CHAPTER NO.

1 INTRODUCTION TO BANK HISTORY OF BANKING:

Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.he earliest evidence of money-changing activity is depicted on a silver Greek drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza () means both a table and a bank.

ORIGIN OF BANKING:
The term bank is supposed to be derived from banco, the Italian word for bench, the Lombard Jews in Italy having benches in the marketplace where they exchanged money and bills. When a banker failed, his bench was broken by the people, and he was called a bankrupt.This derivation of the term, however, is probably wrong. "The true original meaning of banco,"says MacLeod,"is a heap, or mound, and this word was metaphorically applied to signify a common fund, or joint stock,
1

formed by the contributions of a multitude of persons."A brief account of the first banking operations in Venice will dispel the haze enveloping this subject. In 1171 the financial condition of Venice was strained in consequence of the wars in which the people were engaged. The great council of the republic finally determined to raise a forced loan. Every citizen was obliged to contribute the hundredth part of his possessions to the State, receiving therefor interest at the rate of five per cent. The public revenues were mortgaged to secure the interest, and commissioners were appointed to pay the interest to the fundholders and to transfer the stock. The loan had several names in Italian, Compera, Mutuo, but the most common was Monte, a joint stock fund. Afterward, two more loans were contracted, and in exchange for the money contributed by the citizens, the commissioners gave stock certificates bearing interest, and which could be sold and transferred.

DEFINITION OF BANKING:
banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

TYPES OF BANKING:
There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in

agriculture, business, profession, etc. On the basis of functions, the banking institutions in India may be divided into the following types:

Central Bank:

A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Such a bank does not deal with the general public. It acts essentially as Governments banker, maintain deposit accounts of all other banks and advances money to other banks, when needed. The Central Bank provides guidance to other banks whenever they face any problem. It is therefore known as the

bankers bank. The Reserve Bank of India is the central bank of our country. The Central Bank maintains record of Government revenue and expenditure under various heads. It also advises the Government on
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monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central bank. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. No other bank than the Central Bank can issue currency.

Commercial Banks: Commercial Banks are banking institutions that accept deposits and grant short-term loans and advances to their customers. In addition to giving short-term loans, commercial banks also give medium-term and longterm loan to business enterprises. Now-a-days some of the commercial banks are also providing housing loan on a long-term basis to individuals. There are also many other functions of commercial banks, which are discussed later in this lesson. Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private sector banks and Foreign banks.

Public Sector Banks: These are banks where majority stake is held by the Government of India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation Bank, Bank of Baroda and Dena Bank, etc.

 Private Sectors Banks: In case of private sector banks majority of share capital of the bank is held by private individuals. These banks are registered as companies with limited liability. For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.

Foreign Banks: These banks are registered and have their headquarters in a foreign country but operate their branches in our country. Some of the foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank, Grindlays Bank,etc. The number of foreign banks operating in our country has increased since the financial sector reforms of 1991.

Development Banks: Business often requires medium and long-term capital for purchase of machinery and equipment, for using latest technology, or for expansion and modernization. Such financial assistance is provided by Development Banks. They also undertake other development measures like subscribing to the shares and debentures issued by companies, in case of under subscription of the issue by the public. Industrial Finance Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development banks in India.

 Regional Rural Banks: Regional Rural Banks were established under the provisions of an ordinance promulgated on the 26th September 1975 & the Regional Rural Bank Act,1976 with an objective to ensure sufficient institutional credit for agriculture & other rural sectors. The RRBs mobilize financial resources from rural/semi-urban areas & grant loans & advances mostly to small & marginal farmers ,agricultural ,labourers,& rural artisans. The area of operation of RRBs is limited to the area as notified by Golcovering one or more districts in the State.RRBs are jointly owned by Gol,the concerned State Government & Sponsor Banks (27 Schedule Commercial Banks & one State Co-operative Bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% & 35% respectively.

Co-operative Banks: People who come together to jointly serve their common interest often form a co-operativesociety under the Co-operative Societies Act. When a co-operative society engages itself inbanking business it is called a Cooperative Bank. The society has to obtain a licence from the Reserve Bank of India before starting banking business. Any co-operative bank as a society is to function under the overall supervision of the Registrar, Cooperative Societies of the State. As regards banking business, the society must follow the guidelines set and issued by the Reserve Bank of India.

 Types of Co-operative Banks: There are three types of co-operative banks operating in our country. They are primary credit societies, central co-operative banks and state cooperative banks. These banks are organized at three levels, village or town level, district level and state level.

1) Primary Credit Societies: These are formed at the village or town level with borrower and nonborrower members residing in one locality. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds.

2) Central Co-operative Banks: These banks operate at the district level having some of the primary credit societies belonging to the same district as their members. These banks provide loans to their members (i.e., primary credit societies) and function as a link between the primary credit societies and state cooperative banks.

3) State Co-operative Banks: These are the apex (highest level) co-operative banks in all the states of the country. They mobilise funds and help in its proper channelisation among various sectors. The money reaches the individual borrowers from the state co-operative banks through the central co-operative banks and the primary credit societies.
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 Specialised Banks: There are some banks, which cater to the requirements and provide overall support for setting up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. They engage themselves in some specific area or activity and thus, are called specialised banks. Let us know about them.

1) Export Import Bank of India (EXIM Bank): If you want to set up a business for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and the competition to be faced, etc.

2) Small Industries Development Bank of India (SIDBI): If you want to establish a small-scale business unit or industry, loan on easy terms can be available through SIDBI. It also finances modernisation of small-scale industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote, finance and develop small-scale industries.

