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India lives in its villages and in rural India a substantial portion of the Population is engaged in agriculture or allied activities. The farming community consists mainly of small farmers and agricultural labourers. Poverty is generally wide spread in the rural areas, with hardly any pockets of prosperity. As rural Economy is running short of capital; it must be assisted with adequate capital, appropriate technology and required training in modern technology of Production. Hence provision of adequate financial assistance to agricultural, rural industries and rural artisans is necessary. The welfare and prosperity of the nation rests on the development of agriculture and allied activities Since India is agriculture oriented country, the importance of rural banks in India is more than any other countries. The development of rural co operative banks in India is on the process but still it is not fully developed. The Co-operative banks in India was started in 1904.Co-operative movement in India is the result of a deliberate policy of the state and is vigorously pursued through formation of an elaborate governing infrastructure. The successive Five-year plans looked upon the co-operation movement as the balancing sector between public sector and the private sector. In India we find that the states of Maharashtra and Gujarat are well developed. Whereas the states of Andhra Pradesh, Rajasthan and Karnataka have shown remarkable progress in the co-operative movement and there is a vast potential for the development of co-operative in the remaining states. This project is mainly focusing on the importance of co-operative bank in the regional rural areas of our country. Because of that reason The Government has introduced several schemes for promoting the spirit of co1

operation. Both the Indian Government as well as the Government of the State of Maharashtra has introduced several schemes for the co-operative bank. The NABARD role in the building of the co-operative credit structure was that of an active collaborator in drawing up schemes of development with the government of India and the State Governments, and the provider of finance, first to the State Governments for contribution to the share capital of co-operative credit institutions at various levels.

What is a Bank & history of bank? Definition: Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays out on customer's order." A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers that have capital deficits to customers with capital surpluses.

HISTORY OF BANKING: Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III. Phase I: The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank

facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II: Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 corers.

After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. PHASE III: This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalizations of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

WHAT IS CENTRAL BANK? The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 the share capital was divided into shares of 100 each fully paid which was entirely owned by private shareholders in the beginning. Following India's independence in 1947, the RBI was nationalized in the year 1949. The RBI plays an important part in the development strategy of the Government of India. It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 20member-strong Central Board of Directorsthe Governor (currently Duvvuri Subbarao), four Deputy Governors, one Finance Ministry representative, ten Government-nominated Directors to represent important elements from India's economy, and four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these Local Boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.


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 erage 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.

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 napshot of the penetration of deposit accounts and credit accounts in India in comparison with a few select countries ith 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 a19% penetration. The variance in rural and urban deposit and credit account penetration is not restricted only to few states but is common across all states.

Structure of Rural Credit:

The credit facilities are available to rural agriculturists and artisans through financial and non financial institutions which are: Non Institutional: Professional money lenders Agricultural money lenders Relatives and friends Traders and commission agents Land lords and others.

Institutional: Government Cooperative Banks and Commercial banks

The non institutional credit sources are considered as exploitative and high cost System. However, they are very much accessible and easily negotiable with the lenders. It is observed that non institutional source of credit is continued to be an important source in rural areas. Institutional lending or credit or loans refers to loans provided by financial institutions.

Purposes of Rural Credit: For purchase of farm implements viz. indigenous wooden implements, Improved iron implements, agricultural implements, hand tools etc. For purchase of tractors with accessories, threshers, power tillers, combine harvesters, power sprayers.


For purchase of oil engines, electrical engines, pump sets, construction of Wells, leveling of ground for irrigational purposes etc. For the purpose of construction and repairs to farm buildings/structure of the type viz bullocks shed, farm store, godowns, animal farm etc. For the purposes of bunding, terracing, leveling, drainage, reclamation of ravine lands, moisture conservation practices For purchase of seeds including high yielding/hybrid fertilizers, manure, pesticides, fungicides etc. For getting capital expenditure and working capital on units and dairy, poultry, piggery etc. for construction of buildings, purchase of animal equipment, feeds, medicines, vehicles etc

Priorities for Agriculture & Rural Development: Although agriculture contributes only 21% of Indias GDP, its importance in the countrys economic, social, and political fabric goes well beyond this indicator. The rural areas are still home to some 72 percent of the Indias 1.1 billion people, a large number of whom are poor. Most of the rural poor depend on rain-fed agriculture and fragile forests for their livelihoods. The sharp rise in food grain production during Indias Green Revolution of the 1970s enabled the country to achieve self-sufficiency in food grains and stave off the threat of famine. Agricultural intensification in the 1970s to 1980s saw an increased demand for rural labor that raised rural wages and, together with declining food prices, reduced rural poverty. Sustained, although much slower, agricultural growth in the 1990s reduced rural poverty to 26.3 percent by 1999/00.

Since then, however, the slowdown in agricultural growth has become a major cause for concern. Indias rice yields are one-third of Chinas and about half of those in Vietnam and Indonesia. With the exception of sugarcane, potato and tea, the same is true for most other agricultural commodities. The Government of India places high priority on reducing poverty by raising agricultural productivity. However, bold action from policymakers will be required to shift away from the existing subsidy-based regime that is no longer sustainable, to build a solid foundation for a highly productive, internationally competitive, and diversified agricultural sector. ISSUES AND CHALLENGES: Slow Down in Agricultural and Rural Non-Farm Growth: Both the poorest as well as the more prosperous Green Revolution states of Punjab, Haryana and Uttar Pradesh have recently witnessed a slow-down in agricultural growth. Some of the factors hampering the revival of growth are:

Poor composition of public expenditures: Public spending on agricultural subsidies is crowding out productivity-enhancing

investments such as agricultural research and extension, as well as investments in rural infrastructure, and the health and education of the rural people. In 1999/2000, agricultural subsidies amounted to 3 percent of GDP and were over 7 times the public investments in the sector.


Over-regulation of domestic agricultural trade: While economic and trade reforms in the 1990s helped to improve the incentive framework, over-regulation of domestic trade has increased costs, price risks and uncertainty, undermining the sectors competitiveness. Government interventions in labor, land, and credit markets: More rapid growth of the rural non-farm sector is constrained by government interventions in factor markets -- labor, land, and credit -and in output markets, such as the small-scale reservation of enterprises. Inadequate infrastructure and services in rural areas.


CHAPTER 2 REGIONAL RURAL BANK: Regional Rural Banks in India are an integral part of the rural credit structure of the country. Since the very beginning, when the Regional Rural Banks in India (RRBs) were established in October 2, 1975, these banks played a pivotal role in the economic development of the rural India. The main goal of establishing regional rural banks in India was to provide credit to the rural people who are not economically strong enough, especially the small and marginal farmers, artisans, agricultural labours, and even small entrepreneurs. 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 the recommendations 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 Act1976. 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 therewith and incidental thereto .


Regional Rural Banks in India s mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural bank of SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas.

Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows:

Haryana State Cooperative Apex Bank Limited: The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in the economy of Haryana State and has been providing aids and financing farmers, rural artisans, agricultural labourers, entrepreneurs, etc. in the state and giving service to its depositors. NABARD: National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It also finances rural crafts and other allied rural

economic activities to promote integrated rural development. It helps in securing rural prosperity and its connected matters. Sindhanur Urban Souharda Co-operative Bank Sindhanur Urban Souharda Co-operative Bank, popularly known as SUCO BANK is the first of its kind in rural banks of India. The impressive story of its inception is interesting and inspiring for all the youth of this country. United Bank of India: United Bank of India (UBI) also plays an important role in regional rural banks. It has expanded its branch network in a big way to actively participate in the developmental of the rural and semi-urban areas in conformity with the objectives of nationalisation. Syndicate Bank was firmly rooted in rural India as rural banking and has a clear vision of future India by understanding the grassroots realities. Its progress has been abreast of the phase of progressive banking in India especially in rural banks.
Formation and Development of Regional Rural bank:

Cooperatives have been encouraged since 1904 and the commercial banks were made to accept the responsibility of financing rural economic activities from 1968 under social control to relieve the poor peasants from the clutches of money lenders. Previously banks felt that financing agriculture was not their job and that his responsibility would be withdrawn soon. So the results of control and the working of cooperatives had not been significant. Hence, the government of India had nationalized the 14 major commercial banks with the objective to channelize the resources the resources of commercial banks to rural areas. The impact of bank nationalization on the


growth of scheduled commercial banks in rural areas is clear: the share of rural bank offices in total bank offices jumped from 17.6 per cent in 1969 to 36 per cent in 1972. The share rose steadily thereafter, and attained a peak of 58.2 per cent in March 1990. Consequent to the adoption of intensive agricultural programmes under IADP and DPAP, Green Revolution etc. the demand for financial inputs has increased enormously in the rural areas. Therefore it was felt that cooperative and commercial banks alone would not be in a position to meet all the credit needs of the expanding rural economic sector. Between 1966 and 68 various committees suggested that the rural credit structure was weak, therefore some system of rural banks should be created to fill up the credit gap in rural areas. These banks should extension in the rural areas for rural people as such they must be located in rural areas and understand the rural economic environment. Thus Regional Rural Banks were a new type of institution, which combined.

a. Local feel and familiarity with rural possess problems which co-operative banks have. b. Degree of business organization ability to mobilize

deposit, access to money market and modernised outlook which commercial banks have.

