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1.SITUATION ANALYSIS AND PROBLEM DEFINITION

1.1 OBJECTIVES OF THE STUDY:

(i) To provide cheap and liberal credit facilities to small and marginal farmers, agriculture
laborers, artisans, small entrepreneurs and other weaker sections.

(ii) To save the rural poor from the moneylenders.

(iii) To act as a catalyst element and there by accelerate the economic growth in the particular
region.

(iv) To cultivate the banking habits among the rural people and mobilize savings for the
economic development of rural areas.

(v) To increase employment opportunities by encouraging trade and commerce in rural areas.

(vi) To encourage entrepreneurship in rural areas.

(vii) To cater to the needs of the backward areas which are not covered by the other efforts of the
Government?

(viii) To develop underdeveloped regions and thereby strive to remove economic disparity
between regions
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1.2 LIMITATIONS OF THE STUDY

The study is focused only in Bajaj Allianz Life Insurance Company.

Thus the respondents are not come forward to provide their feedback regarding their
organization than the result is bias.

In this study the sample size is 70. The result might vary when the sample size values changes it.

Researcher fined the difficulty in searching the appropriate advisor and respondent throughout
the city.

The research was limited to the Bhopal city

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1.3 INTRODUCTION

Rural banking is different from urban banking. A quick look at the landscape of customers and
their needs highlights why:
The population is spread out across the countryside and so is more dispersed and harder to reach.
In general, income levels are lower in rural areas than in urban areas. And agriculture, which is
influenced by crop cycles, weather, and natural disasters, is typically the primary basis of
customers’ income and deposits, their collateral for loans, and their ability to repay. Finally, the
nature of land ownership rights and land distribution is critical to determining what collateral can
be offered and what recourse banks have if customers default. This all has a major impact on the
riskiness and attractiveness of bank lending. These factors can cause rural banking to generate
higher costs, lower revenues, and higher risks than urban banking. Hence, both local and foreign
banks in many countries have been focusing their expansion efforts on higher income groups in
the cities.

This can lead to governmental and community concerns about lack of access to finance in the
rural areas and about rural populations being left behind. Some banks, however, have built their
success in the countryside. Since the start of cooperative banking, some banks have found ways
to meet rural needs—and have done so profitably. These banks have gained their advantage by
making the local community their main focus. They often have branches in locations not served
by other banks. Employees know local needs and circumstances far better than competitors do,
so lending judgments can be based on personal knowledge and understanding of agricultural
conditions. Reflecting this community focus and origin, many banks are organized as
cooperatives, so their profits flow back to the local community. This has allowed profitability to
be balanced with other community needs over time. It has also reinforced local identity and pride
when smaller communities fear or resent outside institutions that make profits at the expense of
the local community.

Rural Banking is basically aimed at economic upliftment of rural poor through provision of
adequate and timely credit to agriculturists and rural artisans. The multi-agency approach and
target oriented institutional financing in rural areas has resulted in escalation of burden of debt.
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Probably this burden of debt in the absence of generating adequate repaying capacity did hinder
the repayment of loan in time. Non-payment of rural credit has paralysed the recycling process of
the agricultural credit institutions.

The mounting over dues not only caused serious concern to the financing institutions, but also to
the government and borrowers alike. The book presents the magnitude of the problem, the
repayment behavior of the loanees, different probable causes of mounting over dues in the rural
credit sector and a few suggestions to improve the scenario. Since it is a comprehensive and
research based work on the subject, this book may prove useful for planners as well as for central
and state governments and also financing institutions while formulating lending and recovery
policies for development of agriculture and rural artisans. It should be found useful not only by
rural banking institutions but also by researchers, students and teachers of economics, banking
and finance.
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1.4 CURRENT STATE OF RURAL BANKING IN INDIA

A) The Indian Economy

India is the 12th largest economy in the world in terms of gross domestic product (GDP), and
fourth in terms of purchasing power parity (PPP)1. The growth of the economy is equally
impressive with an average of over 8.0% during the last three years2. However, in terms of GDP
per capita, India ranks a lowly 160th among other nations. Within the country, there is a stark
divide in the incomes of urban and rural areas with the average monthly per capita consumption
expenditure (MPCE) in urban India being almost double that of rural India.

In addition, there are significant disparities in urban and rural consumption expenditure between
different states. Jharkhand and Orissa, for example, have an MPCE of approximately Rs. 900 in
urban areas and Rs. 410 in rural areas4. In other states like Punjab and Haryana, the urban rural
disparity is significantly lower. A fifth of the Indian population is below the poverty line (BPL)
today with a MPCE below Rs 340. In some states like Jharkhand and Orissa, the proportion of
BPL is greater than 40%. Diamond believes that the segments that are not considered BPL
should all be considered as ―potentially bankable‖ with genuine financial needs that could be met
by formal financial and banking systems.

B) Current State of Indian Banking

An important metric to determine the level of financial outreach/inclusion is the ratio of the
number of deposit accounts to population. It gives a snapshot of the penetration of deposit
accounts and credit accounts in India in comparison with a few select countries with similar
socio-cultural and economic conditions. Even in comparison with other developing economies,
India has a significant opportunity for increasing penetration of both deposit and credit accounts.
Not only is there a large disparity between India and other countries in banking penetration but
there is also a large variation in banking penetration within urban and rural India. While urban
India seems to be over-banked with more than 100% penetration (many urban Indians have more
than one bank account), rural India lags far behind with a 19% penetration. The variance in rural
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and urban deposit and credit account penetration is not restricted only to few states but is
common across all states.

In addition, the average value of a deposit account and a credit account is also quite low in rural
areas as compared to urban areas. Diamond believes that the reasons for lower penetration levels
are partly economic, as explained by the low GDP per capita in the rural areas of the country,
and partly a result of ―controllable‖ factors that are inherent in formal banking systems in India
today. The low deposit and credit account penetration and low average values in deposit and
credit accounts demonstrate that banking outreach in rural India is suboptimal. This low outreach
can be explained by two key parameters: access and usage.

Simply defined, access is the availability of financial services, and usage is the actual use of
those services. Access is influenced by issues such as the basic economic state of rural India,
lack of physical infrastructure facilities, regulatory constraints, and the economics of rural
banking. Usage is constrained by social issues such as illiteracy, incomplete service offerings by
banks, and high transaction costs in the formal banking system. Access and usage are not
synonymous, as people may have access to financial services, but decide not to use them, either
for socio-cultural reasons or because opportunity costs are too high.

1.5 .The role and performance of rural banks

Within the Indian financial sector, the role of the rural banks is important but not apparently pre-
eminent. The contribution of the commercial banks to the rural/semi-urban banking network is
far higher (at 38% of the total) than the 28% contribution of rural banks to the total of 87,000
bank branches in India. Despite the apparent importance of commercial banks even in the rural
areas however they are neither able nor willing to serve the poorest sections of the population.
By comparison, in the credit categories of direct relevance to financial inclusion, RRBs hold
26.2% of agricultural credit accounts and as many as 55.0% of all artisan/tiny industry loan
accounts. This amounts to much lower proportions of overall credit available under these
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categories – just 10.9% and 11.0% respectively – since RRB loan sizes average just Rs25,000
and Rs13,000 for these two categories, much smaller than those offered by the commercial
banks. Yet, it is precisely this fact that shows the importance of the rural banks for otherwise
financially excluded sections of the population. Low income families have a much lower
absolute and proportionate need for credit than better off sections of the population that are, in
any case, better able to access the commercial banks. Similar data for cooperatives is not
available but with an estimated 130 million members the average loan outstanding with
cooperatives amounts to just over Rs9,000 per member, emphasising their suitability to the needs
of low income families. Taken together, the rural banks record a credit-deposit ratio of 81.7% in
March 2007, somewhat higher than the average of 76.1% for the entire banking system.

Rural banks have, for a number of years, been regarded as the step-child of the banking system
in India. Both types of rural banks have been subject to extensive interference in their operations,
being seen as a conduit for government subsidies and a means of political patronage. It is not
surprising, therefore, that both the cooperative credit system and RRBs have encountered serious
financial difficulties and were virtually crippled in the early 1990s, needing a substantial
injection of capital at that time. The performance of such banks in recent years has been
somewhat better though. Thus, 85% of the RRBs and around 75% of cooperative banks are now
profitable on a year-on-year basis. While all the RRBs taken together now regularly register a
profit, the DCCB performance is erratic with significant numbers slipping into losses before
recovering from one year to the next. In March 2003, as many as 144 out of 367 DCBs were
reported to have completely eroded their net worth and to have eroded Rs3,100 crore worth of
deposits as well.
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1.6 The Rural Economy

Financial liberalization after 1991 decimated the formal system of institutional credit in rural
India. It represented a clear and explicit reversal of the policy of social and development
banking, such as it was, and contributed in no small way to the extreme deprivation and distress
of which the rural poor in India have been victims over the last decade. This paper examines the
impact of changes in banking policy and structure on the rural economy, and on the rural poor in
particular.

