irrigation system.

ELIGIBILITY FOR TERM LOANS

All farmers having a known source of water which can be exploited for irrigation
purpose.

LOAN AMOUNT

Up to Rs. 50,000/- 100% of the cost of the asset/ project cost is provided as loan.
Above Rs. 50,000/- up to 85% of the cost of the asset / project is provided as loan.

OTHER SCHEMES INCLUDES

PRODUCE MARKETING LOAN SCHEME

FINANCE TO HORTICULTURE
FARM MECHANISATION SCHEMES
AGRICULTURAL TERM LOANS (ATL)
LAND DEVELOPMENT SCHEMES
MINOR IRRIGATION SCHEMES
LEAD BANK SCHEME
FINANCING OF COMBINE HARVESTERS
KISAN GOLD CARD SCHEME
BROILER PLUS SCHEME
KRISHI PLUS SCHEME
ARTHIAS PLUS SCHEME
DAIRY PLUS SCHEME
LAND PURCHASE SCHEME

KEY PERFORMANCE INDICATORS: RRBS

Amount in Rs. Crore

Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

No. of RRBs

196

196

133

2.

No. of

518

523

525

14446

14484

14494

districts
covered
3.

No. of
branches

4.

No. of staff

69249

68912

68629

5.

Credit-

46%

53%

56%

deposit (CD)
ratio (%)

KEY PERFORMANCE INDICATORS: RRBS

Amount in Rs. Crore

Nos.

Indicators

Year

31.03.2004

31.03.2005

31.03.2006

1.

Owned Funds

5438

6181

6647

2.

Deposits

56350

62143

71329

3.

Borrowings

4595

5524

7303

4.

Investments

36135

36761

41182

5.

Loans

26114

32870

39713

outstanding

KEY PERFORMANCE INDICATORS: RRBS

Amount in Rs. Crore

Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

Loans issued

15579

21082

25427

2.

No. of RRBs

90

83

58

2725

2715

2637

163

166

111

8.55%

4.84%

3.99%

having
accumulated
losses
3.

Accumulated
losses

4.

No. of RRBs
in profit

5.

Net NPA (%)

KEY PERFORMANCE INDICATORS: RRBS

Amount in Rs. Crore

Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

Recovery (%)

73%

78%

80%

5.71

6.56

7.66

1.19

1.38

1.62

(as on 30
June)
2.

Per branch
Productivity

3.

Per staff
Productivity

IMPORTANT TRENDS

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 March 2004 to

3.99% on 31 March 2006.

Loans disbursement registered an impressive 35% annual growth in 2004-05

and 21% in 2005-06.

Per branch productivity has increased from Rs. 5.71 crore on 31 March 2004
to Rs. 7.66 crore on 31 March 2006.

Per staff productivity has increased from Rs. 1.19 crore on 31 March 2004
to Rs. 1.62 crore on 31 March 2006.

MUHAMMAD YUNUS & GRAMEEN BANK

NOBEL PEACE PRIZE WINNER MUHAMMAD YUNUS

Muhammad Yunus ideas about lending to the poor to lift millions out of
poverty. Have changed lives in his native Bangladesh and beyond. Known as the
banker to the poor, Yunus, winner of the 2006 Nobel Peace Prize, has helped
people rise above poverty by giving them small, usually unsecured loans through
his Grameen Bank.

Through Yunuss 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.

Yunus is the first Nobel Prize winner from Bangladesh, a poverty-stricken

nation of about 141 million people located on the Bay on Bengal.

Yunus received a Ph.D. in economics from Vanderbilt University in 1970

and taught at Middle Tennessee University from 1969 to 1972. After returning to
Bangladesh, he joined the University of Chittagong as head of the Economics
Department. He also holds honorary doctorate degrees from dozens of universities
around the world.

Yonus has won dozens of international awards, including the Simon Bolivar
Prize, the Indira Gandhi Peace Prize, the Seoul Peace Prize and the Freedom
Award of the International Rescue Committee.

He has also been appointed as an International Goodwill Ambassador for

UNAIDS by the United Nations and inducted as a member of Frances Legion
dHonneur.

From 1993 to 1995, Yunus was a member of the International Advisory

Group for the Fourth World Conference on Women, a post to which he was
appointed by the U.N. secretary general. He has served on the Global Commission
of Womens Health, the Advisory Council for Sustainable Economic Development
and the U.N. Expert Group on Women and Finance.