3) National Bank for Agricultural and Rural Development (NABARD): It is a central or apex institution for financing

agricultural and rural sectors. If a person is engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural banks. It provides financial assistance, especially, to cooperative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

FUNCTIONS OF COMMERCIAL BANKS:

The functions of commercial banks are of two types. (A) Primary functions; and (B) Secondary functions. Let us discuss details about these functions.

(A) Primary functions: The primary functions of a commercial bank include: a) Accepting deposits; and b) Granting loans and advances.

a) Accepting deposits: The most important activity of a commercial bank is to mobilise deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.

b) Grant of loans and advances: The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies according to the purpose and period of loan and also the mode of repayment.

(B) Secondary functions: In addition to the primary functions of accepting deposits and lending money, banks perform a number of other functions, which are called secondary functions. These are as follows. Issuing letters of credit, travellers cheque, etc. Undertaking safe custody of valuables, important document and securities by providing safe deposit vaults or lockers. Providing customers with facilities of foreign exchange dealings.
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 Transferring money from one account to another; and from one branch to another branch of the bank through cheque, pay order, demand draft. Standing guarantee on behalf of its customers, for making payment for purchase of goods, machinery, vehicles etc. Collecting and supplying business information. Providing reports on the credit worthiness of customers. Providing consumer finance for individuals by way of loans on easy terms for purchase of consumer durables like televisions, refrigerators, etc. Educational loans to students at reasonable rate of interest for higher studies, especially for professional courses.

STANDARD ACTIVITIES OF BANKING:

banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and automated teller machine (ATM).Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally
11

considered an adequate substitute for having a bank account.Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but nonbank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too.

CHANNELS OF BANKING:
Banks offer many different channels to access their banking and other services: ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services. A branch is a retail location Call center Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using one's mobile phone to conduct banking transactions Online banking is a term used for performing transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human
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 Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.

BUSINESS MODEL OF BANKING: A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers[citation needed]. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities.This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance.

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In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "onestop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability).Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit.Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home).However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the credit- debit - cards. This helps in making profit and facilitates economic development as a whole.

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 PRODUCTS OF BANKING:
RETAIL: Business loan Cheque account Credit card Home loan Insurance advisor Mutual fund Personal loan WHOLESALE: Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Risk management (FX, interest rates, commodities, derivatives) Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include: Credit risk: risk of loss[citation needed] arising from a borrower who does not make payments as promised.

Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
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 Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.

Operational risk: risk arising from execution of a company's business functions.The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset).

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CHAPTER NO.2 INTRODUCTION OF RURAL BANKING

Rural banking is a common practice in places where banking institutions are few and far between, and people who need to carry out banking transactions may have difficulty finding a way to do so. With modern technology, more and more people have access to online systems that allow them to conduct certain types of banking without a nearby branch, but this technology is not available for everyone, and demand for rural banking is still high in some areas. The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. Initially, five RRBs were set up on October 2, 1975 which was sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India. The total authorized capital was fixed at Rs. 1 crore which has since been raised to Rs. 5 Crore. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI are 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. There are several concessions enjoyed by the RRBs by Reserve

17

Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks, managerial and staff assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABRAD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend their problems

DEFINITION:
Rural banking is the process of conducting banking transactions out in the country where bank branches are too far away to be of use. Rural banking is popular for very small towns and farmers who live far away from areas of larger population and cannot make the drive to these locations whenever they need to use banking services.

OBJECTIVES OF RURAL BANKING:

The main objectives of setting up the RRB is to provide credit and other facilities especially to the small and marginal farmers agricultural labourers artisans and small entrepreneurs in rural areas. Bridging the credit gap in rural areas. Check the outflow of rural deposits to urban areas. Reduce regional imbalances and increase rural employment generation. Each RRB will operate within the local limits specified by notification.
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 If necessary a RRB will also establish branches or agencies at places notified by the Government. Each RRB is sponsored by a public sector bank which provides assistance in several ways viz., subscription to its share capital provision of such managerial and financial assistance as may be mutually agreed upon and help the recruitment and training of personnel during the initial period of its functioning. To uplift the mass of population residing in rural areas who are currently below the poverty line by extending credit to the smallest scale economic activity. The approach involves increasing the accessibility of banking services to the poor in a commercially sustainable manner. The institution of Regional Rural Banks was created to meet the excess demand for institutional credit in the rural areas, particularly among the economically and socially marginalized sections. RRBs are expected to make credit available to rural households besides inspiring carefulness. To take the banking services to the doorstep of rural masses, particularly in hitherto unbanked rural areas. To make available institutional credit to the weaker sections of the society who had by far little or no access to cheaper loans and had perforce been depending on the private money lenders. To mobilize rural savings and channelize them for supporting productive activities in rural areas. To create a supplementary channel for the flow the central money market to the rural areas through refinances. To generate employment opportunities in rural areas and bringing down the cost of providing credit to rural areas.

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CHAPTER NO. 3 FUNCTIONS OF RURAL BANKING

Every RRB is authorized to carry on to transact the business of banking as defined in the Banking Regulation Act and may also engage in other business specified in Section 6 (1) of the said Act. In particular a RRB is required to undertake the business of granting loans and advances to small and marginal farmers and agricultural individually or in groups, laborers whether and to cooperative societies including

agricultural marketing societies agricultural processing societies cooperative farming societies primary agricultural credit societies or farmers service societies primary agricultural purposes or agricultural operations or other related purposes, and granting loans and advances to artisans small entrepreneurs and persons of small means engaged in trade commerce industry or other productive activities within its area of operation.Regional Rural banks (RRB) were created to provide the sufficient institutional credit for agriculture to the rural areas of a state.The function of RRB is to provide loans to the small marginal farmers and agricultural laborers. However, the functions of an RRB are limited to a specific area which is specified by the state.Agricultural growth plays an important role in boosting the economic growth of a country, therefore, RRB are created as a helping hand to foster the agricultural growth. Some rural banks also work for the development of the rural areas.