Financial liberalization is a crucial component of the programmes of economic reforms that are
being imposed on the people of less-developed countries. The demand that financial markets be
liberalized quickly is high on the agenda of imperialism; in India as well,

Advocates of economic ―reform‖ see financial liberalization as being at the core of structural
adjustment. There are many components of the package of reforms associated with financial
liberalization in India. Chandrasekhar and Ghosh (2002) classify the policies of financial
liberalization in India into three types: first, policies to curtail government intervention in the
allocation of credit, secondly, policies to dismantle the public sector and foster private banking,
and thirdly, polices to lower capital controls on the Indian banking system.

It is well known that the burden of indebtedness in rural India is very great, and that despite
major structural changes in credit institutions and forms of rural credit in the post-Independence
period, the exploitation of the rural masses in the credit market is one of the most pervasive and
persistent features of rural life in India. Rural households need credit for a variety of reasons.
They need credit to meet short-term requirements of working capital and for long-term
investment in agriculture and other income-bearing activities. Agricultural and non-agricultural
activities in rural areas typically are seasonal, and households need credit to smoothen out
seasonal fluctuations in earnings and expenditure. Rural households, particularly those
vulnerable to what appear to others to be minor shocks with respect to income and expenditure,
need credit as an insurance again strisk. In a society that has no law of free, compulsory and
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universal school education, no arrangements for free and universal preventive and curative health
care, a weak system for the public distribution of food and very few general social security
programmes, rural households need credit for different types of consumption. These include
expenditure on food, housing, health and education. In the Indian context, another important
purpose of borrowing is to meet expenses on a variety of social obligations and rituals.

If these credit needs of the poor are to be met, rural households need access to credit institutions
that provide them a range of financial services, provide credit at reasonable rates of interest and
provide loans that are unencumbered by extra-economic provisions and obligations.

Secondly, rural credit markets in India themselves have been very imperfect and fragmented.
Thirdly, as the foregoing suggests, the distribution of formal sector credit has been unequal,
particularly with respect to region and class, caste and gender in the countryside. Formal sector
credit needs specially to reach backward areas, income-poor households, people of the oppressed
castes and tribes, and women. Fourthly, the major source of credit to rural households,
particularly income- poor working households, has been the informal sector. Informal sector
loans typically are advanced at very high rates of interest. Further, the terms and conditions
attached to these loans have given rise to an elaborate structure of coercion – economic and
extra-economic –in the countryside.

That these constitute what may be called the ―problem of rural credit‖ has been well recognized;
recognized, in fact, in official evaluations and scholarship since the end of the nineteenth
century. Given the issues involved, the declared objectives of public policy with regard to rural
credit in the post-Independence period were, in the words of a former Governor of the Reserve
Bank of India, ―to ensure that sufficient and timely credit, at reasonable rates of interest, is made
available to as large a segment of the rural population as possible‖ (Rangarajan 1996, p. 288).
The policy instruments to achieve these objectives were to be, first, the expansion of the
institutional structure of formal-sector lending institutions; secondly, directed lending, and
thirdly, concessional or subsidized credit(ibid.). Public policy was thus aimed not only at
meeting rural credit needs but also at pushing out the informal sector and the exploitation to
which it subjected borrowers. Rural credit policy in India envisaged the provision of a range of
credit services, including long-term and short-term credit and large-scale and small-scale loans to
rural households.
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1.7 Business of a Rural Bank

A Rural Bank carries on the normal banking business i.e. the business as defined in Section 5 (b)
of the Banking Regulation Act, 1949 and engages in one or more forms of business specified in
Section 6(1) of that Act. A rural bank may, in particular, undertake the following types of
business, namely:

 The granting of loans and advances, particularly to small and marginal farmers and agricultural
labourers, whether individual or in groups and to co-operatives societies (including agricultural
marketing societies, agricultural processing societies, Co-operative farming societies, primary
agricultural credit societies or farmers’ service societies) for agricultural purposes or agricultural
operations or for other connected purposes.
 The granting of loans and advances, particularly to artisans, small entrepreneurs and persons of
small means engaged in trade, commerce or industry or other productive activities within the
notified area of a Rural Bank.
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1.8 FUTURE OF RURAL BANK IN INDIA

 As per the estimate of Agricultural Credit Review Committee (Khusro Committee) the demand
for agricultural credit in 2011-2012 would be of the order of Rs. 1,10.873 Crores (Rs. 53,534
Crores for short terms & Rs. 57,339 Crores for term loans) & the supply of institutional credit
would be Rs. 89,447 Crores implying a shortfall of Rs.21,426 crores. The demand for finance
will also go up on account of intensive use of modern technology, increase in consumption of
fertilizers, insecticides & pesticides, creation of irrigation facilities, growing use of high yielding
variety crops & diversification of agriculture to various allied activities. Despite the multi agency
approach adopted for providing rural credit, certain inbuilt formalities viz. documentation,
restricted working hours, loan amount, purpose of loan & proximity factors have been causing
inconvenience to the deserving rural poor. Yet, exploitation of the rural poor continues by the
local money-lenders. Of this, the formal sector accounts for about 20 %

 The nature of this segment demands a level of customization that the formal banking network
has failed to provide. The uniform treatment meted out and the centralized structure of the
system is the basic causes for the failure to cultivate a healthy banking habit in the rural areas.

 All these causes and effects, create a situation where an innovative means of credit delivery is
called for. The process of customization that is the need of the day has been titled ―micro
banking‖

 Micro finance has been defined by the task force set up by the NABARD as "provision of thrift,
credit and other financial services and products of very small amounts to the poor in rural, semi-
urban or urban areas for enabling them to raise their income levels and improve living standards.
Micro finance institutions can include NGOs (Non-Government Organizations), co-operatives,
banks (commercial, RRBs, other nationalized and public sector banks) and NBFCs (Non-
Banking Financial Companies). The NABARD felt that banks would be unable to efficiently
organize such grass-root level groups and thus NGOs and Voluntary Agencies were introduced
into the picture. New micro credit companies such as Basix and the SEWA-aided bank represent
a primarily NGO-driven effort to charge market linked, risk adjusted rates of interest on small
 P a g e | 12

loans to small borrowers. At the same time they ensure hurdle free access to borrowers and high
repayment rates for themselves.

 In addition to financial intermediation, many micro finance institutions provide social

intermediation such as group formation, training in financial literacy and management
capabilities. Micro finance is therefore not just a banking tool but also a development tool. Along
with benefits to the rural population, the financial institutions advancing the credit also enjoy
better recovery rates.

 The most prevalent method of providing micro finance in India is through Self-Help Groups
(SHGs).

 A SHG is a group of individuals ranging from 5 to 20 members, who come together for a
mutually beneficial purpose. They are homogenous in some respect and have certain pre-defined
social binding factors.

 Members of a SHG contribute to a common fund from which collateral-free loans are given to
needy members as per the group decisions.

 After at least 6 months if a bank is convinced, the SHG can become eligible for linkage to the
bank for availing credit and can open a savings account in its name and can receive up to 4 times
its savings balance as credit. The members of the SHG in turn receive credit as per their needs.
This linkage was introduced by the NABARD in 1991-92 through pilot project.

 The SHG decides the rate to be charged to its members.

 Similarly, the bank negotiates about appropriate repayment period with the SHG and the SHG
decides on the repayment schedule for its members, generally in weekly installments.
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 If members require larger amounts of loans they can approach the bank for individual loans, with
the SHG accepting responsibility for proper credit utilization, repayment by the member and
monitoring of the same.

 Micro finance is thus a potent method of rural credit delivery with tremendous potential for
serving the rural masses.

1.9 BANKING POLICY IN RURAL INDIA

BANKING POLICY IN RURAL INDIABANKING POLICY IN RURAL INDIA: 1969 TO

THE PRESENT

The period from 1969 to the present can be characterised as representing, broadly speaking, three
phases in banking policy vis-à-vis the Indian country side. The first was the period following the
nationalization of India’s 14 major commercial banks in 1969. This was also the early phase of
the „green revolution‟ in rural India, and one of the objectives of the nationalization of banks
was for the state to gain access to new liquidity, particularly among rich farmers, in the
countryside. The declared objectives of the new policy with respect to rural banking – what came
to be known as ―social and development banking‖- were to provide banking services in
previously unbanked or under-banked rural areas to provide substantial credit to specific
activities, including agriculture and cottage industries to provide credit to certain disadvantaged
groups such as,

for example, Dalit and Scheduled Tribe households

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The introduction of social and development banking policy entailed a radical shift from prevalent
practice in respect of the objective and functioning of commercial banks. An important feature of
the policy of social and development banking was that it recast completely the role of
commercial banks in rural banking. Prior to 1969, the countryside was not considered to be the
problem of commercial banks.

It was only after 1969 that a multi-institutional approach to credit provision in the countryside
became policy, with commercial banks, Regional Rural Banks and cooperative institutions
establishing wide geographical and functional reach in the Indian countryside.

