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Enrollment No.:
02524488816
1
Certificate
______________________________________________________________________”
Countersigned
(Director / Project Coordinator)
2
Acknowledgement
I am neither a research expert nor a trend spotter; I am a management student with foundation of
management principles and theories, who is curious about various sectors and its latest
happenings.
Definitely, I can’t ignore the technology, with internet as the backbone and those search engines
which helped me in building up this research project.
To being with, I am obliged to Dr. Mohita who allotted me this interesting topic and with out
whose guidance and constructive criticism this report might have not been completed .I would
like to thank Broker, Agents franchise owners and individuals. I appreciate for their cooperation
and contributions for helping me in making project factual and information.
I also express my gratitude to Dr. CP CHAWLA (Director), Dr. Mohita Mathur (H.O.D) and
ALL FACULTY MEMBERS OF B.COM DEPARTMENT OF INSTITUTE OF
INNOVATION IN TECHNOLOGY AND MANAGEMENT, NEW DELHI who have been
instrumental in making this report useful one.
Lastly, I would like to thanks to the ALMIGHTY and my parents for their moral and financial
support and my colleagues with whom I shared my dad-to-day experiences and received lots off
suggestions that improved my work quality.
Shubham Tyagi
02524488816
3
Contents
S. No. Topic
1 Certificate (s)
2 Acknowledgement
3 Assignment Directive
4 Contents
5 Executive Summary
10 References/Bibliography
4
5
Executive Summary
Rural financial services were defined in comprehensive terms and should include
provision of Credit, saving mobilization, and a payments system for transfer of funds to
and away from the rural sector. In view of low incomes and high risks in rural areas,
poverty alleviation and reduced exposure to vulnerability. The diversity within the rural
sectors requires a variety of diversified formal and informal institutions for the provision
The major finding of the project is that rural sector has suffered from policy neglect, poor
design and weak implementation of delivery system. The services provided have been
great deal of inconvenience. In relative terms, most attention has been paid to provision
of agricultural credit to and mobilization of deposits from the wealthy people in rural
areas. Provisions of insurance, credit for non-farm purposes and for the landless and
small farmers and the mobilization of savings of the poor and poorest in rural areas have
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The fact that there is no permanent institutional mechanism, which can analyze the
situation in the area of rural finance and come out with policy proposals to rectify the
policy mistakes, though many financial institutions are trying to enter in rural banking.
Last but not the least, there is a need to create synergies and linkages between different
organizations involved in providing rural financial services i.e. savings, credit, insurance
and transfer of funds. The innovative financial products, based on best practices in
national and for international experience and suited to different kind of clients are helpful
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Chapter-I
Introduction
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Rural banking in India started since the establishment of banking sector in India. RRBs
were set up after nationalizations of banks in 1969 when emphasis shifted to providing
Regional Rural Banks were established under the provisions of an ordinance promulgated
on 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient
institution credit for agriculture and other rural sectors. The RRBs mobilize financial
resources from rural / semi-urban areas and grant loans and advances mostly to small and
marginal farmers, agricultural labourers and rural artisans. The area of operation of
RRBs is limited to the area as notified by Government of India covering one or more
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
Rural Banks in those days mainly focused upon the agro sector. Regional rural banks in
India penetrated every corner of the country and extended a helping hand in the growth
There are several concessions enjoyed by the RRBs by Reserve 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,
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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.
The progress of RRBs in the initial stage was quite rapid. For instance, the Sixth Five-
year plan(1980-85) had envisaged the setting up of 170 RRBs covering 270 districts by
the end of march 1985.The target was exceeded. There are now 196 RRBs in 23 states of
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 laborers, artisans and small entrepreneurs, and for
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The following one-and-a-half decades saw large-scale efforts to increase the number of
banks, bank branches, and disbursements nationwide. By 1991, there were 196 RRBs
with over 14,000 predominantly rural branches in 476 districts with an average coverage
of three villages per branch. These banks had disbursed over Rs.3, 500 crore in credit and
mobilized over Rs.4, 100 crore in deposits. Perhaps the most significant achievement of
the RRBs during this period was in enabling the weaker sections of the rural
community access to institutional credit. The bulk of the loans from RRBs were to the
priority sectors, which accounted for over 70 per cent of the total. Agriculture and allied
The year 1990 marks the end of the expansion phase of regional banking, beyond which
there has been no growth in the number of Regional Rural Banks (including branches).
In addition, the RRBs were instrumental in extending credit for poverty alleviation
schemes (e.g. IRDP) and disadvantaged area (drought-prone regions and deserts)
development programmes.