The Government of India promulgated the Regional Rural Banks Ordinance on26th September 1975, which was later replaced by the Regional Rural Bank Act1976. At to the end of June 1985, 183 Regional Rural Banks with a network of10, 245 branches have been opened in the


states of the Indian Union. The total number of Regional Rural banks functioning in the country as at the end of June1999 was 196 covering 451 districts spread over 23 states with the network of14,467 branches These banks have been established by the Government of India in terms of the provisions of Regional Rural Banks Act, 1976. The distinctive feature of a rural bank is that though it is a separate body corporate with perpetual succession and common seal, it is closely linked with the commercial bank which has sponsored the proposal to establish it. The central Government, while establishing a rural bank at the request of a commercial bank, specifies the local limits within which it shall operate. The rural Bank may establish its branches or agencies at any place within the notified area.

Haryana State Cooperative Apex Bank Limited: This bank referred generally as the HARCOBANK, is one of the apex organizations in the state of Haryana. 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, small and big rural entrepreneurs of Haryana. The HARCOBANK holds a special economic position in the state of Haryana. The HARCOBANK has been functioning as an investor for more than three decades.

The Haryana State Cooperative Apex Bank Limited has branches throughout the Haryana state. There are two extension counters at Panchkula and Chandigarh, thirteen other branches in the state level, and 336 branches of nineteen Central Cooperative Banks at the district level throughout the state. There is also 2384 Patwar-Circle Level mini banks that provide assistance to

more than 25lakh members dwelling in the state of Haryana.

The Haryana State Cooperative Apex Bank Limited offers several types of financial assistances to the individuals. The financial aids such as credit for the promotion of agriculture, non-agrarian credit, and bank deposit facilities.

Agrarian credits under HARCOBANK are-

Loans schemes: Interim finance by the means of cash loans. Cash Credit against mortgage of property. Crop Loan and Kisan Credit Card. Loan schemes under non-farm finance of HARCOBANK. Loans against mortgage of jewelry and gold ornaments Loans to the students engaging in professional degree courses such as medicine, engineering, management, etc. based on the repayment capability of the applicant of the loan Loans for the purchase of taxi-cars, auto rickshaw, light commercial vehicles, motor buses, trucks, and others those who fall under the category of small transport operators Cash loan facility to traders and businessmen against mortgage of collateral or stock hypothecation trade Scheme for buying consumer durables Short time overdraft facility to people based on the credit report or presenting collateral securities, etc.

Composite loan scheme Advances against national savings certificate (NSC) Farm sector activities Small transport operators, water, and road scheme Integrated loan scheme Banking deposit schemes under HARCOBANK Fixed Deposit Recurring Deposits Money Multiple Certificate (MMC) Re-investment Term Deposit (RITD) Combined Recurring Deposits and Provident Funds for different institutions Staff Loan facilities under HARCOBANK House Building Loan for construction, repair, extension of house property Conveyance Loan for vehicles for cars, scooters, motorcycles Computer Loans for household purpose of the employees According to its financial position and its total performance at the domestic level, the National Federation of State Cooperative Banks (NAFSCOB) and National Bank for Agriculture and Rural Development (NABARD) have awarded the Haryana State Cooperative Apex Bank Limited.


List of Regional Rural Banks in India. There are a number of regional rural banks in India. Following are the statewise 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

Arunachal Pradesh

Arunachal Pradesh Rural Bank


Assam Gramin Vikash Bank Langpi Dehangi Rural Bank


Madhya Bihar Gramin Bank Bihar Kshetriya Gramin Bank Uttar Bihar Kshetriya Gramin Bank Kosi Kshetriya Gramin Bank Samastipur Kshetriya Gramin Bank



Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank Durg-Rajnandgaon Gramin Bank


Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank


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 Gramin Bank Vananchal Gramin Bank


Karnataka Vikas Grameena Bank Pragathi Gramin Bank Cauvery Kalpatharu Grameena Bank Krishna Grameena Bank Chimagalur-Kodagu Grameena Bank Visveshvaraya Gramin Bank


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


Marathwada Gramin Bank Aurangabad-Jalna Gramin Bank Wainganga Kshetriya Gramin Bank Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank Ratnagiri-Sindhudurg Gramin Bank


Manipur Rural Bank


Ka Bank Nogkyndong Ri Khasi-Jaintia


Mizoram Rural Bank


Nagaland Rural Bank


Kalinga Gramya Bank


Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank Rushikulya Gramya Bank


Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank Malwa Gramin Bank


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 Gramin Bank

Uttar Pradesh


Purvanchal Gramin Bank Kashi Gomti Samyut Gramin Bank Uttar Pradesh Gramin Bank 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 Gramin Bank Nainital Almora Kshetriya Gramin Bank

West Bengal

Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank Uttar Banga Kshetriya Gramin Bank


Objective of RRBs:

Regional Rural Banks were established with the following objectives in mind: To provide cheap and liberal credit facilities to small and marginal farmers, agriculture labourers, artisans, small entrepreneurs and other weaker sections. To save the rural poor from the moneylenders. To act as a catalyst element and thereby accelerate the economic growth in the particular region. To cultivate the banking habits among the rural people and mobilize savings for the economic development of rural areas. To increase employment opportunities by encouraging trade and commerce in rural areas. To encourage entrepreneurship in rural areas. To cater to the needs of the backward areas which are not covered by the other efforts of the Government? To develop underdeveloped regions and thereby strive to remove economic disparity between regions.

With these objectives in mind, knowledge of the local language by the staff is an important qualification to make the bank accessible to


the people.

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.


Management of Regional Rural Banks:

The Management of Regional Rural Banks is largely governed by the RBIs Act, 1976, Banking Regulation Act 1949 and the guidelines of RBI and NABARD and sponsor banks. The general superintendence, direction and management of affairs and business of RRBs are vested in Board of Directors. They exercise the powers and discharge all the functions of the RRBs. In discharging its functions, the Board of Directors act on business principles and shall have due regard to public interest. The Board will consist of a chairman and not more than 8 directors. The Central Government will appoint a Chairman and three Directors, the concerned State Government nominates not more than two Directors and the sponsor bank will nominate not more than three Directors. The Chairman is responsible for the overall management of the management of the bank and hold office for a period of 5 years. The Chairman is required to devote the whole time to the affairs of the RRBs and subject the superintendence, control and jurisdiction of the board of directors. The tenure of office of a director will be 2 years and he shall hold office until his successor is nominated and will also be eligible for renomination.

The RRBs Act has also facilitated the creation of business committees by the Board of Directors. These committees may consist wholly of directors or wholly of other persons or partly of

directors and partly of other persons for such purpose as it may decide. Most RRBs constitute Business Committees for examining the feasibility of advances, mobilization of deposits, deployment of funds in other institutions and to find ways and means of recovery performance.

Banking environment:

Banking Organization is an open adaptive system. It has its own internal and external environments. Internal environments of RRBs consist of Banking, Personnel, and Public Relations etc. The external environment consists of uncontrollable economic, social, political and legal factor governing the success or otherwise of RRBs

RRBs external Environment comprises of: Legal Environment dealing with rules, regulations and legislative measures such as General Laws, RRBs Act, Banking Regulation Act etc. Economic environment consisting of change in economic activity such as competition, changes from other banks, financial markets and the prescriptions of the lead banks also effect the working of RRBs. Change in the economic environment will affect refinance from NABARD. Political environment dealing with Regional and national


Politics. RRBs activities are affected by monetary and fiscal policies of government. Social Environment describing the religious activities, social attitudes, behavior, education and deep-rooted connections. This plays a major role in rural villages where due to illiteracy and poverty, social and cultural forces influence business patterns.

Progress of regional rural bank:

The RRBs were inaugurated on 2nd October 1975. Since the inception of these banks till June 1985, 185 banks have been operating through 8250 branches. Their deposits and advances totaled Rs.1009 crores and Rs.1159 crores respectively, at the end of June, 1985. There are 196 RRBs now in the states covering 495 districts with 14,311 branches. The number of profit-making RRBs rose to 172 during 2000-01 from 44 during 1996-1997 and their profit also rose to Rs 681 from Rs 69.68 crore during this period The credit-deposit ratio was 111 % which is much beyond the capacity of commercial banks to achieve. More than 90% of the outstanding advances have gone to the weaker sections like small and marginal farmers and landless laborers. According to Mr. K.S.V. Krishnamachari, Dy. General Manager of the RRBs Dept. of the State Bank of India, the future of the RRBs in their present form is at stake and recent press reports indicate that the


Government of India is seriously considering a proposal to set up a `National Rural Bank' amalgamating the existing 196 RRBs in the country.