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 Landlords who reside in rural areas also encourage these banks to be developed in such areas. In this way rural banks also provide a way to such people to deposit their money.

Rural banks make collections and payments for the account of others and perform such other services for its customers as are not incompatible with banking business.

Rural banks act as financial agent, buy and sell, by order of and for the account of its customers, shares, evidences of indebtedness and all types of securities.

Rural banks receive in custody funds, documents, and other valuable objects, and rent safety deposit boxes for the safeguarding of such objects.

Rural banks act as correspondent for other financial institutions.

Rural banks sell domestic drafts.

Rural banks accept savings and time deposits.

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

RURAL BANKING DURING 1940S:

Farmers need credit that is, loans in order to start up, expand and survive in the agricultural economy. In the late 1940s, a complex system of credit institutions fueled good times on the farm. Farmers need two types of credit. First, they need long-term loans to buy land and machines. Second, they need short-term loans to buy the "inputs" they need to farm each year. They need money to buy seed, fertilizer, herbicides, pesticides and other production items. In the 1940s, there were four major sources of credit. Banks are the most obvious sources of credit for farmers. During the 40s, most rural banks were locally owned and operated. Life insurance companies have been significant ag lenders during the 20th Century. With large sums from premiums and the need to find stable, long-term investments, farming was a good investment for the insurance companies. Individuals and local businesses have been a huge source of credit for farmers. Relatives or local wealthy people will often loan money to farmers starting up or expanding. Implement and

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 grocery stores will carry farmers on their books until the crops come in. In fact, in 1930, almost 60 percent of farm debt was owed to individuals and local businesses. The federal government has loaned farmers more and more money since the government got into the business when it established the cooperative Federal Land Bank system in the 1916. A pie chart tracking the percentage of farm debt through the 20th Century shows that local banks, individuals and businesses extended over 80 percent of the loans to farmers in the late 1940s.

KEY PERFORMANCE INDICATORS:

The following trends can be highlighted : 111 RRBs out of total 133 registered profit in the year 2005-06. CD Ratio has been increasing from 46% on 31 March 2004 to 53% on 31 March 2005 and further to 56% on 31 March 2006. Recovery percentage has been improving from 73% during 200304 to 80% during 2005-06. Consequently, net NPAs have declined from 8.55% on 31 March 2004 to 3.99% on 31 March 2006. Loans disbursement registered an impressive 35% annual growth in 2004-05 and 21% in 2005-06. Per branch productivity has increased from Rs. 5.71 crore on 31 March 2004 to Rs. 7.66 crore on 31 March 2006. There has been a decline in the total number of staff.

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 REFORM PROCESS OF RURAL BANKING:

RRBs started their development process on 2nd October 1975 with theformation of a single bank (Prathama Grameen Bank). As on 31 March 2006, therewere 133 RRBs (post-merger) covering 525 districts with a network of 14,494.branches. RRBs were originally conceived as low cost institutions having a ruralethos, local feel and pro poor focus. However, within a very short time, most bankswere making losses. The original assumptions as to the low cost nature of theseinstitutions were belied.When the reform process in the banking sector was initiated, RRBs were takenup for a close look. The GoI in consultation with RBI and NABARD started thereform process thru a comprehensive package for RRBs including cleansing theirbalance sheets and recapitalising them. Extant lending restrictions were removed andspace and variety available for investment of their surplus funds was expanded.Simultaneously, a number of human resource development and OrganisationalDevelopment Initiatives (ODI) were taken up by NABARD with funding support ofthe Swiss Development Corporation (SDC) and with the tools of training andexposure visits, ODI, technology support, computerization and use of IT, systemdevelopment, etc. for business development and productivity improvement. By endMarch 2005, there was a remarkable improvement in the financial performance ofRRBs as compared to the position prevailing in 1994-95. The number of banksreporting profits went up to 166 of the 196 RRBs. As on 31 March 2006, of the total133 RRBs (post merger), 111 posted profits and 75 of these RRBs were sustainablyviable organisations having no accumulated losses as also posting current profits.GoI initiated the process of structural consolidation of RRBs by amalgamatingRRBs sponsored by the same bank within a State as per the recommendations of theVyas Committee (2004). The amalgamated RRBs
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were expected to provide bettercustomer service due to better infrastructure, computerization of branches, pooling ofexperienced work force, common publicity marketing efforts, etc. and also derivethe benefits of a large area of operation, enhanced credit exposure limits and morediverse banking activities. As a result of the amalgamation, the number of RRBs wasreduced from 196 to 133 as on 31 March, 2006 and to 96 as on 30 April 2007. Thus,59under the amalgamation process, 145 RRBs have been amalgamated to form 45 newRRBs.

PERFORMANCE

UNDER

DOUBLING

OF

AGRICULTURE CREDIT : RRBS

More importantly, the performance of RRBs under GoI's initiative on doubling of agriculture credit in three years (from base year 2003-04) and greater coverage of small and marginal farmers, have been impressive. They disbursed agriculture loans of the order of Rs. 12,404 crore during 2004-05 registering a phenomenal annual growth of 64% against the targeted 30%. During 2005-06, agriculture credit flow stood at Rs. 15,223 crore with a growth of 23%. Thus, RRBs have achieved the target of doubling of agriculture credit in 2 years. RRBs financed 18.58 lakh new farmers in 2004-05 and another 17.03 lakh new farmers in 2005-06.