The Reserve Bank of India (RBI) issued specific directives with respect to social and
development banking. These included setting targets for the expansion of rural branches,
imposing ceilings on interest rates, and setting guidelines for the sectoral allocation of credit.
Rural credit was an important component of the „green revolution‟ package; the first post-
nationalization phase of expansion in rural banking saw a substantial growth in credit advances
for agriculture. Specifically, a target of 40 per cent of advances for the ―priority sectors,‖ namely
agriculture and allied activities, and small-scale and cottage industries, was set for commercial
banks. Advances to the countryside increased substantially, although they were, as was the green
revolution itself, biased in respect of regions, crops and classes.

The two main crops that gained from the green revolution, as is well recognized, were wheat and
rice, and the application of the new technologies was primarily in the irrigated areas of the
northwest and south of India, with the benefits concentrated among the richer classes of
cultivators.

In 1975, the Government established by ordinance and then legislation a new network of rural
financial institutions called the Regional Rural Banks(RRBs), which were promoted by the
Government of India, State governments and commercial banks. These were created on the basis
of recommendations by a working group on commercial credit, also called the Narasimham
Committee, and were intended to ―combine the cooperatives‟ local feel and familiarity with the
business acumen of commercial banks‖ The number of such banks expanded rapidly, and
covered 476 districts by 1987.
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The second phase, which began in the late 1970s and early1980s, was a period when the rhetoric
of land reform was finally discarded by the ruling classes themselves, and a period when the
major instruments of official anti-poverty policy were programmes for the creation of
employment. Two strategies for employment generation were envisaged, namely wage-
employment through state-sponsored rural employment schemes and self-employment
generation by means of loans-cum-subsidy schemes targeted at the rural poor. Thus began a
period of directed credit, during which credit was directed towards ―the weaker sections.‖ The
most important new scheme of this phase was, of course, the Integrated Rural Development
Programe or IRDP, a scheme for the creation of productive income-bearing assets among the
poor through the allocation of subsidized credit. The IRDP was initiated in 1978-79 as a pilot
project and extended to all rural blocks of the country in 1980. There is much writing on the
failure of IRDP to create long-term income- bearing assets in the hands of asset-poor rural
households.

Among the many reasons for this failure were the absence of agrarian reform and decentralized
institutions of democratic government, the inadequacy of public infrastructure and public
provisioning of support services and the persistence of employment-insecurity and poverty in
rural society. Nevertheless, the IRDP strategy did lead to a significant transfer of funds to the
rural poor.

The second phase also involved an expansion and consolidation of the institutional infrastructure
of rural banking. ―Even ardent critics of the second phase also involved an expansion and
consolidation of the institutional infrastructure of rural banking. ―Even ardent critics of India’s
growth strategy,‖ wrote a noted scholar of India’s banking system, ―would admit that What the
country achieved in the area of financial sector development before the presenter form process
began, particularly after bank nationalization, was unparalleled in financial History‖(Shetty
1997, 253). After bank nationalization, as Shetty points out, there was ―an unprecedented growth
of commercial banking in terms of both geographical spread and Functional reach‖
 P a g e | 16

The third and current phase, which began in 1991, is that of liberalization. The policy objectives
of this phase are encapsulated in the Report of the Committee on the Financial System, which
was chaired, ironically, by the same person who recommended the establishment of Regional
Rural Banks, M. Narasimham (RBI, 1991). In its very first paragraph, the report called for ―a
vibrant and competitive financial system…to sustain the ongoing reform in the structural aspects
of the real economy.‖ The Committee said that redistributive objectives ―should use the
instrumentality of the fiscal rather than the credit system‖ and, accordingly, that ―directed credit
programmes should be phased out.‖ It also recommended that interest rates be deregulated, that
capital adequacy norms be changed (to ―compete with banks globally‖), that branch licensing
policy be revoked, that a new institutional structure that is ―market driven and based on
profitability‖ be created, and that the part played by private Indian and foreign banks be
enlarged.

Let us make it clear that, before the 1990s, the banking system was open to much criticism,
particularly of its bureaucratic failures, its insensitivity to the social and economic contexts, in
which it functioned, and class and regional inequalities in lending patterns. The reforms
proposed in 1991, however, were not attempts to bring rural banking closer to the poor, but to cut
it back altogether and throw the entire structure of social land development banking overboard.
 P a g e | 17

1.10 IMPROVING ACCESS FOR RURAL BANKING

Today, branches are the primary delivery channel in rural areas. Though there are 32,000
commercial bank branches in India, they cover less than 7% of total villages. Opening more
branches is not necessarily profitable as many pockets of rural areas do not have business enough
to justify an expensive branch channel. Therefore, to improve access in rural areas, banks need to
modify existing channels, introduce new channels and identify innovative ways to integrate the
two.

A) Modify Existing Channels

Fortunately there are a variety of options available for banks looking to modify their existing
channels. To reduce the costs imposed by branches, banks should consider the option of sharing
their branch infrastructure. This would not be too dissimilar to the example of the telecom
industry sharing network infrastructure or the fast food industry sharing food courts in urban
areas. Though infrastructure sharing may raise concerns over client confidentiality and data
leakage, in the long run banks will only benefit from such collaboration.

ATMs are an effective channel which can deliver many of the services frequently used by a
branch customer. However, ATMs, in their current form, are not suitable for rural areas as the
literacy level and transaction ticket amount is too low. ATMs can, however, be designed to meet
the needs of rural customers. For example, ICICI Bank is working with IIT Chennai to develop
an ATM that has a biometric fingerprint login, accepts soiled notes, and lower value
denominations.

In addition to modifying the design of the machines, banks should also hold discussions with the
RBI to allow an attendant to be posted at ATMs. This will enhance the usability of ATMs.
Though phone banking and internet banking are cost-effective channels, given very low tele-
density and low internet penetration in rural areas, the ability to use these channels to reach the
rural customer is low. However, phone and internet banking should be considered once
infrastructure and literacy levels improve in rural India. A business correspondent could then run
an e-kiosk to assist customers to transact over these channels. For example, Centenary Bank in
 P a g e | 18

Uganda uses internet and phone banking to provide bill payments, money transfers and loan
repayments. Business correspondents can be provided with point-of-sale (POS) functionality to
allow customers to deposit and withdraw cash from their accounts. Combining POS with a smart
card is one way to improve access. Brazil has successfully used banking correspondents who use
POS and card readers to provide current accounts, loans, and insurance, accept bill payments,
and perform other transactions.

B) Introduce New Channels

The RBI allows banks to appoint business correspondents and facilitators to be used as
intermediaries in providing banking services. NGOs, MFIs, Societies, Section 25 companies,
registered NBFCs not accepting public deposits, and Post Offices can be appointed as Business
Correspondents. Business Correspondents can provide several services which are not currently
offered by SHGs and MFIs, including:

Identification of borrowers and fitment of activities; collection and preliminary processing of

loan applications including verification of primary information/data; creating awareness about
savings and other products and education and advice on managing money and debt counseling;
processing and submission of applications to banks; promotion and nurturing Self Help
Groups/Joint Liability Groups; post-sanction monitoring; monitoring and handholding of Self
Help Groups/Joint Liability Groups/Credit Groups/others; and follow-up for recovery disbursal
of small value credit recovery of principal/collection of interest collection of small value deposits
sale of micro insurance/ mutual fund products/ pension products/ other third-party products and
receipt and delivery of small value remittances/ other payment instruments.

The introduction of Business Correspondents may face some challenges from labor unions.
However, Diamond believes that there may be some options to address the concerns of the
current workforce while using Business Correspondents to capture more value from rural
customers.

Caixa Economica, a state-owned bank in Brazil, manages the country’s lottery network and
distributes government benefits. To increase the access of its services, Caixa extensively utilizes
the Banking Correspondent channel, with 14,000 banking correspondents covering all of Brazil’s
5,500 municipalities. In less than 2 years, Caixa opened about 2.8 million new accounts and
estimates that 40% of its banking transactions are handled through the banking correspondent
 P a g e | 19

channel. Satellite offices are a cost-effective alternative to branches. These offices can be
established at fixed premises in villages and are controlled and operated from a base branch
located at a block headquarters. All types of banking transactions may be conducted at these
offices. Banks have, however, not used this channel actively, despite the argument that this
channel is relatively less expensive, as it can draw personnel from the main branch and can
remain open for just two days a week. This channel, therefore, is appropriate in blocks and
districts which are densely populated. In the urban areas, most Indian banks opt for an extension
counter where the business does not justify a full-fl edged branch. Similarly, satellite branches
can cater to rural areas which do not justify a large branch.

Where banks do not find it economical to open full-fl edged branches of satellite offices, mobile
offices may be more appropriate. Mobile offices extend banking facilities through a well-
protected truck or van. The mobile unit visits villages on specified days/ hours. The mobile
office would be affiliated with a branch of the bank, and serve areas which have a large
concentration of villages. This will not be dissimilar to the mobile ATMs implemented by some
of the Indian banks in the urban areas.