Characteristics of Indian Rural Economy and Rural Borrower and the Related Problems in the working of Regional Rural Banks:

There are certain characteristic features of the Indian rural economy and the rural borrower. Each of these features creates some hindrance in the effective development of rural banking.

The Indian rural socio-economic scene is still feudal in nature largely still in the midst of illiteracy. Besides this, the Indian rural psyche is deeply entwined with the cultural ethos.

PROBLEM FOR BANKING SYSTEM: There exists a traditional anti-loan psychosis and people prefer to avoid credit as far as possible. Even when they do borrow, moneylenders have a traditional stronghold on the minds of the rural borrowers. The availability of credit from banks is dependent on a number of formalities. Even literate rural customers prefer to avoid such complexities of documentation, restricted working hours, loan amount, proximity factors, and purpose of loan.

Rural borrowing may be seasonal in nature due to the heavy dependence in these areas on agriculture and allied activities. Timely availability of funds is crucial.


Problem for banking system:








sometimes delay the actual receipt of funds. The money if received late may be of no use to the borrower. The next time finance is required he will approach a source that guarantees timely delivery of money usually local moneylenders. In such situations the cost of borrowing may be immaterial. This can be seen from the borrow heavily fact that rural customers

from moneylenders despite their

astronomical rates of interest. The economic profile of most rural borrowers is very weak. The average amount of credit required is relatively low and savings deposited may be as low as Rs. 10 or 20 per month.

Problem for banking system: Banks may not find operations economical, as sometimes the transaction and follow up costs are more than the amount of credit. Rural banks and rural branches that are compelled to operate in this milieu do so unprofitably Repayment period of loans fixed by banks are shorter than required for the type of activity financed. Gestation period is not considered while fixing the due dates.


Due dates of repayment of loan installments were not fixed according to income generation. Working capital was not given on a need based approach or not released at the right time for want of compliance of various conditions of sanction. Besides there is also some amount of subsidized credit available to rural borrowers from the Government. This further reduces the efficiency and independence of the system, as it cannot generate enough to support operations let alone lower interest rates. Compounding to this is the problem of non-repayment of loans. Another problem is that banks generally do not give loans for consumption. In cases where day-to-day living itself is at question, banks, their strict conditions on the use of money borrowed and the numerous delays are avoided.

Other factors leading to non-viability of Regional Rural Banks: Non availability of adequate infrastructure facilities, like pucca houses to locate branches, access roads to villages, police protection on the one hand and availability of staff to keep pace with needs, on the other hand, constitute the major handicaps of RRBs in making progress in branch expansion. Natural calamities in successive years leading to loss of assets. Price fluctuations for farm produces as well as in the cost of inputs.


Inadequate support and interest of the government to the RRBs. With 50 shareholding in each RRB, Government has the right to nominate 3Directors on the Board of RRBs. How best the GOI could get over the difficulty of finding enough number of the right type of people to be nominated as directors and what steps are needed to make the Boards function effectively are aspects receiving the attention of GOI and NABARD.

Thus, the problem of effectively reaching the masses still remains unsolved. In other words, rural banks as they are cannot be expected to become genuinely rural in the outlook and operations. For any meaningful participation in the overall national rural scene there need be set up at least 20,000 branches of RRBs. Compared to the present number of branches (about 8000) this only shows the magnitude of the task before RRBs and the others who have a stake in its success.

Suggested remedies:

Some of the steps to make RRBs participation more effective in rural areas are: 1. Efforts for poverty eradication must comprise a package of appropriate technologies, development of skill, services and asset creation. The responsibilities of banks will be to provide financial support to the beneficiaries for creation of productive assets by involving themselves whole

heartedly in borrowers or organization of a system for supply of inputs or marketing of product. 2. All the existing minor irrigation schemes should be passed on to the RRBs for implementation in proportion to their branch network. 3. With the shift in the lending policy from the credit worthiness of the borrower to the credit worthiness of the purpose, RBI directives that collateral security/third party guarantee need not be insisted upon in respect of small loans, should be effectively implemented to facilitate flow of credit to the poor. 4. The follow up of credit must be done and necessary arrangements should b made in case of entrepreneur faces problems of supply of raw materials and/or in the sale of his product. 5. For proper understanding of the concept of Rural Development and poverty eradication plan,

workshops/seminars should be conducted at block level every year. 6. The credit deposit ratio is generally above 10% and in most cases it is more than 15%. Thus, to augment their resources, state Governments must direct all the rural based agencies, e.g.GramPanchayats,KrishiUpaj Mandies, and Marketing Societies etc. to keep their funds with RRBs. 7. In the programme like the IRDP, which would virtually involve preparing viable projects/schemes for each family

to be assisted, it is also the more imperative that banks, more particularly RRBs, and the State Governments machinery work in total unison. 8. The machinery set up by the State Government for recovery purpose is quite inadequate to cope up with the cases referred. Stringent measures must be taken to ensure repayment of loans in case of willful defaulters.


Marketing of Mutual Fund Units - RRBs:

With a view to expanding the scope of business of RRBs and considering that marketing of Mutual Fund (MF) units provides a profitable avenue for banks, it has been decided by RBI on 17th May 2006 to allow Regional Rural Banks (RRBs) to undertake marketing of units of Mutual Funds, as agents. Accordingly, RRBs may, with approval of their Board of Directors, enter into agreements with Mutual Funds for marketing their units subject to the following terms and conditions:

i. The bank should only act as an agent of the customers, forwarding applications of the investors for purchase / sale of MF units to the Mutual Fund / Registrar / Transfer Agents.

ii. The purchase of MF units should be at the risk of customers and without the bank guaranteeing any assured return.

iii. The bank should not acquire such units of Mutual Fund from the secondary market.

iv. The bank should not buy back units of Mutual Funds from their customers.

v. The bank holding custody of MF units on behalf of their customers should ensure that its own investment and investments belonging to their customers are kept distinct from each other.


vi. Retailing of units of Mutual Funds may be confined to some select branches of the bank to ensure better control.

vii. The bank should comply with the extant KYC/ AML guidelines in respect of the applicants.

viii. The RRBs should put in place adequate and effective control mechanisms in consultation with their sponsor banks.

2. RRBs will need to report the details of the tie-up, together with a copy of the agreement entered into with the Mutual Fund, to RBI within a period of ten days from the date of entering into the arrangement. Reform Process: RRBs started their development process on 2nd October 1975

with the formation of a single bank (Prathama Grameen Bank). As on 31 March 2006, there were 133 RRBs (post-merger) covering 525 districts with a network of 14,494 branches. RRBs were originally conceived as low cost institutions having a rural ethos, local feel and pro poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. When the reform process in the banking sector was initiated, RRBs were taken up for a close look. The GoI in consultation with RBI and NABARD started the reform process thru a comprehensive package for RRBs including cleansing their balance sheets and


recapitalising them. Extant lending restrictions were removed and space and variety available for investment of their surplus funds was expanded. Simultaneously, a number of human resource development and Organisational Development Initiatives (ODI) were taken up by NABARD with funding support of the Swiss Development

Corporation (SDC) and with the tools of training and exposure visits, ODI, technology support, computerization and use of IT, system development, improvement. etc. for business development and productivity

By end March 2005, there was a remarkable

improvement in the financial performance of RRBs as compared to the position prevailing in 1994-95. The number of banks reporting profits went up to 166 of the 196 RRBs. As on 31 March 2006, of the total 133 RRBs (post merger), 111 posted profits and 75 of these RRBs were sustainably viable organisations having no accumulated losses as also posting current profits. GoI initiated the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a State as per the recommendations of the Vyas Committee to provide (2004). The


RRBs were expected

better customer

service due to better infrastructure, computerization of branches, pooling of experienced work force, common publicity / marketing efforts, etc. and also derive the benefits of a large area of operation, enhanced credit exposure limits and more diverse banking activities. As a result of the amalgamation, the number of RRBs was reduced from 196 to 133 as on 31 March, 2006 and to 96 as on 30 April 2007. Thus Under the amalgamation process, 145 RRBs have been amalgamated to form 45 new RRBs.

District Coverage:

RRBs covered 525 out of 605 districts as on 31 March 2006. After amalgamation, RRBs have quite large covering most parts of the State in many cases. Assam Gramin Vikas Bank, an amalgamated RRB, covers 25 districts, the highest in the country, while five other amalgamated RRBs cover 10 or more districts each. However, 40 RRBs covered two districts and 16 RRBs covered a single district each in 2005-06.Increased coverage of districts by RRBs makes them an important segment of the Rural Financial Institutions (RFI) for financial inclusion.