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CHAPTER NO.4 REGIONAL RURAL BANKS POTENTIAL

RRB'S

POTENTIAL

ROLE

IN

FINANCIAL

INCLUSION:
Post-merger RRBs represent a powerful instrument for financial inclusion. Their outreach vis--vis other scheduled commercial banks particularly in regions and across population groups facing the brunt of financial exclusion is impressive, as observed from an analysis of Basic Statistical Returns of the RBI and indicated in the following paragraphs. With merger infusing the much needed financial strength in RRBs coupled with the local feel and familiarity they command, RRBs are in a unique position to play a decisive role in financial inclusion.

Outreach: In rural areas, RRBs account for a substantial 37% of total offices of all scheduled commercial banks. In semi-urban areas, their share comes to 15%. It goes without saying that exclusion is more severe in rural areas.

Savings Mobilisation: At all India level, RRBs account for 12% of all deposit accounts of scheduled commercial banks and a meagre 3.5% of deposit amount. However, in rural areas, RRBs share in deposit accounts is a significant 31% and that in deposit amount 19%. This shows that the average deposit
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amount is lower in RRBs than other commercial banks, thereby implying RRBs' better reach to small depositors.

Credit Disbursed: At all India level, RRBs account for 18% of loan accounts of all scheduled commercial banks and 3% of loans outstanding. However, in rural areas the share of RRBs in loan accounts is an impressive 38%. More significantly, despite having 38% of all loan accounts, RRBs account for only 21% of total credit outstanding in rural areas, implying thereby their better reach to small borrowers. If semi-urban branches are included, the share of RRBs in credit accounts and amount outstanding is of the order of 29% and 13% respectively. Both deposit and credit data indicate that RRB branches in rural areas have performed better in relation to other scheduled commercial bank branches. However, RRBs share comes down significantly when data for both rural and semi-urban areas are considered. This could be due to the fact that branches of other scheduled commercial banks located in semi-urban areas disburse considerable loans in rural areas also. This is significant from the point of view of financial inclusion as rural branches are closer and more active in extending outreach to remote and interior villages. Viewed from this angle RRBs are particularly well placed to achieve the goal of financial inclusion.

Outreach across Regions: The table below points to RRBs significant presence in North-Eastern, Eastern and Central Regions which manifest financial exclusion of a high
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order. Of all the scheduled commercial banks, RRBs account for 34% of branches in NorthEastern, 30% in Easternand 32% in Central Regions whereas their presence is significantly lower (9% to 17%) in other regions. The data points to the fact that as an institutional group, RRBs are best suited to take up the leadership role in financial inclusion across priority areas in States of North Eastern, Eastern and Central Regions featuring high levels of exclusion.

Savings Mobilisation across Regions: Although RRBs account for only 12% of total number of deposit accounts at all India level, their share is significantly higher (18% to 29%) in the North-Eastern, Eastern and Central Regions where major interventions are required for financial inclusion. Further, the share of RRBs in a region in terms of no. of accounts is significantly higher than in terms of amount of deposits in the same region. This points to the fact that they basically cater to small depositors or the small depositors are more inclined towards RRBs.

Credit Disbursed across Regions: RRBs account for about one third of total number of credit accounts in NorthEastern, Eastern and Central Regions as against only 18% at all India level as detailed in the Table below. Further, the average loan amount disbursed by RRBs is significantly less than by other scheduled commercial banks. In North-Eastern Region, RRBs account for 36% of loan accounts but only 13% of the outstanding loan amount. For Eastern Region, the respective shares are 35% and 6% and for Central Region
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they are 31% and 10%. It is obvious, RRBs command better outreach and level of comfort for small borrowers.

RRBS

AS

SELF

HELP

PROMOTION

INSTITUTIONS (SHPI) :
RRBs have not only provided financial services to the SHG-Bank Linkage Programme, but have also played a significant role as SHPIs. As many as 104 RRBs (31 March 2006) are also functioning as SHPIs with grant assistance from NABARD. Non-availability of good NGOs is a matter of concern especially in North-Eastern, Central and Eastern Regions. RRBs can play a vital role as SHPIs in such areas. The foregoing paragraphs conclusively indicate that RRBs are well positioned to play a major role in financial inclusion particularly in areas / regions with high rates of financial exclusion. RRBs were originally created to cater to neglected sections / areas as they were expected to have sound financial management combined with local feel and familiarity. With the amalgamation of RRBs, they have acquired the critical mass in terms of financial strength to widen and deepen their outreach. With the requisite strength having been developed, RRBs are the best suited vehicles to widen and deepen the process of financial inclusion. However, utmost care must be taken to ensure that in the process of fulfilling the socioeconomic objective of financial inclusion, RRBs' do not again fall into the vicious circle of deteriorating financial performance and deviation from their mandate. RRBs may be provided adequate promotional and developmental assistance to contribute substantially to financial inclusion in a way that the business generated out of inclusion efforts add positively to their performance.
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 RECAPITALIZATION OF RRBS WITH NEGATIVE NET WORTH:

Recapitalisation of RRBs with negative net worth has to be given a serious consideration as it would facilitate their growth, provide lenders a level of comfort and enable their achieving standard capital adequacy ratios. As on March 2004, 98 RRBs were in need of Rs. 3,050 crore for making the net worth positive. The position, as on 31 March 2006, is that 40 RRBs would require Rs.1,718 crore.

WIDENING COVERAGE:

NETWORK

AND

EXPANDING

As on 01 April 2007, RRBs were covering 535 districts. They may be directed to cover all unbanked areas in these districts, taking the village as a unit, either by opening a branch (wherever feasible) or through the BF / BC model in a time bound manner. As on 01 April 2007, 87 districts in the country were not covered by RRBs and their area of operation may be extended to cover these districts.