C) Determine the Combination of Channels

There is no one right channel or solution to improve access in rural areas. Banks have to evaluate
the trade-offs between those channels that are most convenient to customers and those that are
the most profitable. Banks are not comfortable opening new rural branches because many of
those that already exist are unprofitable. Therefore, determining the right combination of
channels is critical to improving access in profitable ways. An innovative approach to improving
access will consider a combination of these channels. For example: Branches and Satellite
Branches— In addition to providing regular banking operations, providing backend support to
manage and audit the operations of business correspondents.

• A low-cost, custom-made ATM— managed by a business correspondent to bring down the

operating cost and scales the channel.

• An e-kiosk—managed by a business correspondent with internet banking, ATM and POS

terminal in relatively large rural areas.
 P a g e | 20

• A business correspondent—Using manual ledgers or POS/Palmtop to act as deposit collector

and remitting agent in smaller rural areas.

While this list is not exhaustive, it highlights the need for creative solutions that apply the right
channel to the right market and transaction. In South Africa, Capitec has combined convenient
branches along transportation routes (for example, train and bus stations, and taxi stops). In
addition, it has rolled-out debit cards and automatic teller machines across 200 of these branches
to stimulate savings among low-income earners. Between February and August 2007, the
number of customers jumped from around 30,000 to more than 90,000.

1.11 REASONS FOR UNPROFITABLE OF RURAL

BANKING IN INDIA

A) High Non-performing Loans (NPL):

Banks have higher non-performing loans in rural areas because rural households have irregular
income and expenditure patterns. The issue is compounded by the dependence of the rural
economy on monsoons, and loan waivers driven by political agendas. NPLs from the agriculture
sector are 7.7%, compared to 3.5% across non-agriculture sectors8. In order for banks to view
rural India as a growth opportunity, rather than a regulatory requirement, a combination of these
issues must be addressed. Increasing financial access to rural areas is contingent upon basic
conditions such as proper infrastructure and an enabling regulatory framework, as well as
innovative thinking on the part of commercial banks. Access issues, however, explain only one
part of the problem. Usage is an equally important issue for rural customers.
 P a g e | 21

B) Low Ticket Size:

The average ticket size of both a deposit transaction and a credit transaction in rural areas is
small. This means that banks need more customers per branch or channel to break even.
Considering the small catchments area of a branch in rural areas, generating a customer base
with critical mass is challenging.

C) High cost to serve:

Branches are the most used channel in rural areas. This is because many rural people are not
literate and are not comfortable using technology-driven channels such as ATMs, phone banking
or internet banking. On the other hand, a branch is an expensive channel for banks (Following
Table). In addition, rural people, whenever they have
access to banks, have frequent low ticket and cash-based transactions, which increase the overall
transaction cost for their bank.

Название диаграммы
Ряд1

48

25
18
8
4

branch phone atm phone internet

D) Higher risk of credit:

Rural households may have highly irregular and volatile income streams. Irregular wage labor
and the sale of agricultural products are the two main sources of income for rural households.
The poor rural households (landless and marginal farmers) are particularly dependent on
irregular wage employment. Rural households also have irregular expenditure patterns. The
 P a g e | 22

typical expenditure profile of rural households is small, with daily or irregular expenses incurred
through the month. Furthermore, a majority of households incur at least one unscheduled
expenditure per year, with the most frequent reasons being medical or social emergency. In
short, the rural customer is generally considered to be a risky one.

E) Information Asymmetry:
Since many rural people do not have bank accounts, there is a lack of information on customer
behavior in rural India. Absence of a Credit Information Bureau also complicates the problem as
banks have to rely on informal sources to learn the credit history of rural customers. A lack of
reliable information can result in either missed opportunities in not approving otherwise eligible
loan candidates, or nonperforming loans.

1.12 INSTITUTIONAL CREDIT FOR RURAL INDIA

In April-May 2004, the Indian electorate delivered adramatic judgement on economic policy.
Thirteen years of neoliberal economic policy(further intensified in the last five to six years) had
taken their toll, and there is general agreement among serious political observers that the election
results represented widespread protest, rural and urban, against the collapse of livelihoods among
the mass of the people. If policy is to repair the damage done to the rural economy, India needs
large-scale public investment in the countryside. The links between rural distress and the near-
collapse of the formal sector of bank is well recognized, and it is no surprise that one of the
promises of the new Government was that it would double the flow of rural credit in three years.
The purpose of this essay is not to evaluate the rural credit policy of the United Progressive
Alliance government.

Nevertheless, it is clear that if any government is seriously to address the crisis in rural banking,
it must reaffirm the commitment of the state to the policy of social and development banking,
and reaffirm the part played by the credit system in redistribution and poverty alleviation.
Commercial banks, Regional Rural Banks and cooperatives must lead rural credit revival, which
 P a g e | 23

is too serious and large-scale a task to be left merely to self help groups or NGO-controlled
private-sector micro-credit organizations. The geographical and functional reach of public sector
banking must be restored and extended, differential interest policies reinstated, and special loans-
cum-subsidy schemes reintroduced on a large scale for all landless and poor and middle peasant
households, scheduled caste and tribe households and other vulnerable sections of the rural
population. Priority sector norms must be enforced, and, instead of an alternative such as
investment in RIDF bonds, penalties must be imposed on any failure of banks to meet these
public-interest targets .If financial liberalization had the effect of damaging the system of formal
credit severely, our case studies show that changes in national banking policy have had a rapid,
drastic and potentially disastrous effect on the debt portfolios of the income-poor. In general, as
formal sector credit withdrew, the informal sector rushed in to occupy the space that it had
vacated.

Although it is clear that chronic indebtedness among the rural poor is a problem that cannot be
solved by banking policy alone, and that the abolition of usury requires agrarian reform, a
decisive change in banking policy is essential for the very survival of the working people in rural
India.

1.13 AN I.C.T STRUCTURE FOR RURAL BANKING ENABLEMENT

An ICT Structure for Rural Banking Enablement

We have developed an ICT based Solution in which the banking services delivery can be done
using the electronic platform. The three key principles used in this model are:-

a) Unbundling and outsourcing non-statutory services needed for banking and establishing
digital rural information infrastructure.
 P a g e | 24

b)automating the workflow, the records management and follow-up and recover) the use of
entrepreneurship model for achieving effectiveness, efficiency and economy in the performance
of the rural information infrastructure, rural information services and other follow-up functions
e.g., credit rating of rural individuals and analytics for decision support.

―GANASEVA ―RURAL SERVICES DELIVERY MODEL – ELECTRONIC DELIVERY

VERSUS PAYMENT (DVP) PLATFORM

―Ganaseva‖ (Gana=People; Seva=Service) uses technology for bridging ―service divide‖ by

empowering rural individuals and by establishing digital information infrastructure and
electronic platform for rural commerce and development.

THE ―GANASEVA‖ is an integrated ICT-based solution for delivery of financial and non-
financial services for improving the provision of quality services to all the rural people by
increasing the effective access, by creating rural information infrastructure and by providing an
electronic platform for transmission of information from the people to the service providers like
banks. Its hall marks are empowerment of the rural individuals, integrated approach to rural
commerce and financial viability through entrepreneurship and choice availability both to the
people and the service providers like banks

Its components are Digital Rural Information Infrastructure, Customer Data Integration and
Credit rating, a shared electronic platform for various services, Provision of technology support
to banking services including ATM Services. Benefits include financial inclusion of rural
population, providing the banking services in a pro-active manner, enabling the banks to offer
highly individualized bundle of services, and reduction of costs through shared infrastructure for
data collection and updation and shared mobile service-delivery mechanism and generally
enabling the innovation and spread of banking and other services by providing an efficient
electronic platform and promote commerce and development. The solution proposes common
infrastructure for the rural data collection and information management and processing and the
sharing of the delivery channel by the banks with a view to substantially reducing the transaction
costs and improving the speed and quality of delivery. The elements involved in the solution are
the establishment of a data center and ensuring its two way connectivity to the mobile multi-
 P a g e | 25

service delivery system available at the villages for providing the banking, extension and other
services as well as connectivity to all the concerned banks and other service-providing agencies.
The solution involves the outsourcing of the data managements well as of the delivery channel
establishment and operations with required safeguards regarding the data ownership and
operations. The model envisaged provides a cost-effective but efficient technology platform for
rural banking. Technologically, the solution involves four main elements:

 ESTABLISHMENT OF DIGITAL RURAL INFORMATION INFRASTRUCTURE

 MULTI SERVICE DELIVERY SYSTEM (MSDS)
 INTEGRATED MULTI-ENTITY DATABASE SYSTEM(IMDS)
 SERVICE PROVIDER‟S WORKSTATION

The special Features of the Model are the following

• Comprehensiveness of the solutions covering both front-end and back-end operations involving
the delivery of credit and other services.