Branch Network:

The number of branches of RRBs increased to 14,494 as on 31 March 2006 from 13,920 branches as on 31 March 1989. The network of the 45 amalgamated RRBs (as on April 2007) was quite large and diverse varying from 85 to 680 branches. The Uttar Bihar KGB, an amalgamated RRB, has 680 branches, followed by Baroda eastern UPGs with 539 branches. The branch network of

stand-alone RRBs varied between 8 and 242 as on 31 March 2006.


Approach to Rural Banking:

The Reserve Bank of India has a mandate to be closely involved in matters relating to rural credit and banking by virtue of the provisions of Section 54 of the RBI Act. The major initiative in pursuance of this mandate was taken with sponsoring of All-India Rural Credit Survey in1951-52. This study made agency-wise estimates of rural indebtedness and observed that cooperation has failed but it must succeed. The Report of the Committee on Directions is still considered a classic on the subject, and two of the four members were, incidentally, from Andhra Pradesh. This is the origin of the policy of extending formal credit through institutions while viewing local, traditional and informal agencies as usurious. In the first stage, therefore, efforts were concentrated on developing and strengthening cooperative credit structures. The Reserve Bank of India has also been making financial contributions to the cooperative institutions through evolving institutional arrangements, especially for refinancing of credit to agriculture. While enacting the State Bank of India Act in 1955, the objective was stated to be the extension of banking facilities on a large scale, more particularly, in rural and semi-urban areas. SBI, therefore, became an important instrument of extending rural credit to supplement the efforts of cooperative institutions. In 1969, 14 major commercial banks were nationalized and the objective, inter alia, was "to control the heights of economy". The nationalised banks thus became important instruments for advancement of rural banking in addition to cooperatives and State Bank of India. The next step to supplement the efforts of cooperatives and commercial banks was the establishment of Regional Rural Banks in 1975

in different states with equity participation from commercial banks, Central and State Governments. By 1982, to consolidate the various arrangements made by the RBI to promote/ supervise institutions and channel credit to rural areas, NABARD was established. Though several efforts were made to increase the flow of institutional credit for agricultural and rural lending, there were mismatches in credit and production. Field studies conducted to determine the reason revealed that it was due to absence of effective local level planning. It was felt that with the establishment of large network of branches, a system could be adopted to assign specific areas each bank branch in which it can concentrate on focused lending and contribute to the development of the area. With a view to implementing this approach, RBI introduced a scheme of "Service Area Approach" for commercial banks. To further supplement the institutional mechanism, the concept of Local Area Banks was taken up in 1996-97 and in-principle approval has been given for 8 Local Area Banks. As regards cost of credit, for most of the period, the administered interest rate regime was applicable for bank lending and this included concessional term for priority sector. Currently, all interest rates on bank advances including in rural areas are deregulated and there is no link between priority sector and interest rate, though there are some regulations on interest rates by size of advance i.e. below Rs. 2 lakh in respect of commercial banks. As regards policy measures to enhance flow of credit to rural areas, apart from availability of credit lines from the Reserve Bank of India, the concept of priority sector was evolved to ensure directed credit. Currently, the stipulation is that domestic commercial banks should extend credit to the

extent of 40 per cent of the total net bank credit to priority sector as a whole, of which 18 per cent should be specifically for agriculture. Out of the target of 18 per cent for agriculture, at least 13.5 per cent should be by way of direct loans to agriculture and remaining could be in the form of indirect loans. Where a bank fails to fulfill its commitment towards priority sector lending, it is currently required to contribute to Rural Infrastructure Development Fund set up by NABARD. NABARD in turn provides these funds to State Governments and state owned corporations to enable them to complete various types of rural infrastructure projects. It is pertinent to recognise that there are a large number of credit linked programmes sponsored by the Government for direct assault on poverty. In programmes relating to self-employment and women welfare, the multiplicity of programmes has been reduced by having a comprehensive and consolidated programme named Swaranjayanti Gram Swarojgar Yojna. The financial sector reforms, which were introduced from 1991 onwards, were aimed at transforming the credit institutions into organizationally strong, financially viable and operationally efficient units. The measures introduced include reduction in budgetary support and concessional of resources, preparation of Development Action Plans and signing of Memoranda of Understanding with the major controllers, and introduction of prudential norms relating to income recognition and asset classification for RRBs and cooperative banks. The lending rates for these institutions have also been deregulated. Other measures of liberalisation Include allowing non-target group financing for RRBs, direct financing for SCBs and CCBs, and liberalisation in investment policies and non-fund business.

These measures have contributed to many RRBs turning around and becoming more vibrant institutions. In the case of cooperative banks, there is greater awareness of the problems of officialisation and politicisation and initiatives in this regard include legislative actions on cooperative banks in Andhra Pradesh. Recently, several policy initiatives have been taken to advance rural banking. These include additional capital contribution to NABARD by the RBI and the Government of India, recapitalisation and restructuring of RRBs, simplification of lending procedures as per the Gupta Committee recommendations, preparation of a special credit plans by public sector banks and launching of Kisan Credit Cards. Finally, a scheme linking selfhelp groups with banks has been launched under the aegis of NABARD to augment the resources of micro credit institutions. A Committee has gone into various measures for developing micro credit, and has submitted its report, which is under the consideration of the RBI. In respect of cooperatives, a Task Force under the chairmanship of my esteemed and affectionate colleague Shri Jagdish Capoor, Deputy Governor has been constituted to review the status and make recommendations for improvement. Undeniably, these initiatives have enabled a very wide network of rural financial institutions, development of banking culture, penetration of formal credit to rural areas and a counter to the dominance of moneylenders. These initiatives have also financed modernisation of rural economies and implementation of anti-poverty and self-employment programmes. However, for the purpose of focussing on the future, generalisation on some concerns regarding the current approach to rural

credit and banking would be appropriate.

Firstly, the cooperative banks have different layers and many of them have significantly large non-performing assets (NPAs). Many

cooperatives are undercapitalised. The public sector banking system also exhibits NPAs, and some of them have so far been provided with recapitalised funds. The RRBs also exhibit NPAs and these have been recapitalised from the Government of India so far, which would imply a total recapitalisation of double the amount provided by Government of India.

Secondly, according to the All-India Debt and Investment Survey, 199192, the share of debt to institutional agencies in the case of rural households has increased marginally from 61.2 per cent to 64 per cent between 1981 and 1991. However, it must be noted that this figure relates to debt outstanding and the overall share of the institutional credit in the total debt market is likely to be smaller than what this figure indicates.

Thirdly, the cost of financial intermediation by the various rural financial institutions is considered to be on the high side. The difference between the cost of resources made available to NABARD by Reserve Bank of India and the commercial rates of interest at which the cooperative banks lend for agriculture in the deregulated interest rate regime is also considered to be on the high side.

Fourthly, empirical studies indicate that institutional credit is more likely to be available for well to do among the rural community.

Fifthly, empirical studies also indicate that relatively backward regions have less access to institutional credit than others do.

Sixthly, the non-availability of timely credit and the cumbersome procedures for obtaining credit are also attributed to the functioning of the financial institutions, though this is equally valid for rural and urban banking.

Finally in regard to Government sponsored schemes, there has been overlap in accountability in as much as the beneficiaries are identified on a joint basis. Banks have been indicating that NPAs are proportionately more due to this overlapping. A important development in the formal segment of the rural financial markets is the growing significance of non-banking financial companies, in particular, in hire purchase and leasing operations. They also finance traders of agricultural inputs and output. The NBFCs have only recently been brought under the regulatory regime of RBI. While their importance is recognised in financing diversified rural agriculture, its extent and scope of operations has not been adequately researched.


Dynamic in rural banking:

Problems, prospects and solutions to many of the issues mentioned have been researched and debated, primarily with a view to strengthening, revamping or re-orienting rural financial institutions. However, there is merit in viewing the problems of rural credit and rural banking in a wider context. In this regard, it will be useful to recognise some dynamics of rural economy.

First, services sector is getting increasing importance in the rural areas also -from coffee shops to cable television operators. Assessing and meeting of credit needs of this sector is important.

Second, the integration between rural and urban areas has increased significantly, with the result, mobility of labour, capital, products and even credit between the two is increasing.

Third, commercialisation of agriculture, particularly the increasing role of cash crops like cotton has resulted in substantial role for suppliers' and buyers' credit. Thus, fertiliser and pesticide are supplied to farmers on credit, often on deferred payment basis. In such deferred payment arrangements, credit terms are built into price and hence it is difficult to isolate terms. Similarly, the commission-agents advance money towards purchase of output from farmers, which amounts to providing credit and includes an element of forward trading. These arrangements are often entered into on a voluntary basis. The present banking system does not generally encourage financing the transactions of this nature. However, a

few non-banking financial companies do provide indirect finance for such purpose.