STRATEGIC

MICROFINANCE

PLAN

WITH

NABARD SUPPORT:
RRBs have the potential and capability to emerge as niche operators in microfinance. They are playing a major role in the SHG - Bank Linkage Programme especially also as SHPIs. It is significant that as an institution they have the expertise and potential to fulfill both the requirements of
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SHGs - formation plus nurturing and financial service provisions (credit plus). Their dual role has special meaning in areas which face severe financial exclusion and which do not have a sufficient presence of well performing NGOs. However, to upscale theprogramme to a level where it can really make a visible impact, RRBs need handholding particularly in the areas of training, promotion and development. NABARD may

provide required assistance. NABARD should prepare a strategic action plan RRB-wise, for promotion and credit linkage of SHGs. RRBs may be asked to form, nurture and credit link at least 3,000 SHGs in all districts covered by them in North-Eastern, Eastern and Central Regions. A Memorandum of Understanding (MoU) may be signed by RRBs with NABARD for a period of 5 years - with NABARD providing the promotional and development assistance out of the Financial Inclusion Promotion and Development Fund and RRBs forming, nurturing and providing financial services to SHGs. RRBs may accomplish the task with the support of individual rural volunteers, BFs, their staff members, etc. NABARD may closely monitor the programme - with focus on qualitative aspects.

NRFIP FOR RRBS: The strategy recommended earlier in the Report for NRFIP for commercial banks would be equally applicable for RRBs. Theprocess of undertaking a survey, identification of excluded households,

dissemination of the information, setting of bank-wise / branch-wise targets, etc., could be followed. RRBs will have certain handicaps in executing the Plan. They would require promotional, funding and

technology support in different areas as outlined below. RRBs may

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endeavour to cover a large part of their incremental lending thru the group mode (SHGs/JLGs) as it will enhance their outreach to the financially excluded. Lending thru group mode would also keep NPAs at low level.

PILOT TESTING OF BF / BC MODEL BY RRBS:

RRBs should adopt the BF and BC models as a major strategy of financial inclusion. NABARD should extend the required support including running pilots in selected banks. The proposal for a technology based intervention under the BF/ BC model would be equally relevant for RRBs. However, RRBs would require some handholding in

implementing the proposal. NABARD may identify 10 RRBs across the country, giving greater weightage to regions manifesting higher levels of financial exclusion and work in strategic alliance with these RRBs and their sponsor banks in implementing the proposal. The RRBs identified by NABARD for the project will require to develop a core banking software for proper integration of the technology model proposed. NABARD should enter into a MoU with identified sponsor banks and RRBs and provide initial funding and technology support.

SEPARATE

CREDIT

PLAN

FOR

EXCLUDED

REGIONS:
The Committee recommends that RRBs operating in predominantly tribal areas and having high levels of exclusion may prepare annual credit plans having a separate component for excluded groups, which would integrate credit provision with promotional assistance such as agricultural
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services and BDSs for the farm and nonfarm sectors respectively including entrepreneurship development and formation and strengthening of producers organisations like dairy cooperatives.Refinance and promotional support may be provided by NABARD to RRBs on a large scale for implementation of these credit plans.

COMPUTERISATION:
With a view to facilitate the seamless integration of RRBs with the main payment system, there is a need to provide computerisation support to them. Banks will be eligible for support from the Financial Inclusion Funds on a matching contribution of 50% in regard to districts other than tribal districts and 75% in case of branches located in tribal districts under the Tribal Sub Plan.

STRENGTHENING BOARDS OF MANAGEMENT:

Further, now that RRBs are being merged and are becoming large size entities, it is necessary that their Boards of Management are strengthened and powers delegated to them on policy and business operations, viz. introduction of new liability and credit products, investment decisions, improving market orientation in raising and deployment of resources, non-fund based business, career progression, transfer policy.

TAX INCENTIVES:
From 2006-07, RRBs are liable to pay income tax. To further strengthen the RRBs, profits transferred to reserves could be exempted from tax till
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they achieve standard capital adequacy ratios. Alternately, RRBs may be allowed tax concessions to the extent of 40% of their profits, as per provisions under Sec. 36 (1) (viii) of the Income Tax A/c.

NABARD TO SUPPORT HR DEVELOPMENT IN RRBS:

RRBs should serve, with the support of NABARD, GoI, RBI and the sponsor banks, as active financial inclusion players especially in areas with high levels of financial exclusion. In order to build up the skills and expertise of the personnel of RRBs, NABARD has played a crucial role since the inception of RRBs. But for the efforts of NABARD and

initiative of sponsor banks besides RRB managements themselves in HR development and in implementation of the reform package, the changes in business performance of RRBs would not have been possible. The work could be accomplished by NABARD working in close tandem with GoI and RBI besides the sponsor banks. NABARD would continue to give special priority to RRBs 68to train their staff through the training institutions like the BankersInstitute of Rural Development (BIRD) at Lucknow and the Regional Training Colleges at Mangalore and Bolpur, specially set up for meeting the training requirements of RRBs. NABARD may design suitable training programmes to enable RRBs to meet the challenges in the post merger environment. This training may also cover members of the Board of the RRBs. This support should be provided by NABARD working in close tandem with GoI, RBI and the sponsor banks.

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 IMPLEMENTATION OF RBI INITIATIVES FOR

FINANCIAL INCLUSION:
All the recent circulars relating to financial inclusion, viz., no frills accounts, GCC, One Time Settlement (OTS) for loans up to Rs. 25,000, use of intermediaries, etc., should be implemented by RRBs.