• Proactive provision of services to the people

• Provision for exploiting the existing sources and interfacing with available data services and
other e-governance solution- providers.

• Expert systems for processing of credit and other services

• Easy and secure interface for the rural people with biometric security measures

• Assisted credit delivery with provision for clarification from the banks etc., through the voice
& video

• Provision of the information required for credit approvals

•Provision of a data base tool for capturing of the rural data and the technical specifications of
such rural data base and its architecture Figure 1 below gives a diagrammatic representation of
the Model.
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Figure 1.DIAGRAMMATIC REPRESENTATION OF THE MODEL

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1.14 GANASEVA Model for Rural Banking: Implementation

Experience
The project was implemented in five villages in the Honavar block of the Uttara Kannada district
of Karnataka, India having approximately 4000 families, involved in essentially agricultural
activity. The banks which participated in this project are State bank of India, Syndicate Bank,
who had agreed to use the data / documents available through the system. Besides the rural
information service and credit rating, there is support in the system for the crop loan and Kisan
Credit Card and Savings Bank Account Operations. The Project also wanted to link the Primary
Agricultural Co-operative Societies (PACS) to the system for providing banking services
through their automation. The project was expected to demonstrate the feasibility of the model
on the ground.

A) Methodology Information System

We developed a model for rural information infrastructure. A reputed market research agency
was employed for collection of data and documents in proof thereof in respect of adults in all the
households of the five selected village’s viz., Idagunji, Apsarakonda, Kelaginoor, Malkod and
Manki located in the backward Honavar block of Uttara Kannada District in Karnataka. The data
collected wasvalidated by a control set of 500 cases collected by the project coordinator and
further by the members of the Project Monitoring Group. Pre-programmed PDAs were used for
collection of data/information, the documentary evidence and uploading of this data into Server.
The information was collected as per the requirement developed in consultation with the banks
for providing banking services and the authentication requirements.

B) PDA Software
Since PDAs were used for collection of data, documents and voice, there was a need to develop a
solution for that. This was done by the Envision Company and the software was integrated with
the RCDS System at the backend to facilitate seamless data transmission from the PDAs to the
RCDS Server using web services.
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C) Rural Credit Delivery System

The functional specifications for the banking services to be provided were worked out in
consultation with the bankers at the project area as well as their controlling authorities. Based on
these specifications, the System Requirement Specification was worked out to develop the
software. The delivered system has been installed in various user locations for testing like the
SBI, Honavar and PACS Kelaginoor.

D) Credit Rating Solution

A credit rating solution for the rural individuals was prepared using a separate model developed
for the purpose. Likewise, a voice-based authentication system was also developed for testing.

E) PACS Bank Software

In order to enable the rural co-operatives to link to the RCDS system, the PACS in the area were
computerized after a thorough study of their business processes and developing separate software
for the purpose. This work was done by the Nelito in consultation with the Project Director, the
banks and other authorities.

F) Document Management Software

The document management software which was integrated with the RCDS system was provided
by the software company Stex.

G) ATM Feasibility
The technological feasibility of deploying the ATMs in the Project villages was tested and was
found to be adequate.
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1.15 Distribution Channel of Rural Banking

Distribution Channel of Rural Banking - Multi-agency Approach to Rural Lending Rural credit
has been a laboratory for various policies, initiatives, investigations and improvements since
1955.The first major strategy adopted for improving rural credit delivery was the
institutionalization of the credit delivery system with the cooperative as the primary channels.
The multi-agency approach to the rural credit delivery emerged with the induction of the
commercial banks into the scene. In 1979,specialized institutions called Regional Rural Banks
and subsequently, another breed of institutions called Local Area Banks, came on the scene.
With the operationalisation of the Lead Bank Scheme, the area approach to rural lending was
formalized and attempts were made to match infrastructure development with bank credit flows
for ensuring development of the rural areas. The Scheme sought to give a special supply-leading
role to the banking system in rural development and also to ensure access of the rural population
to bank services through rural branch expansion. A multi-agency credit delivery system is in
place for financing credit-based development activities, under the Lead Bank Scheme. In 1988,
the Service Area Approach was also introduced as a strategy for improving the quality of rural
lending. The Lead Bank Scheme Information System and Service Area Monitoring information
System (SAMIS) have also been operationalised using monitoring arrangements. The micro-
finance and linkage of the banks to the self- help groups / NGOs and the issue of Kisan Credit
Cards are among the recent developments in the area of rural lending in India. The latest policy
initiatives are the enabling of the Non-bank Financial Companies and of the ―correspondent
―banking for increasing delivery of rural credit.

The National Agricultural Credit Review Committee (NACRC) headed by Prof. A S Khusru has
established that the cost of rural lending by commercial banks and cooperative banks is
unsustainable and does not break even In fact; it has been sustained through cross subsidization.
The two elements of the costs namely, capital costs and the current expenses are of the rural
branches. Rural bank branches are such that the transaction in the rural area cannot support them.
 P a g e | 30

The experiment of having low cost institution for rural lending in the form of Regional Rural
Banks also has not been successful in as much as the RRB staff expenses are required by law to
be on par those of the commercial banks. Therefore, it is clear that the rural credit delivery
system is not performing efficiently and in a cost effective manner. It is against this background
that we position a technology based solution for improving the speed efficiency and
effectiveness of the credit delivery of the rural people through the application of information
technology tools and systems. We propose Model forusing Information Technology for
improving rural credit delivery system by reducing the cost ,Increasing the speed of delivery and
also increasing the value addition in the service deliveryand improving the accountability.

The National Agricultural Credit Review Committee Report documents the history, development
and the status of the various important issues involved in rural credit delivery in India in great
detail. It is interesting to know from this voluminous report that solutions have been advised and
implemented for almost all the real as well as ―perceived‖ problems in rural credit. Yet, this area
remains a problem defying adequate solution. For example, some of the key concerns like the
end-use of credit, infrastructure gaps, and the high costs of lending have been repeatedly
attended to. Despite that, the delivery of credit for agriculture and rural development still remains
unsatisfactory.

It has been a matter of concern that the multi- institutional rural credit delivery system has not
been very successful in delivering required amount of credit to agriculture and small scale
industries and small and medium enterprises.

The share of bank credit for agriculture has declined from 17.6 percent in 1985 to 9.8 percent in
2002.

The institutions are in place, the systems repeatedly revamped several times on the basis of
multiple committees are also in place. In spite of this, the growths of the agricultural credit in the
country during the last three years have been less than the growth of credit for services and
corporate sector. The value addition to the GDP by the agriculture has been low as compared to
the industry sector and the services sector. The income disparities as reflected in the poverty are
still a matter of serious concern.
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Various approaches have been adopted for improving rural credit from time to time. It was felt
that project lending will revolutionize rural credit. This was followed by area approach and
extension- based schemes and then the lead bank scheme providing for forward and backward
linkages and the scheme of linking banks to Primary Agricultural Credit Societies and the
linkage of bank to microfinance institutions. Under the hypothesis that social factors like
education, training and social pressures have critical bearing on the credit off-take and its
productive deployment in rural areas; several attempts have been made and are being made to
address them. Accordingly, the group-lending, the family approach and entrepreneurial
development programme, the involvement of NGOs and voluntary agencies, the social groups
and the use of self-help-groups are all being tried out for channeling adequate credit to
agriculture and rural sectors. With considerable enthusiasm followed by disappointment, the
cooperatives were positioned as the primary, rather the exclusive channel, for rural credit
delivery for about two decades and the latest reports on the cooperatives is that, by and large,
they themselves require assistance rather than being of any assistance to the farmers. Despite
concerted efforts by a multitude of agencies, the agricultural credit delivery still remains a
problem. The 2003 November Review of the Monetary and Credit Policy takes up this and
provides for the constitution of an Advisory Committee to review the various exiting
arrangements and ―to suggest appropriate changes in the institutional and procedural
arrangements for the smooth flow of credit to agriculture ―The Policy also states that the
Committee is ―expected to help in capturing technological developments in the cause of
improving credit delivery‖

Despite the large number of initiatives, the rural credit delivery system still requires
improvements. Credit off-take and its quality have to increase to facilitate rural capital
formation, employment and growth. The speed of loan processing should be faster and the cost
of delivery should be reduced. These issues are currently relevant and important and have been
identified as such in the November 2003 credit policy statement of the Reserve Bank of India as
well.
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1.16 MAJOR RURAL BANKING PLAYERS IN INDIA

 REGIONAL RURAL BANKS

The Narasimham committee on rural credit recommended the establishment of Regional Rural
Banks (RRBs) on the ground that they would be much better suited than the commercial banks or
co-operative banks in meeting the needs of rural areas. Accepting there commendations of the
Narasimham committee, the government passed the Regional Rural Banks Act, 1976. A
significant development in the field of banking during 1976 was the establishment of 19
Regional Rural Banks (RRBs) under the Regional Rural Banks Act‚1976.