Fourth, compared to cereal production, other food items, including poultry and fish are growing at a faster pace. In other words, rural agriculture is getting increasingly diversified in terms of products and processes.

Fifth, in areas where commercialisation of agriculture has reached significant level, the traditional landlord-based tenancy is replaced with commercialbased tenancy. Where intensive cultivation of cash crops such as cotton is called for, this has become quite common. However, the present credit and banking procedures do not cater to the working capital needs of such commercial based tenancy relationship.

Sixth, given the diversified activities, and large work force in rural areas, there is increasing recourse to multiple occupations to earn a decent livelihood. For example, a small farmer is also a petty trader and may also be a satellite based cable television operator in the village.

Seventh, to the extent employment and indeed incomes could be seasonal, especially for agricultural labour, there is reason to seek and obtain consumption loans. Such assurance is possible with prosperity in rural employment. Present arrangements in formal credit markets are inadequate to meet such requirements.

Eighth, while there is significant commercialisation and diversification of


rural economies, progress is very uneven in different parts of the country. So, there are still many areas, where exploitation of tribals by money lenders or of agricultural labourers by landlord-money lenders, still persists. Norms and procedures of credit, therefore, need to be different to meet varying circumstances.

Ninth, from the data on credit deposit ratios, it is clear that the banking system is a conduit for net transfer of financial savings from rural to non-

rural sectors. On the other hand, a major part of informal markets would be local and hence savings would be locally deployed, within the rural areas.



SEWA Bank - Rural Banking Poor people residing in villages, who make up the majority of Indias population, are mainly dependent on agriculture. They get only 2 to 3 months work in a year, either in their own fields or to work as agricultural labourers; during the rest of the year they look for some other source of income. It was very difficult for them to meet their day to day expenses and they continued to remain in the vicious circle of poverty from where they could just dream of savings besides earning for their survival. SEWA started organizing women agricultural labourers in rural areas, in 1977. The organization has realized through experience that, if women have to progress on the path of development, they must be freed from the clutches of private moneylenders. For this they should be given facilities of credit. SEWA Bank has taken up this job for SEWA Union and SEWA Gram Vikas. This work was initiated by forming saving groups. In the meantime efforts were on to get license from Reserve Bank of India for carrying on this work through SEWA Bank. In July 1993 the efforts paid and SEWA Bank was permitted to operate banking activities in the rural districts of Gujarat. This activity is carried out through the formation and development of womens savings groups, known as self-help groups. These groups, regularly meet, collect the saved amount from their members and deposit it in SEWA Bank. Financially stable groups are facilitated with credit options for their individual members. Eventually, a district level savings and credit federation of unregistered savings and credit groups (SCGs) is registered at the district level.


SEWA Bank provided banking services at the doorsteps of poor women, in order to pull them out of vicious circle and enable them to become selfsufficient. If a group of women get together and save money from their income to create a capital base, they can manage it efficiently and that would help them to come out of heavy debt or to get their land back by repaying the mortgaged amount. This helps them to reach an economically sound position. Although it is a slow and lengthy process, SEWA and SEWA Bank recognize this and show patience in helping women organize themselves into SCGs and giving them guidance and capacity building support at each step. SEWA Banks Approach to Rural Banking - Promoting Capitalization The idea of capitalization of women's local self-help groups towards selfreliance is a constitutive element of SEWA's overall strategy, which aims at the economic empowerment of poor, self-employed women and agricultural labourers. For increasing the economic and organisational strength of the self-help groups and association and for broadening SEWA movement, both, the members savings efforts and the external financial promotion, by the way of capital fund are necessary pre-conditions. Methodology used by SEWA BANK for Promoting Self-help Savings and Credit Groups: a. The district association organizers and Sewa Bank's

promoters/trainers would visit villages and motivate rural women to form a savings and credit group. b. When women decide to form a savings and credit group, they elect

their own leaders (minimum two) and also give a name to the group.



The group then formulates their groups rules and regulations as

regards, 1. 2. 3. 4. 5. d. e. Membership. Savings. Loans. Management and, Linkages. Women save regularly (normally monthly). SEWA BANK provides trainings to the members of the groups

leaders of the groups and organisors of the programme as regards operations, account-keeping, financial management, interest calculation and

administration of the groups. f. After one year, if the group is regular in savings and attending

trainings, the group is eligible for borrowing from SEWA BANK. Loan is sanctioned in the name of the group, which is in proportion to its total savings. g. Group decides as regards the loans to be granted to the individuals i.e.

the purpose, amount, interest to be charged, repayment schedule etc. h. Second loan is given to the group only when the first loan is repaid by

all the members. SEWA's approach in promoting these groups has been that the rural women should be the owners, users, and the managers of the group. Hence, SEWA Bank has consciously chosen to promote autonomous district level federations of SCGs, as opposed to opening branches of SEWA Bank in the rural areas i.e. a demand led, de-centralised approach as opposed to a supply driven, centralised approach. The Concept of Capitalization:

Capitalization is understood as the process of formation of capital towards sustainability and growth, at the level of the group as well as at the level of the individual household and the district association. For this, at the level of the individual household, the members of the selfhelp groups contribute by regular savings, by taking and repaying loans at market rates in due time, by participating in the activities of the self-help group's meetings and in managing the group. At the group level, the self-help effort of its members is supported by providing them with credit, training and other services, such as monitoring. The Capital Fund as a Promotion Instrument: This support is provided by the Capital Fund, which is legally owned by the group and which is the main financial promotion instrument for the economic strengthening of the group in order to make them sustainable. Capital Fund requirement is divided into two parts: Revolving fund (for loans) : 80% Development fund (for grants) : 20%

Purpose of Support: Loans are provided to the members of the saving groups for: Releasing mortgaged land and other productive assets; For meeting working capital needs e.g. buying seeds, fertilizers, raw

materials like bamboo and cloth, or for housing materials; For acquiring assets like sewing machine or hand-looms, or for

buying sheep or land; For creating productive infrastructure like tube well, water supply, or

vehicles for transporting finished products to the market. Grants are provided for training, monitoring and other supporting services.


SEWA Bank is responsible for the technical assistance, monitoring and evaluation throughout the entire process. SEWA Gram Vikas w sustainable district level associations and of the local women's self-help-groups. These associations in the course of time will be able to take over functions which are related to planning and to technical assistance (decentralization). SEWA Bank Rural Banking: Current Status As on 31 March 20012 SHGs promoted in 11 districts of Gujarat. Accumulated savings amount to Rs.1, 10, 54,946. Total amount of credit provided is Rs. 79, 81,753. Total number of groups in 11 districts: 1,422 SHGs. Total number of SHG members in 11 districts: 33,600 women. The loan recovery rate is 92%.




If throughout the globe everybody has started talking about India as the land of endless opportunities, it is particularly true about the rural India. Companies, MNCs, domestic entrepreneurs, banking and non-banking sectors - whoever wants to grow and expand, can no more afford to ignore rural population and rural India.

Description If companies like Unilever, Proc tor & Gamble, Mahindras, Haldiram, etc., can go to the rural India for exploiting the untapped market to expand and grow, why can't the banks also think on those lines and quench the thirst for credit of rural India and get themselves incentivized in the form of bigger customer base, higher margin, etc. "IBN (private bank) has its eyes set on rural India to increase exposure considering the huge demand for banking Indian rural sector. Credit demand in rural India is expected to be around Rs. 1, 330 bn, whereas its supply was just about Rs. 40 bn in 2005.""State Bank of India, the country's largest bank, announced that it would shift its focus to rural India to boost the retail portfolio." These are a few of the news reports, which appear quite regularly in the national economic/ non-economic newspapers. Until now, banks and other

financial institutions have not given sufficient attention to the demand of this market. Even those who are present there and taking care of the needs of rural population, are largely focused on farm credit and agri- finance (including loan requirement for allied agricultural activities). Hardly any bank is there which makes an effort to know the aspirations of these people, residing in villages. Therefore, the banks have to go beyond agri-financing and also think about expanding in this part of the country through the non-agri-financing route. The banks lend money to their customers for the purchase of household goods, for the education of their children, for helping them to set up trade and industry, etc. (Refer Figure) As far as increasing the base is concerned, rural population should form the core of lending for all the banks, be it public sector, private or foreign.





NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, smallscale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with

1. 2. 3.

Providing refinance to lending institutions in rural areas Bringing about or promoting institutional development and Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also: Acts as a coordinator in the operations of rural credit institutions Extends assistance to the government, the Reserve Bank of India and

other organizations in matters relating to rural development Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development Acts as regulator for cooperative banks and RRBs


Some of the milestones in NABARD's activities are:

Total production credit disbursed at end March 2011 was 34196 crore. Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions during 2010-11 aggregated 13485.87 crore.