AMALGAMATION

OF

REGIONAL

RURAL

BANKS:
Amalgamation of Regional Rural Banks.- (1) Notwithstanding anything contained in this Act, if the Central Government, after consultation with the National Bank, the concerned State Government and the Sponsor Bank, is of the opinion that it is necessary in the public interest or in the interest of the development of the area served by any Regional Rural Bank or in the interest of the Regional Rural Banks themselves, that two or more Regional Rural Banks should be amalgamated, that Government may, by notification in the Official Gazette, provide for the amalgamation of such Regional Rural Banks (hereafter in this Chapter referred to as the transferor Regional Rural banks) into a single Regional Rural Bank (hereafter in this Chapter referred to as the transferee Regional Rural Bank) with such constitution, property, powers, rights, interests, authorities and privileges; and with such liabilities, duties and obligations, as may be specified in the notification. (2) Every notification issued under sub-section (1) shall indicate the date with effect from which the amalgamation shall become effective. (3) Every notification issued under sub-section (1) may also provide for all or any of the following matters, namely:-- (a) the continuance in service of all the employees of the transferor Regional Rural Banks (excepting such of them as not being
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workmen with in the meaning of the Industrial Disputes Act, 1947 (14 of 1947) are specifically mentioned in the notification) in the transferee Regional Rural Bank at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were being governed, immediately before the date on which the amalgamation takes effect; (b) notwithstanding anything contained in clause (a), where any of the employees of the transferor Regional Rural Banks, not being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947) are specifically mentioned in the notification, or where any employee of the transferor Regional Rural Banks has by notice in writing given to the transferee Regional Rural Bank at any time before the expiry of a period of three months next following the date on which the amalgamation takes effect, intimated his intention of not becoming an employee of the transferee Regional Rural Bank, the payment to such employee of compensation, if any, to which he is entitled under the Industrial Disputes Act, 1947, and such gratuity, provident fund and other retirement benefits ordinarily admissible to him under the rules or authorisations of the concerned transferor Regional Rural Banks immediately before that date; (c) the other terms and conditions for the amalgamation of Regional Rural Banks; and (d) the continuance by or against the transferee Regional Rural Bank of any pending legal proceeding by or against any transferor Regional Rural Banks and such consequential, incidental and supplemental provisions, as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation. (4) Every notification issued under sub-section (1) shall, as soon as may be after it has been made, be laid before each House of Parliament.

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 RURAL BANKING WITH EXIS BANK:

Bank has embarked on a unique strategy - RURAL BANKING STRATEGY to spread its presence in the rural areas.As a part of Bank's strategy of being a total solutions Bank, we launched our Rural Banking Strategy with branches in Punjab, Tamil Nadu, Rajasthan and Gujarat. Axis Bank will be opening 100 such branches across India under the Rural Banking Strategy in addition to our normal network expansion plans by the end of this financial year.The launch is a part of Axis Bank's initiative of extending its foot print in Tier III, IV and V centres with a population of around 10000 up to 50000. The Bank is aiming at achieving the twin objectives of tapping semi urban and rural potential as well as bringing technology driven banking services to the hinterland and especially in under banked Districts and States. Considering the rural character, we shall offer rural specific products & services in such locations to cater the wide spread mass segment.

IGNOU TO DEVELOP RURAL BANKING: The Indira Gandhi National Open University (IGNOU) has signed a Memorandum of Understanding (MoU) with an autonomous institution promoted by the central government to develop banking in rural areas, officials said Tuesday.Signed between IGNOU's School of Agriculture (SOA) and the Bankers Institute of Rural Development (BIRD) promoted by the National Bank for Agriculture and Rural Development (NABARD), a post graduate diploma in rural banking would be offered."The programme aims to develop professionals in rural banking and bridge the gap between programmes currently available and those

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required by the market for an overall rural development," an IGNOU official said.

PROVISION

ON

FINANCIAL

SERVICES

BY

RURAL BANKS:
Since the establishment of the Rural and Community Banks in Ghana, various financial services have been extended to the communities in which they operate. Broadly, these services involve savings mobilisation and credit delivery, domestic funds transfer and short-term investments in Government Securities.In the area of Savings mobilisation, Rural and Community Banks extend various accounts such as savings, current, fixed deposit, Susu etc to mobilise funds from the public. As at the end of March 2006, Rural and Community Banks in Ghana had mobilised total deposits of 1.8trillion ($192.2million). Anum Rural Banks total deposits for the period was 18.8billion ($2.0million). In the area of credit delivery, Rural and Community Banks offer personal, educational, trading, agriculture, Susu, funeral and travel loans and micro credit to their clients. As at the end of March 2006, RCBs had extended credits totalling 834.1billion ($90.7million) to their clients. In the same period, Anum Rural Bank extended credits amounting 9.8billion

($1.1million).In addition to extending credits to its clients using funds mobilised by these banks, RCBs also collaborate with the Government Agencies to on-lend funds to people in their catchment areas under their micro-credit schemes. Anum Rural Bank Ltd collaborated with Government agencies to on-lend the following micro credits.

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Emergency social relief programme ($11,371) Special Farmers Fund ($23,989)

- 104.6million

- 220.7million

Asuogyaman District Assembly Fishmongers Fund- 23.7million ($2,579) Asuogyaman 50.0million ($5,435) Asuogyaman District Assembly Women Support Fund 48.2million ($5,234) Asuogyaman District Assembly Poverty Alleviation Fund 780.8million ($84,871) Food & Agriculture Budgetary Support fund ($22,388) Micro Finance & Small Loans Centre Fund (MASLOC)150.0million ($16,304) Anum Rural Bank also launched Adwuma Nkosow Sika micro finance scheme under which 1.1billion ($112,283) was disbursed to 17 groups made up of 409 women and 119 men. Total group savings amounted to 29,900,000 ($3,250).RCBs are also involved in domestic funds transfer in which clients are assisted to transfer funds throughout the country. RCBs also invest in government securities on behalf of their clients. 205.9million District Assembly Gari Processing Fund-

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CHAPTER NO.5 DISTRICT COVERAGE OF RURAL BANKS

RRBs covered 525 out of 605 districts as on 31 March 2006. After amalgamation, RRBs have become quite large covering most parts of the State inmany cases. Assam Gramin Vikas Bank, an amalgamated RRB, covers 25 districts,the highest in the country, while five other amalgamated RRBs cover 10 or moredistricts each. However, 40 RRBs covered two districts and 16 RRBs covered a singledistrict each in 200506. Increased coverage of districts by RRBs makes them animportant segment of the Rural Financial Institutions (RFI) for financial inclusion.