The RRBs were established ―with a view to developing the rural economy by providing, for the
purpose of development of agriculture, trade, commerce, industry and other productive activities
in the rural areas, credit and other facilities, particularly to small and marginal farmers,
agricultural labourers, artisans and small entrepreneurs, and for matters connected there with and
incidental thereto‖ .

RRBs established with the explicit objective of :

 Bridging the credit gap in rural areas

 Check the outflow of rural deposits to urban areas
 Reduce regional imbalances and increase rural employment generation

The main objectives of setting up the RRB are to provide credit and other facilities‚ especially to
the small and marginal farmers‚ agricultural laborers artisans and small entrepreneurs in rural
areas. Each RRB will operate within the local limits specified by notification.

If necessary‚a RRB will also establish branches or agencies at places notified by the
Government. Each RRB is sponsored by a public sector bank‚ which provides assistance in
several ways‚ viz., subscription to its share capital‚ provision of such managerial and financial
assistance as may be mutually agreed upon and help the recruitment and training of personnel
during theinitial period of its functioning.
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 Functions
Every RRB is authorized to carry on to transact the business of banking as defined in the
Banking Regulation Act and may also engage in other business specified in Section 6 (1) of the
said Act. In particular‚ a RRB is required to undertake the business of

(a) granting loans and advances to small and marginal farmers and agricultural laborers‚ whether
individually or in groups, and to cooperative societies‚ including agricultural marketing
societies‚ agricultural processing societies‚ cooperative farming societies‚ primary agricultural
credit societies or farmers‟ service societies‚ primary agricultural purposes or agricultural
operations or other related purposes, and (b) Granting loans and advances to artisans‚ small
entrepreneurs and persons of small means engage d in trade‚ commerce‚ industry or other
productive activities‚ within its area of operation.

The Reserve Bank of India has brought RRB‟s under the ambit of priority sector lending on par
with the commercial banks. They have to ensure that forty percent of their advances are
accounted for the priority sector. Within the 40% priority target, 25% should go to weaker
section or 10% of their total advances to go to weaker section.

 Regional Rural Banks in India

The State Bank of India is one of the major commercial banks having regional rural banks.
There are 30 Regional Rural Banks in India, under the State Bank of India and it is spread in13
states across India. The number of branches the SBI Regional Rural Banks is more than2000.

Several other banks, apart from the State Bank of India also functions as the promoter of rural
development in India. List of Regional Rural Banks in India There are a number of regional rural
banks in India. Following are the state-wise list of Indian regional rural banks.

 Andhra Pradesh
Andhra Pradesh Grameena Vikas Bank

Andhra Pragathi Grameena Bank

Deccan Grameena Bank

Chaitanya Godavari Grameena Bank

Saptagiri Grameena Bank

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 Arunachal Pradesh
Arunachal Pradesh Rural Bank

 Assam
Assam Gramin Vikash Bank

Langpi Dehangi Rural Bank

 Bihar
Madhya Bihar Gramin Bank

Bihar Kshetriya Gramin Bank

Uttar Bihar Kshetriya Gramin Bank

Kosi Kshetriya Gramin Bank

Samastipur Kshetriya Gramin Bank

 Chhattisgarh
Chhattisgarh Gramin Bank

Surguja Kshetriya Gramin Bank

Durg-Rajnandgaon Gramin Bank

 Gujarat
Dena Gujarat Gramin Bank

Baroda Gujarat Gramin Bank

Saurashtra Gramin Bank

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 Haryana
Harayana Gramin Bank

Gurgaon Gramin Bank

 Himachal Pradesh
Himachal Gramin Bank

Parvatiya Gramin Bank

 Jammu & Kashmir

Jammu Rural Bank

Ellaquai Dehati Bank

Kamraz Rural Bank

 Jharkhand
Jharkhand Gramin Bank

Vananchal Gramin Bank

 Karnataka
Karnataka Vikas Grameena Bank

Pragathi Gramin Bank

Cauvery Kalpatharu Grameena Bank

Krishna Grameena Bank

Chimagalur-Kodagu Grameena Bank

Visveshvaraya Gramin Bank

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 Kerala
Narmada Malwa Gramin Bank

North Malabar Gramin Bank

 Madhya Pradesh
Narmada Malwa Gramin Bank

Satpura Kshetriya Gramin Bank

Madhya Bharath Gramin Bank

Chambal-Gwalior Kshetriya Gramin Bank

Rewa-Sidhi Gramin Bank

Sharda Gramin Bank

Ratlam-Mandsaur Kshetriya Gramin Bank

Vidisha Bhopal Kshetriya Gramin Bank

Mahakaushal Kshetriya Gramin Bank

Jhabua Dhar Kshetriya Gramin Bank

 Maharashtra
Marathwada Gramin Bank

Aurangabad-Jalna Gramin Bank

Wainganga Kshetriya Gramin Bank

Vidharbha Kshetriya Gramin Bank

Solapur Gramin Bank

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Thane Gramin Bank

Ratnagiri-Sindhudurg Gramin Bank

 Manipur
Manipur Rural Bank

Meghalaya Ka Bank

 Mizoram
Mizoram Rural Bank

 Nagaland
Nagaland Rural Bank

 Orissa
Kalinga Gramya Bank

Utkal Gramya Bank

Baitarani Gramya Bank

Neelachal Gramya Bank

Rushikulya Gramya Bank

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 Punjab
Punjab Gramin Bank

Faridkot-Bhatinda Kshetriya Gramin Bank

Malwa Gramin Bank

 Rajasthan
Baroda Rajasthan Gramin Bank

Marwar Ganganagar Bikaner Gramin Bank

Rajasthan Gramin Bank

Jaipur Thar Gramin Bank

Hodoti Kshetriya Gramin Bank

Mewar Anchalik Gramin Bank

 Tamil Nadu
Pandyan Grama Bank

Pallavan Grama Bank

 Tripura
Tripura Gramin Bank

 Uttar Pradesh
Purvanchal Gramin Bank

Kashi Gomti Samyut Gramin Bank

Uttar Pradesh Gramin Bank

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Shreyas Gramin Bank

Lucknow Kshetriya Gramin Bank

Ballia Kshetriya Gramin Bank

Triveni Kshetriya Gramin Bank

Aryavart Gramin Bank

Kisan Gramin Bank

Kshetriya Kisan Gramin Bank

Etawah Kshetriya Gramin Bank

Rani Laxmi Bai Kshetriya Gramin Bank

Baroda Western Uttar Pradesh Gramin Bank

Devipatan Kshetriya Gramin Bank

Prathama Bank

Baroda Eastern Uttar Pradesh Gramin Bank

 Uttaranchal
Uttaranchal Gramin Bank

Nainital Almora Kshetriya Gramin Bank.

 West Bengal
Bangiya Gramin Vikash Bank

Paschim Banga Gramin Bank

Uttar Banga Kshetriya Gramin Bank

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 THE OTHER REGIONAL RURAL BANKS IN INDIA ARE

A) Haryana State Cooperative Apex Bank Limited

The main purpose of the Haryana State Cooperative Apex Bank Limited is to financially assist
the artisans in the rural areas, farmers and agrarian unskilled labor, and the small rural
entrepreneurs of Haryana. Haryana State Cooperative Apex Bank Limited also referred as the
HARCO BANK, is one of the apex organizations in the state of Haryana. The HARCO BANK
holds a special economic position in the state of Haryana. The Haryana State Cooperative Apex
Bank Limited offers several types of financial assistances to the individuals. The financial aids
include credit for the promotion of agriculture, non-agrarian credit, and bank deposit facilities.
The HARCOBANK have been functioning as an investor for more than three decades.

B) National Bank for Agriculture and Rural Development

The main purpose of the National Bank for Agriculture and Rural Development is to provide
credit for the development and publicity of small scaled industries, handicrafts, rural crafts,
village industries, cottage industries, agriculture, etc. The NABARD also supports all other
related economic operations in the rural sector, promotion of sustainable growth in the rural
sector. The NABARD also plays the role of a contributor to the rural development by the means
of promoting institutional development, facilitating refinance to loan providers in the rural
sector, inspection, monitoring, and evaluation of client financial corporations. National Bank for
Agriculture and Rural Development (NABARD) was established as the premiere rural
development bank.

C) Sindhanur Urban Souharda Co-operative Bank

The main purpose of the Sindhanur Urban Souharda Co-operative Bank is to provide financial
support to the rural sector. The Sindhanur Urban Souharda Co-operative Bank is more
commonly known as the SUCO Bank.
 P a g e | 41

D) United Bank of India

The role played by the United Bank of India (UBI) as one of the regional rural banks is
phenomenal. The UBI has propagated the network of branches in order to actively take part in
the rural improvement and development.

E) Syndicate Bank
The Syndicate Bank has it grass roots in the rural sector. The development of the Syndicate
Bank was in accordance to the development of the banking sector in India and. The Syndicate
Bank has performed actively in the development of the rural sector in India. The Regional Rural
Banks in India has actively contributed to the growth of the rural sector. The growth of the rural
industries in India and the development of the rural business and economy have been dependent
largely on the investment and financial aids provided by the Regional Rural Banks in India.