The expansionary phase of the late seventies and the eighties while more focused on
outreach was not devoid of blueprint for viability of the RRBs, unlike what the
mainstream academia and press claim to be the case. It was understood that the RRBs to
survive as credit institutions could not remain unviable for long time, though the RRBs
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might not become viable in the initial years. This expectation was, however, tempered by
the prevalent situation on the field and the ultimate objectives for which these specialized
institutions were created. It was realized early that question of viability of the RRBs
could not be the same as other business ventures. A business unit has all the freedom to
take decisions on many matters such as opening branches, deploying its resources, staff
recruitment, its purchases, methods rendering services etc. But the RRBs could not be
flexible in many of their affairs; even their clientele was specific, scattered, remote and
not assisted by anyone. Keeping in view the objectives, structure and the nature of
operations of the RRBs, these institutions could certainly not be evaluated on the basis of
mere financial viability. There was a general agreement that the viability of the RRBs had
Again in respect to the viability question, there was considerable flexibility accorded to
banks on the time dimension. It was estimated that the RRBs would need about seven
years to become viable, though for the RRBs with large number of infant branches even
this period might not be adequate. Between 1980 and 1987, while the number of RRBs
increased a little more than two-fold the number of branches of RRBs increased more
than four-fold. It was not totally unexpected therefore that by the end of the 1980s several
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Table 2:- Purpose wise Advances of RRBs, Outstanding (end of Sept, 1990)
Rs. Crores
6 Consumption Loan 54
8 Indirect Advances 43
Total 3555
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Objectives of regional rural banks
The importance of the rural banking in the economic development of a country cannot be
overlooked. As Gandhiji said “Real India lies in Villages,” and village economy is the
backbone of Indian economy. Without the upliftment of the rural economy as well as the
rural people of our country, the objectives of economic planning cannot be achieved.
In fact, the real growth of Indian economy lied in the freeing of rural masses from acute
RRBs are oriented towards meeting the needs of the weaker sections of the rural
- Agricultural labourers,
- Artisans,
- Small entrepreneurs
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
RRBs are expected to make credit available to rural households besides inspiring
carefulness.
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Bridging the credit gap in 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
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
To generate employment opportunities in rural areas and bringing down the cost of
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Reform process of RRBs
In order to provide access to low-cost banking facilities to the poor, the Narasimham
Working Group (1975) proposed the establishment of a new set of banks, as institutions
which "combine the local feel and the familiarity with rural problems which the
cooperatives possess and the degree of business organization, ability to mobilize deposits,
access to central money markets and modernized outlook which the commercial banks
have".
RRBs started their development process on 2nd October 1975 with the formation of a
As on 31 March 2006, there were 133 RRBs (post-merger) covering 525 districts with a network
of 14,494 branches.
Ownership of RRBs
RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks (27
scheduled commercial banks and one State Cooperative Bank); the issued capital of a
RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively.
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RBI assistance
- With a view to facilitate RRBs operations, the RBI gave RRBs direct access to
refinance assistance at a concessional rate of three per cent below the bank rate.
- Allowed to pay half per cent more interest on all deposits except those of three
- Sponsor banks IDBI, NABARD, SIDBI, and other FIs are statutorily required
under the RRBs Act to provide managerial and financial assistance to RRBs.
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Chapter-II
RESEARCH METHODOLOGY
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This research study used descriptive researches design. The study has been taken up for
the period 2000- 2013. This study is gathered from secondary sources that are from the
published annual reports of RBI for the financial year ended 2001 to 2013. The aim of the
India so to achieve this various tools used as ratios, Growth percentage, line and bar chart
and paired t-test with help of statistical tools package Excel. Also constructed hypothesis
Research Design
The research design is a plan according to which observations are made and data is
assembled to carry out research work in systematic and meaning full manner and it is
merely and basically the structure or arrangement for a research that directs the
compilation and investigation of the data. Moreover, the research design indicates the
methods of research i.e. the method of gathering information and the method or sampling.
Descriptive research approach is also called as statistical research method that explains
considered. Additionally, descriptive research relates with all that can be calculated and
analyzed.
(1) Hypothesis Formulation Within the overall framework of abov6 objectives the
study seeks to verify during the course of analysis some of the following
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a) That income level of beneficiaries has been increased
c) That there has been significant increase in the awareness of the people about
(2) Collection of Data for accomplishing the objective of the present study,
(a) Primary Probe: Primary probe has been carried in following manner:
(ii) In order to study problem and prospectus of Himachal Gramin Bank, primary data
has been collected from 80 beneficiaries and 103 bank officials from the different
(iii) Sample selection: After finalizing the questionnaires, the next step was to decide
sampling plan to collect information from the beneficiaries and bank officials.
(b) Secondary Probe: Apart from primary data, in this study use of secondary data has
also been made. The secondary data has been collected from different. These are annual
reports of their bank, library research, circulars and notifications of management, state
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Classification and Tabulation of Data
The data collected has been classified in different types of tables in one or more forms
according to the requirement of the study. 3.4 Tools and Techniques of Analysis and
Interpretation. The following tools and techniques have been used for the analysis and
(ii) Statistical Tools: The following statically tools have been used in the
present study: (a) Factor Analysis (b) Arithmetic mean (c) Standard
deviation (d) Co-efficient of variation (e) Chi- Square Test (f) t-test.