Through the Rural Infrastructure Development Fund (RIDF) 12060.

crores were disbursed during 2010-11. A cumulative amount of 121488.40 crore has been sanctioned for 444162 projects as on 31 March 2011 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection, forest management etc. Under Watershed Development Fund which has a balance of 1847.69 crore as on 31 March 2011, 579 projects in districts of 14 states have benefited. Farmers now enjoy hassle free access to credit and security through 1009.30 lakh Kisan Credit Cards that have been issued through a vast rural banking network. During 2010-11, 72.6 lakh KCC were issued by banks with a sanctioned limit of 43370 crore. Under the Farmers' Club Programme, during the year 21903 clubs were launched, taking the total to 76708 clubs as on 31 March 2011 helping farmers get access to credit, technology and extension services. Village Development Programme (VDP) is being implemented in 801 villages across 25 states. Under Tribal Development Fund, cumulative sanction amounted to 917.60 crore for 317 projects covering 2.5 lakh families. During 201061

11 financial assistance of 373.97 crore was sanctioned for 126 projects benefiting 94,163 tribal families. Under Farm Innovation and Promotion Fund (FIPF), cumulatively 123 projects in various states, involving financial support of 11.65 crore were sanctioned as on 31 March 2011. Farmers Technology Transfer Fund (FTTF) 512 innovative projects in 27 states with grant assistance of 44.97 crore were sanctioned during 2010-11. There were more than 69.53 lakh savings linked SHGs and more than 48.51 lakh credit linked SHGs covering 9.7 crore poor households as on 31 March 2011, under the microfinance programme.

Genesis and Historical Background:

The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) set up by the RBI under the Chairmanship of Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on November 28, 1979 recommended the establishment of NABARD. The Parliament through the Act 61 of 81 approved its setting up.

The Committee after reviewing the arrangements came to the conclusion that a new arrangement would be necessary at the national level for achieving the desired focus and thrust towards integration of credit activities in the context of the strategy for Integrated Rural Development. Against the backdrop of the massive credit needs of rural development and the need to uplift the weaker sections in the rural areas within a given time horizon the

arrangement called for a separate institutional set-up. Similarly The Reserve Bank had onerous responsibilities to discharge in respect of its many basic functions of central banking in monetary and credit regulations and was not therefore in a position to devote undivided attention to the operational details of the emerging complex credit problems. This paved the way for the establishment of NABARD.

CRAFICARD also found it prudent to integrate short term, medium term and long-term credit structure for the agriculture sector by establishing a new bank. NABARD is the result of this recommendation. It was set up with an initial capital of Rs 100 crore, which was enhanced to Rs 2,000 crore, fully subscribed by the Government of India and the RBI.


Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives. By the end of year 2015, we have planned to link nearly 9.2 crore households which would ensure coverage of more than 50% women through SHG Bank linkage programme In pursuing this mission, NABARD focuses its activities on:

1. Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing

policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes. 2. Development functions, concerning reinforcement of the credit functions and making credit more productive. 3. Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks


To facilitate sustained access to financial services for the unreached poor in rural areas through various microfinance innovations in a cost effective and sustainable manner.


The rural financial system in the country calls for a strong and efficient credit delivery system, capable of taking care of the expanding and diverse credit needs of agriculture and rural development. More than 50% of the rural credit is disbursed by the Co-operative Banks and Regional Rural Banks. NABARD is responsible for regulating and supervising the functions of Co-operative banks and RRBs. In this direction NABARD has been taking various initiatives in association with Government of India and RBI to improve the health of Co-operative banks and Regional Rural Banks.


NABARD was established in terms of the Preamble to the Act, "for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto".

The main objectives of the NABARD as stated in the statement of objectives while placing the bill before the Lok Sabha were categorized as under:


The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied economic activities in rural areas.


The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas.


The Bank will also provide direct lending to any institution as may approve by the Central Government.


The Bank will have organic links with the Reserve Bank and maintain a close link with in.


Major Activities:

Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit.

Refinancing banks for extending loans for investment and production purpose in rural areas. Providing loans to State Government/Non Government Organizations (NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.

Supporting credit innovations of Non Government Organizations (NGOs) and other non-formal agencies.

Extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs)

Promoting participatory watershed development for enhancing productivity and profitability of rainfed agriculture in a sustainable manner.

On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site surveillance over health of cooperatives and RRBs.



Agriculture is the backbone of the Indian Economy as nearly 60% of the population of the country depends on agriculture and it contributes 18% to the GDP. Tenth Five Year Plan and National Agriculture Policy documents envisage a growth level of 4% in Agriculture as against the average growth of less than 2% in the last 50 years. The last decade commencing from 1990s was marked by post-Green Revolution fatigue and plateau yield levels in many parts of the country. For sustained 4% growth in agriculture there is needed to improve productivity and cut down on costs by improving efficiency. There is, therefore, an urgent need to provide package of initiatives for transfer of technology, improving input use efficiency, promoting investments in agriculture both in private and in public sectors and creating a favorable and enabling economic environment. The emerging needs in agriculture sector now are adoption of location specific skill and knowledge based technologies, promote greater value addition to agriculture produce, forge new partnerships between public institutions, technology users and the corporate sector, harness IT more effectively to realise financial sustainability and compete in the international market. For transmitting the latest agriculture techniques to the Farmers field, orienting them to establish better relationship with banks, adoption of latest post-harvest handling technology, value addition, etc. and enjoy the benefits of collective bargaining power both for procuring inputs and select their


produce the Farmers Club Programme is an appropriate and most suitable strategy initiated by NABARD in late 1982. WHAT IS FARMER CLUB? National Bank for Agriculture and Rural Development (NABARD) encourages banks to promote Farmers' Clubs in rural areas under the Farmers Club Programme, earlier known as Vikas Volunteer Vahini (VVV) Programme. The Programme was launched by NABARD in November 1982 to propagate the five principles of Development through Credit. The five principles are:

Credit must be used in accordance with the most suitable methods of science and technology.

The terms and conditions of credit must be fully respected. Work must be done with skill so as to increase production and productivity.

A part of the additional income created by credit must be saved. Loan installments must be repaid in time and regularly so as to recycle credit.


Development in rural areas through credit, technology transfer, awareness and capacity building.


WHAT ARE FARMER CLUB? Farmers Clubs are grass root level informal forums of farmers. Such Clubs are organised by rural branches of banks with the support and financial assistance of NABARD for the mutual benefit of the banks concerned and the village farming community/rural people. With the enhancement of the programme, other agencies like NGO, VAs, KVKs, SAUs etc. are also now included as agencies included in the formation and promotions of FCs.

Functions: The broad functions of the Farmers Clubs as envisaged are as follows:

Coordinate with banks to ensure credit flow among its members and forge better bank borrower relationship,

Organise minimum one meeting per month and depending upon the need, there would be 2-3 meetings per month. Non-members can also be invited to attend the meetings,

Interface with subject matter specialists in the various fields of agriculture and allied activities etc., extension personnel of Agriculture Universities, Development Departments and other related agencies for technical know how up gradation. For guest lectures, even experienced farmers who are non members from the village/ neighboring villages could be invited,

Liaison with Corporate input suppliers to purchase bulk inputs on behalf of members,


Organise/facilitate joint activities like value addition, processing, collective purchase of inputs and farm produce marketing, etc.; for the benefit of members. They can also sponsor / organise SHGs,

Undertake socio-economic developmental activities like community works, education, health, environment and natural resource

management etc.

Market rural produce and products.

NABARDs support to FCs: NABARDs policy support for Farmers Club Programme lays stress on linking technologies with farmers club members and also facilitating market access through the following mechanism:

Capacity building of members of Farmers Clubs including leadership training.

Linkage with technology/markets Self Help Groups (SHGs)/Joint Liability Groups (JLGs) formation Forming Federations of Farmers Clubs/ProducersGroups/Companies

NABARDs support o Farmers Training & Rural Development Centres (FTRDCs): NABARD supports recurring expenses of Farmers Training and Rural Development Centres (FTRDCs) set up by institutional agencies. NABARD has set up a Farmers Technology Transfer Fund (FTTF) to be used to facilitate transfer of technologies and market linkages especially through Farmers Clubs besides need based support for formation of Producers Groups/ Companies, Federations of farmers Clubs etc.


Importance attached to FC Programme by Govt. of India:

All Regional Rural Banks have been directed by Union Finance Minister to have at least one Farmers Clubs per branch. In view of the importance attached to the programme by NABARD & GOI and also in the context of business advantages that accrue to institutional agencies, banks may adopt the Farmers Club programme as their business strategy.