F) Regional Rural Banks in Tamil Nadu

Indian Bank has sponsored two Regional Rural Banks (RRBs) viz., Saptagiri Grameena
Bankand Pallavan Grama Bank. Pallavan Grama Bank with Head Quarters at Salem is operating
in 14 districts of Tamil Nadu viz., Salem, Namakkal, Krishnagiri, Dharmapuri, Villupuram,
Cuddalore, Coimbatore,Karur, Erode, Nilgiris, Vellore, Tiruvannamalai, Kancheepuram and
Tiruvallur.The third RRB sponsored by Indian Bank is Puduvai Bharathiar Grama Bank at
UnionTerritory of Puducherry with its head quarters at Puducherry.
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2. RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. The advanced learner‟s
dictionary of current English lays down the meaning of research as ―a careful investigation of
enquiry especially through search for new facts in any branch of knowledge.‖

The systematic approach concerning generalization and the formulation of a theory is also
research. The purpose of research is to discover answers to questions through the application of
scientific procedures.

―A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure may
be defined as ―any organized inquiry designed and carried out to provide information for solving
a problem‖.

―Research is essentially an investigation, a recording and an analysis of evidence for the purpose
of gaining knowledge
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3. DATA COLLECTION
The study was based on questionnaire method. There are two types of data collection:

 Primary data
 Secondary data

 Primary data
The primary data are those, which are collected a fresh and for the first time happen to be
original in character. It has been collected through a Questionnaire .Only the primary data is not
the sufficient to get information about the complete topic so both primary and secondary data is
collected

 Secondary data
Secondary data are those which have already been collected by someone else and which have
already been passed through the stratified process. It has collected through the books, journals &
Internet.

A) RESEARCH INSTRUMENT
 QUESTIONNAIRE
―A questionnaire is simply a set of questions designed to generate the data necessary for
accomplishing a research project’s objectives‖

 POPULATION
It covers the 100 unit of population.
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B) SAMPLE PROCEDURES
In this study convenient sampling method was adopted. First each organization was divided into
different departments like Operations, Customer Services, Human Resources, Internet Marketing
and under writing departments. From this department, the respondents were selected on the
basisof convenience.

C) TOOLS USED FOR ANALYSIS

Simple percentage analysis

It is simple analysis tool. In this method, based on the opinions of the respondents, percentage
and bar chart is calculated for the respective scales of each factor.

Formula

:Simple percentage =No of Respondents x 100/Total No of Sample Size

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4. LITERATURE REVIEW
There are some 32,000 commercial bank branches in India, but they cover less than 7 percent of
the total villages in the nation. India’s 150 million rural bankable customers are a significant
growth opportunity for commercial banks that are willing to use innovative delivery channels,
according to a report released.[ Merchant, Khozem; Montagnon, Peter 2000 ]

According to Consultants, for banks to view rural India as a growth opportunity, a number of
issues must be addressed. The physical infrastructure is a major stumbling block. Meanwhile,
regulatory constraints imposed by the Reserve Bank of India, the country’s central bank, such as
the rule prohibiting employing anyone other than a security guard at an ATM, inadvertently
undermine access to banking services. [Laffery Ltd, 2006]

In India the Mobile Banking Market is of a very recent origin, yet it has grown right since the
concept was introduced. The Rural mobile banking segment has also been targeted and the
market is fairly new, yet there has been good amount of growth and awareness.[ Tiwari, Dheeraj
2015] Handset manufacturer Nokia and Yes Bank have come together to launch mobile-payment
solutions to push financial inclusion across the country’s rural and semi-urban cities. Nokia
Priority Centers as well as multi-brand handset vendors will help rural population open bank
accounts with Yes Bank as well as perform basic transactions like debit/credit and transfer of
funds.[AthenaJacob.2010].

Banking sector being the forefront of the economy has ventured into many innovative services to
cater the need of these non-urban residents. Government of India promoted Regional Rural
Banks (RRBs) through the RRBs Act of 1976 to bridge the gap in the flow of credit to the rural
poor. The RRBs have a special place in the multi-agency approach adopted to provide
agricultural and rural credit in India. These banks are state-sponsored, regionally-based and rural
oriented. Besides the RRBs, commercial and co-operative banks have been catering to the credit
requirements of the rural sector.[Chibber, Ankush 2011]

Notwithstanding the efforts of Indian banks to reach out to un-banked rural population, informal
sources of credit, particularly moneylenders continue to cater to the needs of a large rural
section, shows a Reserve Bank of India working paper. According to the paper, non-institutional
 P a g e | 46

credit formed 39 of the total debt of cultivators in 2002 out of which moneylenders had a share
of 27. [ChabberAnkush 2011].

In India there are 6, 40,867 villages and 68.84% of population resides in rural areas that offer a
huge potential to the economy (Census 2011). Agriculture and rural sectors play an important
role in India’s overall development strategy in terms of income and employment generation and
poverty alleviation. Great significance has, therefore, been accorded to developing appropriate
institutions and mechanisms for catering to the credit requirements of these sectors. But
according to census 2011, due to urbanization the population of rural area is decreasing as
compared to the urban area. This is happening due to lack of financial services in the rural
area[NishiSharma2012]

Proxy banking is seen as a major step towards the improvement of the present financial state of
people living in the villages in India. The main reasons why proxy banking is becoming a subject
of curiosity among the people living in rural areas include; more than sixty percent of rural
households have no bank accounts as yet, whereas just twenty percent of the rural households
can obtain credit from a formal source. Also, branch banking is not a feasible option in rural
areas. With proxy banking being put in practice, people living in rural areas can also avail mutual
funds, equity trading and insurance, which were quite inaccessible for them
previously.[ TeenaShivani2013]

E-banking has alchemized the conventional way of banking. It provides countless benefits to its
users like 24×7 availability, better accessibility, saving in transaction cost saving, quick
operations etc. HDFC implemented one project in Bihar on trial basis. HDFC adopted a bare
bones strategy. Many rural branches have a single manager rather than a staff of product
specialists. The bank developed its own credit-scoring system for rural customers with no credit
history, and it created specific products for them, such as loans collateralize by gold jewelry,
which for many rural Indians is among the most-valuable assets they own.[Burkle,Tom, 2015]
 P a g e | 47

5. DATA ANALYSIS AND INTERPRETATION

1) Central Scheme to provide Interest Subsidy for the period of moratorium on loans taken by
farmer from economically weaker sections from schedule banks under the loan scheme of the
Indian Banks Association?

 To great extent
 To some extent
 To very little extent

Table: 1:- % of the responder

Rural bank Urban bank

To great extent 64 0
To some extent 26 72
To very little extent 10 28
Total 100% 100%
 P a g e | 48

Название диаграммы
Rural bank Urban bank

72
64

26 28

10
0

To great extent To some extent To very little extent

Interpretation: From the above data it is evident that among the respondent,44% of the
respondent of rural bank says that Central Scheme to provide Interest Subsidy for the period of
moratorium on loans taken by farmer from economically weaker sections from schedule banks
under the loan scheme of the Indian Banks Association to great extend where as none of the
respondent of Urban Bank says that Central Scheme to provide Interest Subsidy for the period of
moratorium on loans taken by farmer from economically weaker sections from schedule banks
under the loan scheme of the Indian Banks Association to great extend.

26% of the respondent of rural bank says that Central Scheme to provide Interest Subsidy for the
period of moratorium on loans taken by farmer from economically weaker sections from
schedule banks under the loan scheme of the Indian Banks Association to great extend where
as 72% of the respondent of Urban Bank says that Central Scheme to provide Interest Subsidy
for the period of moratorium on loans taken by farmer from economically weaker sections from
schedule banks under the loan scheme of the Indian Banks Association to some extent.

10% of the respondent of rural bank says that Central Scheme to provide Interest Subsidy for the
period of moratorium on loans taken by farmer from economically weaker sections from
schedule banks under the loan scheme of the Indian Banks Association to great extend to very
little great extend where as 28% of the respondent of Urban Bank says that Central Scheme to
provide Interest Subsidy for the period of moratorium on loans taken by farmer from
 P a g e | 49

economically weaker sections from schedule banks under the loan scheme of the Indian Banks
Association to very little extend

2) To what extent is Sales Promotions have been used by banker to increase sales in the short
term?

 Completely
 Partially
 Nil
Table: 02% of the responder

Rural bank Urban bank

Completely 90 59
Partially 10 30
Nil 0 11
total 100% 100%

Название диаграммы
Rural bank Urban bank

90

59

30

10 11
0

Completely Partially Nil

 P a g e | 50

Interpretation: From the above data it is evident that among the respondent, 90% of the
respondent of Rural Bank says that Sales Promotions have been used by banker to increase sales
in the short term where as 59% of the respondent of Urban Bank says that Sales Promotions have
been used by banker to increase sales in the short term.