In addition to Grameen Bank, Yunus 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, Internet access,
capital management and renewable energy.

Grameen Bank was the first lender to hand out microcredit, giving very
small loans to poor Bangladeshis who did not quality for loans from conventional
banks. No collateral is needed and repayment is based on an honor system.

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

A LOOK AT GRAMEEN BANK

WHAT IS IT: The Grameen Bank hands out microcredit, or very small loans, to
the poor peoples of Bangladesh who, do not qualify for loans from conventional
banks. No collateral is needed and repayment is based on an honor system.

HOW DID IT START: In 1974, Yunus, then an economics professor recently

returned from the United States, lend a total of $27 to 42 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. Emboldened by his experiment,
Yunus won government approval in 1983 to open Grameen, Bengali for rural.

WHO QUALIFIES: Anyone can qualify, but they must belong to a five-member
group. Once the first two members begin to pay back their loans, the others can get
theirs. While 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: Grameen claims a 99 percent repayment rate. According to a

recent Grameen survey, 58 percent of the families of Grameen borrowers have
crossed the poverty line.

WHO OWNS THE BANK: The government of Bangladesh owns 6 percent of

the bank while the borrowers own the other 94 percent.

WHAT ARE THE NUMBERS: The bank has handed out $ 5.72 billion since its
inception to 6.61 million people had been repaid $ 5.07 billion. Women account
for 97 percent of the loan takers. Grameen Bank has 2,226 branches, works in
71,371 villages and has a total staff of 18,795.

OTHER INFORMATION

Earns Profit-Ever since Grameen Bank came into being, it has made profit
every year except in 1983, 1991 and 1992. It has published its audited balancesheet every year, audited by two internationally reputed audit firms of the country.

Revenue and Expenditure: Total revenue generated by Grameen Bank in

2006 was Tk 9.43 billion (US $134.90 million). Total expenditure was Tk 8.03
billion (US $ 114.90 million). Interest payment on deposits of Tk 3.47 billion (US
$ 35.35 million) was the largest component of expenditure (43 per cent).
Expenditure on salary, allowances, and pension benefits amounted to Tk 2.03
billion (US $ 28.97 million), which was the second largest component of the total
expenditure (25 per cent). Grameen Bank made a profit of Tk 1398 million (US $
20.00 million) in 2006. Entire profit is transferred to a Rehabilitation Fund created
to cope with disaster situations. This is done in fulfillment of a condition imposed
by the government for exempting Grameen Bank from paying corporate income
tax.

Low Interest Rates: Government of Bangladesh has fixed interest rate for
government-run micro credit programmes at 11 per cent at flat rate. It amounts to
about 22 per cent at declining basis. Grameen Banks interest rate is lower than
government rate.

There are four interest rates for loans from Grameen Bank : 20% (declining
basis) for income generating loans, 8% for housing loans, 5% for student loans,
and 0% (interest-free) loans for Struggling Members (beggars). All interests are
simple interest, calculated on declining balance method. This means, if a borrower
takes an income-generating loan of say, Tk 1,000, and pays back the entire amount
within a year in weekly installments, shell pay a total amount of Tk 1,100, i.e. Tk
1,000 as principal, plus Tk 100 as interest for the year, equivalent to 10% flat rate.

Deposit Rates:

Grameen Bank offers very attractive rates for deposits. Minimum interest
offered is 8.5 per cent. Maximum rate is 12 per cent.
BEGGARS AS MEMBERS

Begging is the last resort for survival for a poor person, unless he/she turns
into crime or other forms of illegal activities. Among the beggars there are
disabled, blind, and retarded people, as well as old people with ill health. Grameen
Bank has taken up a special programme, called Struggling Members Programme,
to reach out to the beggars. About 100,505 beggars have already joined the
programme. Total amount disbursed stands at Tk. 107.16 million. Of that amount
of Tk. 74.39 million has already been paid off.

BIBLIOGRAPHY

BOOKS

Development Issues of INDIAN ECONOMY: - Mario Dias

NEWS PAPERS

The Economic Times.

WEBSITES

www.indiatogether.org

www.thehindubusinessline.com

www.nabard.org

www.sbi.co.in

ARTICLES REGARDING MUHAMMAD YUNUS & GRAMEEN BANK:-

The Grameen Bank & Associated Press.