BENEFIT BANK BRANCES: The formation of Farmers Club lead to better Banker-Borrower relationship in the area. An Evaluation study of Farmers Club Programme (FCP) carried out by IIM, Luck now has brought out the following advantages of FCs to bank branches: Increase in deposits. Increase in the credit flow and diversification of lending. Generation of new business avenues. Increase in the recoveries and decline in the non-performing assets. Reduction in the transaction costs of financial institutions/ Banks. Socio economic development of the village. A win-win situation both for the banker and borrower. Besides these benefits to the banks, the Farmers Club has also been instrumental in certain social welfare measures like free eye check-up


camp, Animal Health Care Camp, Mass vaccination camp, community works like road, check-dams, forestation, etc. Enhancement in bargaining power for bulk purchase of inputs and marketing of their produce. Who can form Farmers' Clubs?

All Institutional Agencies (Commercial Banks, Cooperative Banks and Regional Rural Banks) and all grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, ATMA, and Post Offices etc.) are eligible to form Farmers Clubs.

Set Up: Farmers Club is an informal forum in the villages. It can be promoted in a village/ cluster of villages, generally in the Operational Area of a Bank. While Farmers Club should have minimum of 10 members, no upper limit in the membership is envisaged. Every Club would have three office bearers - One 'Chief Coordinator/Volunteer/ President, the other 'Associate Coordinator/Volunteer/Vice President. The office bearers would be elected by Club Members on a democratic basis for a term to be decided by the Club. The office bearers should be residents of the area of the operation of the club. No NGO/FC promoting agency representative can be office bearer of the club.


Membership: All villagers except willful defaulters can become members of the club. The club must make endeavor to raise their own resources by way of contribution from members, undertaking certain business services such as bulk procurement of inputs and collective marketing of agricultural produce, functioning as Business Facilitators (BFs), agents for insurance and other services etc. Steps in the formation of Farmers Clubs: Bank branch can promote the clubs directly or engage Farmers Club promoting agencies like Krishi Vigyan Kendras (KVKs), Agriculture Universities, NGOs, Corporates, etc. All grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, ATMA, Post Offices etc.) are eligible to form Farmers Clubs Select a village/ cluster of villages suitable for launching Clubs in the operational area of the bank branch. Identify a few progressive farmers and borrowers with good track record of proper loan utilisation, aptitude and capacity for team work. (Success of the Club hinges on the right choice of members). Encourage the members to select a Chief Coordinator/Volunteer/President and an Associate Coordinator/Volunteer/Vice President and a Cashier. This will ensure collective leadership and continuance of the Club. Provide orientation training to them with the help of NABARD (Regional Office / DDM or trained officers from the bank) before launching.

Encourage members to convene monthly meeting regularly, guide them to have meaningful discussion and take necessary follow up action. Motivate members them to identify credit and non-credit needs (training, socio-economic, village infrastructure, etc.), prepare a plan of action and accordingly arrange for expert talks, counselling, need-based activities, etc. with the help of Government Departments and other agencies concerned. Ensure that the members maintain Membership Register, Meeting Register, Minutes Book and Books of accounts. Evolve a performance parameter and measure the Clubs contribution annually. Use Club as a tool in aid of branch not only in the matter of credit and recovery but also in facilitating promotion of SHGs, micro credit, Financial Inclusion and convergence of services.


Financial Support from NABARD: NABARD assistance to all agencies will uniformly be @Rs.10, 000/- per club per annum for a period of 3 years irrespective of whether they are institutional or other agencies and also the region concerned. The assistance will be towards meeting the following minimum and mandatory expenses: S. No. Particulars Amount (Rs.) 1. 2. Formation & Maintenance Expenses 2,000.00

Base Level Orientation Training Programme 5,000.00 (BLOTP)


Meet with Experts (2 Programmes in a year) Total

3,000.00 10,000.00

NGOs/KVKs will be provided with an incentive of Rs.2, 000/- per club out of the total assistance of Rs.10, 000/- per club per annum. NGOs/KVKs, who are operating in hilly/remote/naxal affected areas, will be provided with additional incentive of Rs.3, 000/- per club for a period of 3 years over and above Rs.10, 000/- referred to above.




The Kisan Credit Card is a pioneering credit delivery innovation for providing adequate and timely credit to farmers under single window, with flexible and simplified procedure, adopting whole farm approach, including the short-term credit, medium term and long term credit needs of the borrowers for agriculture and allied activities and a reasonable component for consumption needs.

Contents of Credit Card:

Beneficiaries covered under the Scheme are issued with a credit card and a pass book or a credit card cum pass book incorporating the name, address, particulars of land holding, borrowing limit, validity period, a passport size photograph of holder etc., which may serve both as an identity card and facilitate recording of transactions on an ongoing basis.

Borrower is required to produce the card cum pass book whenever he/she operates the account.

Salient features of the Kisan Credit Card (KCC) Scheme:

Eligible farmers to be provided with a Kisan Credit Card and a pass book or card-cum-pass book.


Revolving cash credit facility involving any number of drawals and repayments within the limit. Limit to be fixed on the basis of operational land holding, cropping pattern and scale of finance. Entire production credit needs for full year plus ancillary activities related to crop production to be considered while fixing limit. Sub-limits to cover short term, medium term as well as term credit are fixed at the discretion of banks. Card valid for 3 to 5 years subject to annual review. As incentive for good performance, credit limits could be enhanced to take care of increase in costs, change in cropping pattern, etc. Each drawal to be repaid within a maximum period of 12 months. Conversion/reschedulement of loans also permissible in case of damage to crops due to natural calamities. Security, margin, rate of interest, etc. as per RBI norms. Operations may be through issuing branch (and also PACS in the case of Cooperative Banks) through other designated branches at the discretion of bank. Withdrawals through slips/cheques accompanied by card and passbook. Crop loans disbursed under KCC Scheme for notified crops are covered under Rashtriya Krishi Bima Yojna (National Crop Insurance Scheme), a crop insurance scheme introduced at the behest of Government of India to protect the interest of the farmer against loss of crop yield caused by natural calamities, pest attacks etc


Advantages of the Kisan Credit Card Scheme to the farmers:

Access to adequate and timely credit to farmers. Full year's credit requirement of the borrower taken care of. Minimum paper work and simplification of documentation for drawal of funds from the bank. Flexibility to draw cash at any time and buy inputs as per the need of the farmer and also to repay as and when surplus fund is available. Assured availability of credit at any time enabling reduced interest burden for the farmer. Sanction of the facility for 3 years subject to annual review and satisfactory operations and provision for enhancement. Flexibility of drawals from a branch other than the issuing branch at the discretion of the bank.

Benefits of the Scheme to the Banks Reduction in work load for branch staff by avoidance of repeat appraisal and processing of loan papers under Kisan Credit Card Scheme. Minimum paper work and simplification of documentation for drawal of funds from the bank. Improvement in recycling of funds and better recovery of loans. Reduction in transaction cost to the banks. Better Banker - Client relationships.


Coverage of Crop Loans disbursed under KCC Under the Rashtriya Krishi Bima Yojna (RKBY) GIC has agreed that the crop loans disbursed for eligible crops under the Crop Insurance Scheme will be covered under the CCIS, now under Rashtriya Krishi Bima Yojna. However, the banks are expected to maintain all back up records relating to compliance with "RKBY" and its seasonality discipline, cut-off date for submitting declarations and end use, etc. as in the case of normal crop loans.

Objectives of the Scheme: To provide insurance coverage and financial support to the farmers in the event of failure of crops as a result of natural calamities, pests and diseases. To encourage farmers to adopt progressive farming practices, high value inputs and higher technology in agriculture. To help stabilize farm incomes, particularly in disaster years. To support and stimulate primarily production of food crops and oilseeds. Farmers to be covered: All farmers (both loanee and non-loanee irrespective of their size of holdings) including sharecroppers, tenant farmers growing insurable crops covered. Sum insured: The sum insured extends upto the value of threshold yield of the crop, with an option to cover upto 150% of average yield of the crop on payment of extra premium. Premium subsidy: 50% subsidy in premium allowed to Small and Marginal Farmers, to be shared equally by the Government of India and State Government/Union Territory. Premium subsidy to be phased out over a period of 5 years.

Personal Accident Insurance Scheme -Salient features: Scheme covers risk of KCC holders against death or permanent disability resulting from accidents caused by external, violent and visible means, as under: Death due to accident (within 12 months of the accident) Caused by outward, violent and visible means -- Rs.50, 000/Permanent total disability -- Rs.50, 000/Loss of two limbs or two eyes or one limb and one eye -- Rs.50, 000/Loss of one limb or one eye -- Rs.25, 000/ Nominated office of insurance company to issue a Master Insurance Policy to each DCCB/RRB covering all its KCC holders. Premium payable Rs.15/- for a one year policy while Rs.45/- for a 3year policy. Designated insurance company will nominate one office at district level to function as nodal office for co-coordinating implementation of personal accident insurance scheme for KCC holders in the district. Insurance coverage available under Policy only from date of receipt of premium at insurance company Banks to ensure to incorporate name of Nominee in Kisan Credit Cardcum-Pass Book. Simplified claim settlement procedure evolved under Scheme whereby an Enquiry-cum-Verification Committee comprising Branch Manager of implementing bank, Lead Bank Officer and representative of insurance


company to certify nature of accident causing disability/death and recommend settlement of insurance claims.