10% of the respondent of rural bank says that Sales Promotions have been used by banker to
increase sales in the short term where as 30% of the respondent of Urban Bank says that Sales
Promotions have been used by banker to increase sales in the short term.

No respondent of rural bank says that Sales Promotions have been used by banker to increase
sales in the short term is nill where as 11% of the respondent of Urban Bank says that Sales
Promotions have been used by banker to increase sales in the short term is nill

3) Does Sales Promotions have been used by banker to increase sales in the short term?

 Strongly agree
 Agree
 Disagree
 Strongly disagree
 Can’t say

Table: 3% of the respondent

 P a g e | 51

Rural bank Urban bank

Strongly agree 83 61
Agree 17 23
Disagree 0 16
Strongly disagree 0 0
Cant sat 0 0
total 100 100%

Название диаграммы
Rural bank Urban bank

83

61

23
17 16
0 0 0 0 0

Strongly agree Agree Disagree Strongly disagree Cant sat

Interpretation: From the above data it is evident that among the respondent,83% of the
respondent of Rural Bank strongly agree that Marketing policy of bank have a focus marketing
on agro- sector where as 61% of the respondent of Urban Bank also strongly agrees that
Marketing policy of bank have a focus marketing on agro- sector.

17% of the respondents of Rural Bank agree that marketing policy of bank have a focus
marketing on agro- sector where as 23% of the respondent of Urban Bank also agrees that
Marketing policy of bank have a focus marketing on agro- sector.
 P a g e | 52

None of the respondent of Rural Bank disagree that Marketing policy of bank have a focus
marketing on agro- sector where as 16% of the respondent of Urban Bank also disagree that
Marketing policy of bank have a focus marketing on agro- sector.

None of the respondent of Rural Bank & Urban Bank also strongly disagree thatMarketing
policy of bank have a focus marketing on agro- sector.

None of the respondent of Rural Bank & Urban Bank can’t says that Marketing

Policies of bank have a focus marketing on agro- sector

4) Multiple ―basic‟ financial services and loan gateway is product marketing of the bank?

 Yes
 No

Table: 4:-% of the respondent

Rural bank Urban bank

Yes 87 62
No 13 38
total 100 100%
 P a g e | 53

Название диаграммы
Yes No

87

62

38

13

Rural bank Urban bank

Interpretation:

87% of the respondent of Rural Bank says that Multiple „ basic‟ financial services and loan
gateway is product marketing of the bank where as 62% of the respondent of Urban Bank also
says that Multiple„ basic‟ financial services and loan gateway is product marketing of the bank.

13% of the respondent of Rural Bank says that Multiple „ basic‟ financial services and loan
gateway is product marketing of the bank where as 38% of the respondent of Urban Bank also
says that Multiple „ basic‟ financial services and loan gateway is product marketing of the bank.

5) Devised to ensure usage as well as profitability Quantity discounts, and ease in payment
modes is pricing marketing of the bank.

 Yes
 No

Table: 5:-% of the respondent

 P a g e | 54

Rural bank Urban bank

Yes 11 13
No 89 87
total 100 100%

Название диаграммы
Rural bank Urban bank

100
89 87

11 13
100%

Yes No total

Interpretation:

11% of the respondent of rural bank says that Devised to ensure usage as well
as profitability Quantity discounts, and ease in payment modes is pricing marketing ofthe
bank. whereas 13% of the respondent of Urban Bank also says that Devised to ensure usage as
well as profitability Quantity discounts, and ease in payment modes is pricing marketing of the
bank..

89% of the respondent of rural bank says that devised to ensure usage as well
as profitability Quantity discounts, and ease in payment modes is pricing marketing ofthe
bank. whereas 87% of the respondent of Urban Bank also says that Devised to ensure usage as
well as profitability Quantity discounts, and ease in payment modes is pricing marketing of the
bank.
 P a g e | 55

6) Comprehensive offering of different services is placement marketing of the bank?

 Traditional
 Modern
Table: 6:-% of the responder

rural urban
traditional 98 91
modern 2 9
total 100 100

Название диаграммы
traditional modern

98
91

9
2

rural urban

Interpretation

98% of the respondent of rural bank says that Comprehensive offering of different services is
placement marketing of the bank where as 91% of the respondent of Urban Bank says that
Comprehensive offering of different services is placement marketing of the bank.

2 % of the respondent of rural bank says that Comprehensive offering of different services is
placement marketing of the bank where as 9% of the respondent of Urban Bank says that
Comprehensive offering of different services is placement marketing of the bank.
 P a g e | 56

7) Collaborating with NGO‟s to development Knowledge marketing of the bank

 Yes
 No
Table: 7:-% of the respondent

Rural bank Urban bank

yes 33 81
no 67 19
total 100 100

Название диаграммы
yes no

81

67

33

19

Rural bank Urban bank

 P a g e | 57

Interpretation:

33% of the respondent of RURAL BANK says that Collaborating with NGO‟s to development
Knowledge marketing of the bank where as 81% of the respondent ofUrban Bank also says that
Collaborating with NGO‟s to development Knowledge marketing of the bank.

67% of the respondent of RURAL BANK says that Collaborating with NGO‟s to development
Knowledge marketing of the bank where as 19% of the respondent of Urban Bank says Co
elaborating with NGO‟s to development Knowledge marketing of the bank.
 P a g e | 58

RECOMMENDATIONS

A. Commercial bank should segregate the operation of their rural branches through the formation of
one or more subsidiaries.

B. Each rural subsidiary should have compact area of operation so as to facilitate recruitment and
development of manpower apart from providing the needed trust in business operations and
effective improvement in the control and the supervision and information system.

C. The rural subsidiaries should be treated at par with RRB in regard to cash reserves and statutory
liquidity requirements (SLR) and refinance facilities from NABARD.

D. All concession in lending to agriculture and to small industry should be phased out, and there
would be saving in cost of administration brought through the process of rationalization.

E. NABARD should help RRB to earn higher level of interest income for their surplus cash
balances and for their funds presently invested in Government securities or in Government
guaranteed securities for SLR compliance
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LEARNING OUTCOME

The importance of the rural banking in the economic development of a country cannot be
overlooked.

As Gandhiji said ―real India lies in villages,‖ and village economy is the backbone of Indian
economy.

Without the development of the rural economy, the objectives of economic planning cannot be
achieved
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REFERENCE

Books:

 Aaker (1991) Building Strong Brands; New York: Free Press

 Chatterjee, Jauchius, Kaas and Satpathy no. 1, (2002): 'Revving up auto branding',
McKinseyQuarterly
.

 David. A. Aaker, V.Kumar & George S. Day, (2001) Descriptive Research: Marketing
Research,Seventh Edition, pp 17

 Saxena, Rajan. (2003):’Marketing Management’ Tata Mcgraw-Hill Publishing

CompanyLimited. New Delhi

 Kotler, Philip. (1999):’Marketing Management’ Prentice Hall of India Pvt. Ltd., New
Delhi.
 Kothari, C.R (2001):’Research Methodology’, Vishwa Publication., New Delhi
Sharma,D.D(2002):’Marketing Research’, Sultan Chand Sons, New Delhi

Magazines: Business Today

Business week

Business World

Newspapers: Economic Times

The Hind

Times of India
 P a g e | 61

APPENDICES

Questionnaire

NAME SEX –

AGE DESIGNATION
–
Dear sir/madam,

1) Central Scheme to provide Interest Subsidy for the period of moratorium on loans taken
by farmer from economically weaker sections from schedule banks under the loan scheme
of the Indian Banks Association?

□ To great extent
□ To some extent
□ To very little extent

2) To what extent is Sales Promotions have been used by banker to increase sales in the
short term?
□ Completely
□ Partially
□ Nil
 P a g e | 62

3) Does your marketing policy of bank have focus marketing on agro- sector?

□strongly agree
□ Agree
□ Disagree
□strongly disagree
□ can’t say

4) Multiple ‘basic’ financial services and loan gateway is product marketing of the bank?
□ Yes
□ No

5) Devised to ensure usage as well as profitability Quantity discounts, and ease in payment
modes is pricing marketing of the bank?
□ Yes
□ No

6) Comprehensive offering of different services is placement marketing of the bank?

□ Traditional
□ Modern

7) Collaborating with NGO’s to development Knowledge marketing of the bank

□ Yes
□ No
 P a g e | 63

CONCLUSION
There are 185 million bankable adults in rural India who are unbanked because of access and
usage issues. This presents a significant opportunity for commercial banks.

However, to reach this market and subsequently build an inclusive financial system, there must
be a coordinated and concerted effort by the three key stakeholders: the Government of India, the
Reserve Bank of India and the commercial banks.

In addition, a partnership between banks and business correspondents, and collaboration amongst
banks is critical.

Furthermore, banks should tailor their product and service mix to meet rural needs, and adapt
their delivery models to ensure commercial viability of their rural banking operations.

***THANK YOU***