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CHAPTER NO.6 BRANCH NETWORK OF RURAL BANKS

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 UPGB with 539 branches. The branch network of stand-alone RRBs varied between 8 and 242 as on 31 March 2006.

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CHAPTER NO.7 THE CHALLENGES IN RURAL BANKING

The Indian Economy recorded an estimated growth of 3.7% during 200203 and 5.6% against the previous year. The deceleration in the performance was largely attributed to negative growth of 4.4% in agriculture sector. This steep downfall of GDP brought to the surface about the vulnerability of Indian Economy to agricultural sector growth, despite its strengths on other macro-economic indicators/sectors. When the Indian Economy achieved 5.6% GDP growth in 2001-2002, the contribution of agriculture & allied sectors was 5.7% vis-is 2.6% of industrial sector. At the same time, the Tenth Five Year Plan(2002-2007) envisages to realize an ambitious average GDP growth rate of 8% per annum. In order to achieve this ambitious target of 8% during Tenth Five Year Plan, all energies of country need to be focused for total revitalization and revamping of agricultural sector and the rural financial institutions to ensure average 7% sustainable growth per annum from this sector alone in next five years. Otherwise, the dream target of 8% GDP growth for Indian Economy continues to be elusive without substantial and sustainable contribution form agricultural sector.The country's ultimate irrigation potential has been assessed at 139.9 million ha.. So far, about 68% of the potential only has been harnessed. On the contrary, in terms of agricultural productivity, India lagged far behind, not only from major developed economies but also from most of the other developing economies within South Asia. Integrated efforts by all concerned are therefore necessary to bridge the yield gaps by taking various comprehensive measures on the technology and public policy fronts for
42

improving substantially the efficiency of use of land and water resources. The other challenges is given below: BANKING in rural India is faced with the twin challenges of regulation and distribution. Regulation with respect to banking has been designed for delivery in urban India and distribution required more manpower to be deployed in rural areas, observed Mr Nachiket Mor, Executive Director, ICICI Bank Ltd, while speaking at the National Conference of Rural Markets, organised by the Confederation of Indian Industry.Initiatives like cheque truncation where the electronic image and not the actual cheque is sent have in mind the urban customer, he said. "About 500-600 million people in India still do not have bank accounts. For the rural segment, one needs to design no-frills products and deliver hard core value," he said.

The other handicap was that while Rs 1-crore business in microfinance required 30 people in terms of manpower, the same volume of business in other portfolios required only one person. Also, contract farming and supply chain integration has not gone the way they should have, he said. ICICI Bank has an exposure of about Rs 6,000 crore in terms of rural business, which is growing at 70-80 per cent every year, he said. The bank is currently running five pilots for introducing biometric smart cards.
43

 While Mr Mor preferred to depict the rural-urban divide in financial services as black and white, Mr Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, said the divide was more in the shade of grey. Power, telecommunications, banking and transportation had reduced the urban-rural divide, he said. Besides traditional banking services, people in the rural and semi-urban areas are expressing interest in liability and investment products. He said, "Rural India is fast transforming a nation of savers into a nation of investors".

Talking of the way ahead in terms of rural business, Mr Kotak said that partnerships would be a key factors.

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CHAPTER NO.8 CASE STUDY

A CONTROL-CASE STUDY OF RURAL BANKS IN GHANA

If current agricultural trends continue, by the year 2020 sub-Saharan Africas food shortage will increase twenty times, to 250 million tons (Pinstrup-Anderson 1993). The lower calorie intake could lead to poverty, malnutrition and hunger. In an attempt to alleviate some of these potential problems, several institutional and non-institutional sources of rural credit have been made available to Africans. It is hoped that, in the long term, credit will enable the poor to invest in agricultural and nonagricultural productive assets, to adopt new technologies and farming methods, and to minimize environmental degradation. Ghana, like other sub-Saharan countries, has traditionally experienced low productivity, low income levels, low domestic savings, unemployment, and malnutrition. In 1976, the Ghanaian government, through the Bank of Ghana, established Rural Banks to channel credit to productive rural ventures and promote rural development. Rural development is a strategy intended to improve the economic and social life of the rural poor (World Bank 1975). Rural credit has been used in Ghana to enable the poor to weather shocks without selling the productive assets the poor need for protection against future shocks (FAO 1994).According to the Moshi Conference (1969), the purpose of rural development is a rise in the standard of living and favorable changes in the way of life of the people concerned. However, there is some anecdotal evidence that many beneficiaries of Rural Bank credit are salaried workers, whose likelihood of loan repayment is believed to be better than that of the small-scale rural producer. There is also some evidence that loan recipients use the credit for purposes other than those for which the loans are intended. To date, no one has analyzed the effectiveness of Ghanaian Rural Bank credit.