Govt. of India initiatives: KCC holders have been covered under Personal Accident Insurance Scheme against accidental death or permanent disability, upto maximum amount of Rs. 50000/- and Rs. 25000/- respectively. The premium burden will be shared by the card issuing institutions and the borrower in the ratio of 2:1. Bankers were also advised to issue KCC to tenant farmers/ share croppers/oral lessee/Joint liability groups. Banks were advised to cover all eligible farmers under KCC scheme. With a view to make the scheme more effective at ground level and serve the farmers in the way in which it was expected to do, GoI had constituted a High Level Task Force which shall interalia examine and suggest measures for improving efficiency of KCC scheme. The report from task force has been submitted to GoI on 30 June 2010. As desired by Honble Finance Minister, bankers were advised to increase KCC coverage by 20% in number and also in amount during the financial year 2010-11 over the year 2009-10. Similar increased coverage is expected during 2011-12.


Major Steps taken by NABARD: Co-op Banks and RRBs were advised to enlarge the scope of the KCC Scheme to cover term loans for agriculture and allied activities, including a reasonable component to meet the consumption needs, besides the existing facility of providing crop loan limit. The coverage of KCC was extended to landless laborers, oral lessees, tenant farmers including defaulters. The concept of KCC has been extended to the borrowers of the long term cooperative structure. A Brochure on KCC Scheme highlighting the salient features, advantages and other relevant information about the Scheme was brought out by Head Office and ROs were asked to circulate the brochure to State govt. departments, Commercial Banks, Cooperative Banks, RRBs and other concerned agencies/officers so as to generate wider awareness about the Scheme. Minimum Floor limit of Rs.5000/- for issue of KCC stands

withdrawn, Studies on KCC Scheme have been conducted by NABARD periodically to facilitate feedback on the ground level issues/problems so that changes, where necessary, could be considered. On the lines of instructions of RBI to Commercial Banks, Cooperative Banks and RRBs have been advised that they may, at their discretion, pay interest at a rate based on their perception and other relevant factors on the minimum credit balances in the cash credit accounts under the Kisan Credit Cards of farmers during the period from 10th to the last day of each calendar month.

RRBs were advised to initiate innovative publicity campaign in each area of operation in order to cater all eligible farmers under KCC. Progress in implementation of the Scheme . Since launching in August 1998, around 10.09 crore Kisan Credit Cards issued upto 31 March 2011 by Cooperative Banks, Regional Rural Banks and Commercial Banks put together. Scheme implemented in all States and Union Territories (except Chandigarh, Daman & Diu and Dadra & Nagar Haveli) with all Cooperative Banks, RRBs and Commercial Banks participating.


Swarojgar Credit Card Scheme

Progress under the Scheme SCC Scheme aims at providing adequate and timely credit i.e. working capital/ or block capital or both to small artisans, handloom weavers, service sector, fishermen, self employed persons, rickshaw owners, other micro-entrepreneurs, etc from the banking system in a flexible, hassle free and cost effective manner. The facility may also include a reasonable component for consumption needs. NABARD being the nodal agency monitors the scheme.

Cumulatively, 12.12 lakh SCCs were issued by banks with a credit limit of Rs.4949.5 crore. The year-wise progress is given below:


Year wise progress of implementation of SCC Scheme


No of SCCs Credit limit sanctioned issued (Rs crore) 64.26 468.27 1410.65 756.90 679.26 627.99 427.92 514.26 4,949.52

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

28,925 150,615 288,094 2,11,441 1,55,296 1,50,299 1,06,918 1,20,158

Cumulative Progress 1,211,746 as on 31 March 2011



Indian economy in general and banking services in particular have made rapid strides in the recent past. However, a sizeable section of the population, particularly the vulnerable groups, such as weaker sections and low income groups, continue to remain excluded from even the most basic opportunities and services provided by the financial sector. In order to address the issues of financial inclusion, the Government of India constituted a Committee on Financial Inclusion under the Chairmanship of Dr. C. Rangarajan. The Committee submitted its final report to Hon'ble Union Finance Minister on 04 January 2008.

The Committee on Financial Inclusion has defined Financial Inclusion as "the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost.

Among other recommendations, the Committee has recommended setting up of two funds - Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF). The two funds have been established with

NABARD which is the coordinating agency of Financial Inclusion initiatives with Financial Inclusion Department (FID) as the nodal department.


Project Deliverables:

Innovation support for financial products and services suited to the livelihood needs of the poor.

Services piloted to promote livelihoods and reduce vulnerabilities of the poor.

Financial literacy strengthened for the poor, pricing and terms and conditions in 7 UN focus states.

Knowledge sharing networks supported / established nationally and across 7 UN focus states between actors of the financial services sector to encourage delivery and scaling up of financial products and services for the poor.

Policy environment for financial inclusion strengthened.NABARD and UNDP will link up with regulators, financial

institutions, civil society and the private sector to pilot doorstep delivery of Banking services; provide customized financial literacy to poor women and men and attempt to link them to the formal financial sector and facilitate knowledge sharing between actors of the financial services sector to share experiences related to design and delivery of pro-poor financial products. The project will also build capacities of project staff in project implementation and management through a range of inputs.

Project Planning & Review Committee (PPRC): The PPRC will be headed by Executive Director, NABARD and UNDP representation will serve as the Project Steering Committee. The PPRC will:


ensure that project goals and objectives are achieved in the defined time frame;

review project progress and suggest implementation strategies periodically;

review project expenditures against activities and outcomes; and approve Annual Work Plans

Activities planned / undertaken under the Project:

Base line survey to assess the customised product requirement of disadvantaged region with special focus on disadvantaged groups

Mobile Van Banking Resource Centre Activity Profiling of remote villages with significant concentration of disadvantaged groups for further Credit Linkages

Financial Literacy by FINO Bandhus as BC Model through FINO Fintech Foundation

Multiplication of Financial Literacy material in hindi by ISMW Financial literacy through Nukkad Natak, audio-video, Workshops, road shows, etc.

Exposure visit of stakeholders to successful projects in neighboring areas.

State level financial literacy strategy Meets, Workshops, etc. for knowledge sharing

Study on Financial Inclusion of Street Vendors


Development and Promotional Functions:

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

In order to reinforce the credit functions and to make credit more productive, NABARD has been undertaking a number of developmental and promotional activities such as: Help cooperative banks and Regional Rural Banks to prepare

development actionsplans for themselves. Enter into MoU with state governments and cooperative banks

specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe. Help Regional Rural Banks and the sponsor banks to enter into MoUs

specifying their respective obligations to improve the affairs of the Regional Rural Banks in a stipulated timeframe. Monitor implementation of development action plans of banks and

fulfillment of obligations under MoUs.


Provide financial assistance to cooperatives and Regional Rural Banks

for establishment of technical, monitoring and evaluations cells. Provide organisation development intervention (ODI) through reputed training institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National Bank Staff College, Lucknow and College of Agriculture Banking, Pune, etc. Provide financial support for the training institutes of cooperative banks . Provide training for senior and middle level executives of commercial banks, Regional Rural Banks and cooperative banks. Create awareness among the borrowers on ethics of repayment through Vikas Volunteer Vahini and Farmers clubs. Provide financial assistance to cooperative banks for building improved management information system, computerisation of operations and development of human resources.


CONCLUSION: RRBs' performance in respect of some important indicators was certainly better than that of commercial banks or even cooperatives. RRBs have also performed better in terms of providing loans to small and retail traders and petty non-farm rural activities. In recent years, they have taken a leading role in financing Self-Help Groups (SHGs) and other micro-credit institutions and linking such groups with the formal credit sector. RRBs should really be strengthened and provided with more resources with which they can undertake more of these important activities. And most certainly they should be kept apart from a profit-oriented corporate motivation that would reduce their capacity to provide much needed financial services to the rural areas, including to agriculture. Ideally, the best use of the resources raised by RRBs through deposits would be through extensive cross-subsidisation. This, in turn, really requires an apex body that would cover and oversee all the RRBs, something like a National Rural Bank of India (NRBI). The number of rural branches should be increased rather than reduced; they should be encouraged to develop more sophisticated methods of credit delivery to meet the changing needs of farming; and most of all, there should be greater coordination between district planning authorities, panchayati raj institutions and the banks operating in rural areas. Only then will the RRBs fulfill the promise that is so essential for rural development.




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