Role of Regional Rural Banks in Economic Development

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 upliftment of the rural economy as well as the rural people of our country, the objectives
of economic planning cannot be achieved. In fact, the real growth of Indian economy lied in the
emancipation of rural masses from acute poverty, unemployment, and socio-economic backwardness.
Keeping this end in view, various important plans and programmes of rural development have been
conceived and implemented by the government of India since the commencement of first five-year
plan from 1951-56. But an appraisal of the achievement of these programmes clearly reveals that
much programmes failed to achieve the desired objectives due to the backward economic condition
and lack of adequate finance to the poor people in the rural areas. Hence, bank and other financial
institutions are of vital importance for development of rural economy of a country. The present study
is a modest attempt to make an appraisal of the credit needs of the rural people and the way Regional
Rural Bank, i.e., Arunachal Pradesh Rural Bank, has been extending its service to meet the same in
the state of Arunachal Pradesh. It deals with the performance evaluation of Arunachal Pradesh. Rural
Bank (APRB) for the economic development of the state. Further, an attempt has also been made to
study the growth and performance of Scheduled Commercial Banks with special emphasis on Regional
Rural Banks (RRBs) in Indian and North-East Region.

NEW DELHI: Government support to bail out banks across the globe illustrates the importance of banking
in the world economy today. In these challenging times, it becomes imperative to provide the much
required fiscal support and fillip to spur the banking industry.

One of banking industry’s long pending demands, yet to be acceded to, is to allow a deduction for the
entire provision created for bad and doubtful debts, in accordance with the Reserve Bank of India (RBI)
guidelines, instead of the present limit of 7.5 per cent of total income and 10 per cent of rural advances (5
per cent of total income for foreign bank branches). The provisioning norms prescribed by RBI are robust
and are largely synchronised with the best practices followed by banking regulators globally. Allowance of
deduction based on provisioning in the books will ensure parity between tax profits and accounting
profits.

Expenditure in relation to earning any exempt income is disallowed in computing the total income. The
current formula prescribed for computing the said disallowance can result in a disallowance of
expenditure even if there is no direct nexus between the earning of exempt income and the expenditure
incurred. Further, in certain circumstances expenditure disallowable under the formula could be far in
excess of the exempt income which is an apparent absurdity. This is a significant area of litigation for
banks; a suitable provision to limit the disallowance to expenditure having an established nexus with the
income earned is desirable.

Banks are required to withhold tax on interest payments on term deposits if the amount exceeds Rs
10,000 in a year. Considering the progressive increase in the minimum income not chargeable to tax, an
increase in the threshold amount may be considered.

With a view to promote investments in the infrastructure sector, last year’s budget provided individuals
and Hindu undivided families a deduction of Rs 20,000, in addition to the Rs 100,000 deduction, for
investments made in notified long-term infrastructure bonds. Given that a significant portion of the
infrastructure lending is done by banks, the Government should consider providing an exemption for
bonds issued by banks to further augment investor focus in the infrastructure sector.

Currently, while computing the taxable income of individuals, investments made in specified bank fixed
deposits having a lock-in period of 5 years are allowed as a deduction. This lock-in period should be
reduced to 3 years to bring it at par with other tax saving instruments such as equity linked savings
schemes

Pranab Mukherjee promises more rural banks

New Delhi, Feb 11 : Union Finance Minister Pranab Mukherjee has said
banking services would be rolled out in 20,000 villages which have no
banks with apopulation of over 2,000 by the end of this fiscal as part of
the Government’s overall efforts to improve financial services in the
country.
Addressing at the launch of a financial inclusion campaign ‘Swabhiman’
here, Mukherjee said: “For the year 2010-11, we have set a target
to roll out banking services in 20,000 villages. I am confident that this
target will be achieved.”
He said the Government has targeted to cover at least 73,000 new
habitations with a population of 2,000 and above, and open at least five
crore new accounts by March 2012.

Mukherjee further said that a target has been given to all the banks to prove appropriate banking facilities
to the people.

“Though strides have been made in expansion of bank branches from around 8700 at the time of
nationalisation in 1969 to present numbers of 85300 rural areas have only 32000 branches. To address a
short form, I had given a target in 2010 to all banks to provide appropriate banking facilities to habitations
having population in excess of 2000 by March 2012 using various models and technologies including
branchless banking through the business correspondents,” he added.
He also highlighted that the phenomenal growth in bank credit to the agricultural sector has propelled
growth in this sector and pointed out that the CSO has estimated agricultural growth at 5.4 per cent in the
current fiscal, compared with 0.4 per cent growth in the previous fiscal.
Mukherjee, however, noted that about 73 per cent of farmer households had no access to formal sources
of credit. (ANI)
Reserve Bank of India (RBI), as an initiative to reach financial services to rural areas also, is planning for mobile
banks. The apex bank is also aiming to reach the mobile banking services to cover all the villages by 2015 RBI’s
Deputy Governor K. C. Chakrabarty said.

Initially, the mobile bank would come with limited number of services. Themobile bank offers services including
accepting deposits and allowing withdrawals.

The bank is reported to have told that every villager would be financially included in the next 5 years.

Accordingly, the mobile bank, which is nothing but a vehicle would be arranged by a specific bank with authorised
officials in it. The vehicle would travel around the villages and engage in financial services with villages.

RBI has plans of bringing banking facilities to all the villages having population of at least 2000.