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CHAPTER NO.9 RECOMMENDATIONS OF RURAL BANKS

RRBs should extend their services into unbanked areas and increase their credit to deposit (CD) ratio. As on 31 March 2006, 37 RRBs had CD ratio of less than 40%, 44 RRBs between 40% and 60% and 52 RRBs above 60%.The CD ratio variations ranged from 20% to 116%. As RRBs operate with branches in remote, interior and tribal-dominated areas, they have a special role to play in financial inclusion. The NRFIP, details of which are specified earlier, is of high relevance for RRBs, particularly those having CD ratio of less than 40%. The post-merger scenario of RRBs poses a series of challenges for them and needs to be addressed. The following areas would require attention from the point of view of financial inclusion. Setting exclusive targets for microfinance and financial inclusion, Providing funding support & Providing technology support Koforidua, Nov. 28, GNA - The Deputy Eastern Regional Minister, ZMr Ahmed Babal Jamal, has called on rural and community banks to make their products more attractive to attract more customers. He said some rural and community banks were collapsing due to the unattractiveness of their products, unskilled human resource and lack of committed staff.Mr Jamal has, therefore, appealed to
46

the management and Board of Directors of the banks to obtain qualified human resource and equip them with skills and knowledge to ensue maximum productivity.

The Deputy Regional Minister made the call at the opening of the 16th Biennial General Meeting of the Association of Rural Banks at Koforidua on Friday. He said a good number of rural and community banks had operated profitably and satisfactorily and had made significant impact on the communities they served through the provision of potable water, electricity, toilets, school buildings and the award of scholarships to brilliant but needy students among other services. Mr Baba-Jamal said the main objective of rural banks was aimed at stimulating and transforming the rural subsistence economy into sustained medium-scale enterprises capable of creating

employment, initiating and promoting agricultural and cottage industries through financial intermediation.

He said after nearly three and half decades of the rural banking concept some accomplishments had been made towards the realization of the set objectives. Mr Baba-Jamal said the government had introduced a lot of micro finance schemes through the rural banks aimed at alleviating poverty and urged the banks to offer good services to the people and help them to manage the money profitably.
47

 The President of Association of Rural Banks, Mrs Rose E. Newman, said the meeting constituted a solid platform for them to summon a new spirit of responsibility, sacrifice, service and commitment. She said most of their members were making great strides in the banking industry and urged them to work extra hard for them to reach greater heights.

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CHAPTER NO.10 RURAL BANKING IN INDIA

Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days 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 banks 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.India lives in its villages, and the founding fathers deemed it imperative to enable financial inclusion for the rural population. The Regional Rural Bank (RRB) emerged from Indias early aspirations for a stronger institutional arrangement to develop a savings culture in the rural eco-system, provide rural credit and agriculture finance, while enabling poverty elevation. The formation of the Narasimham Committee in 1975, and eventually the passing of the RRB Act in 1976 were key milestones in this journey. Legislation mandated joint ownership of RRBs by the Central Government, State Government and a sponsor commercial bank, in the ratio of 50%: 35%: 15%, respectively.From a modest beginning of just 6 RRBs with 17 branches covering 12 districts in 1975, the numbers grew to 196 RRBs with 14,446 branches working in 518 districts across the country, in 2004. However, given the multiagency shareholding and entailed restrictions, several RRBs failed to sustain viable operations and others merged vertically or
49

horizontally, resulting in the total number of RRBs stabilizing at 91, in 2007, with over 14,000 branches, spread across 585 of the 622 identified districts.Thus, history has clearly established that the original mandate of promoting profitable banking with a rural focus will be an enduring phenomenon, only when the RRB is able to deliver customer-relevant products with optimal operational efficiency and ensure the functioning of a sustainable and viable business. With 80% of RRBs in rural India, it serves the larger cause of financial inclusion as well.Apart from SBI, there are many other banks which function for the development of the rural areas in India. These banks are listed belowApart from SBI, there are many other banks which function for the development of the rural areas in India. These banks are listed below:

ANDHRA PRADESH: Andhra Pradesh Grameena Vikas Bank Andhra Pragathi Grameena Bank Deccan Grameena Bank Chaitanya Godavari Grameena Bank Saptagiri Grameena Bank CHHATTISGARH: Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank Durg-Rajnandgaon Gramin Bank

50

 HARYANA: Harayana Gramin Bank Gurgaon Gramin Bank

JAMMU & KASHMIR: Jammu Rural Bank Ellaquai Dehati Bank Kamraz Rural Bank JHARKHAND: Jharkhand Gramin Bank Vananchal 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

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 KARNATAKA: Karnataka Vikas Grameena Bank Pragathi Gramin Bank Cauvery Kalpatharu Grameena Bank Krishna Grameena Bank Chikmagalur-Kodagu Grameena Bank Visveshvaraya Gramin Bank ORISSA: Kalinga Gramya Bank Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank Rushikulya Gramya Bank

MEGHALAYA: Ka Bank Nogkyndong Ri Khasi- Jaintia

NAGALAND: Nagaland Rural Bank

TRIPURA: Tripura Gramin Bank

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 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

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

53

 GUJARAT: Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank

HIMACHAL PRADESH: Himachal Gramin Bank Parvatiya Gramin Bank

PUNJAB: Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank

KERALA: Narmada Malwa Gramin Bank North Malabar Gramin Bank

TAMIL NADU: Pandyan Grama Bank Pallavan Grama Bank MAHARASHTRA: Marathwada Gramin Bank Aurangabad -Jalna Gramin Bank Wainganga Kshetriya Gramin Bank
54

 Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank Ratnagiri-Sindhudurg Gramin Bank

RAJASTHAN: Baroda Rajasthan Gramin Bank Marwar Ganganagar Bikaner Gramin Bank Rajasthan Gramin Bank Jaipur Thar Gramin Bank Hodoti Kshetriya Gramin Bank Mewar Anchalik Gramin Bank

WEST BENGAL: Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank Uttar Banga Kshetriya Gramin Bank

ARUNACHAL PRADESH: Arunachal Pradesh Rural Bank

MANIPUR: Manipur Rural Bank

55

 MIZORAM: Mizoram Rural Bank

UTTARANCHAL: Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank

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CHAPTER NO.11 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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 WEBLIOGRAPHY: www.ruralbank.com www.ruralbankinginindia.com

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