To study the financial performance of Himachal Gramin Bank for 19 years i.e. fi-om
1990 to 2008, different ratios have been computed fi-om the relevant annual reports of
the bank. These ratios are current ratios, acid ratios, Credit Deposit ratios, Net Profit,
Net Worth ratios, Gross profit Ratios, Interest coverage ratios. Dividend coverage
Liquidity Ratio: The liquidity ratios indicate about the short term solvency of any
organization. These ratios higlight the short term financial position of an organization
and its capacity to pay timely its short obligation. Two liquidity ratios such as current
ratios and acid test ratios have been computed from 1990 to 2001 and 2002 to 2008.
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Capital Structure Ratio: The leverage /capital structure ratios provide an insight about
structure ratios which have been computed for Himachal Gramin Bank are debt equity
ratios, total equity ratios, interest coverage ratios and dividend coverage ratios.
Profitability Ratio: The profitability of Himachal Gramin Bank has been studied with
the help of gross profit ratios, operating expenses ratios, net profit ratios and net profit
Credit Deposit Ratio: The credit-deposit ratios have been computed to find out the
proportion of deposits utilized for providing credit in the rural areas. It indicates the
percentage of deposit used for providing credit in rural areas. It is calculated as:
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Sources of data collection
Secondary data:
Secondary data means data that are already available i.e. they refer to the data which have
The secondary data involve in this project has been gathered from the following sources:
c) Internet
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Chapter-III
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Parameter 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Growth(%)
No. Of
RRBs 196 196 196 196 196 196 196 96 86 86 83
Capital 1380 1959 2049 2143 2141 2221 25354 48488 58990 67855 76392 5435.65
Deposit 27059 32226 39294 44539 49582 56295 69719 83143 99093 120184 124296 359.35
Investment 6680 7760 8800 9471 17138 21286 33486 45666 48559 62629 96699 1347.5
Advance 10559 12427 15050 17710 20934 25038 32692 40345 43456 46678 51283 385.62
Total Assets 35820 42236 49596 56802 62500 70195 436805 803416 844982 898760 984364 2648.3
Interest
Earned 3281 3938 4619 5191 5391 5535 6041 6547 7729 7586 8786 165.94
Other
Income 151 207 240 370 430 697 743 790 873 853 1023 577.4
Total
Income 3432 4145 4859 5561 5821 6231 6784 7337 7602 8421 9809 185.8
Interest
expanded 2131 2565 2966 3329 3340 3363 5902 8441 8860 8362 9260 334.5
Operating
Expanses
982 1056 1165 1459 1667 1825 1958 2092 22134 2345 2598 164.6
Provision
And
Contigencies 99 96 128 163 132 289 329 369 434 590 699 606.3
Total
Expenses 3113 3621 4130 4787 5107 5187 7860 10533 10994 10707 11758 277.7
Operating
Profit 319 319 729 774 714 1044 985 926 1383 1859 1987 522.8
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15% of RRBs were loss making RRBs in 2001-02 but the numbers decreased to 7% in
2008-09. This proves that amalgamation has been beneficial to RRBs in reducing their
losses.
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Also Net NPA of RRBs have reduced from 11.53% in 2001-02 to 4.84% in 2004-05 but
after amalgamation the Net NPA's have further reduced from 3.92% to 1.76%. Thus
amalgamation has been beneficial for RRBs to reduce their Net NPA.
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Key Performance Indicators of RRBs in India
Table presents the key performance indicators and growth of RRBs from year 2006-07
to 2010-2011, Chart presents key performance indicators and Chart presents growth
rate of RRBs.
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Sources of Funds
The sources of funds of RRBs comprise of owned fund, deposits, borrowings from
NABARD, Sponsor Banks and other sources including SIDBI and National Housing
Bank.
1. Owned Funds: The owned funds of RRBs comprising of share capital, share capital
deposits received from the shareholders and the reserves stood at 13838.92 crore as on 31
13.0%. The increase in owned funds to the tune of 1591.76 crore was mainly on account
of accretion to reserves by the profit making RRBs. The share capital and share capital
deposits together amounted to 4273 crore of total owned fund while the balance amount
2. Deposits: Deposits of RRBs increased from 145035 crore to 166232.34 crore during
the year registering growth rate of 14.60%. Gurgaon GB reported the highest deposit
growth rate of 37%. There are Sixteen (16) RRBs having deposits of more than 3000
crore each.
a-viz the gross loan outstanding constituted 26.8% as against 22.7% in the previous year.
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Use of Funds
The use of funds of RRBs comprise of investments and loans and advances.
crore. The Investment Deposit Ratio (IDR) of RRBs progressively declined over the
2. Loans & Advances: During the year the loans outstanding increased by 16098.33
crore to 98917.43 crore as on 31 March 2011 registering a growth rate of 19.4% over the
previous year. Meghalaya Rural Bank recorded the highest growth rate of 35% during the
year 2010-11.
3. Loans Issued: Total loans issued by RRBs during the year increased to 71724.19 crore
from 56079.24 crore during the previous year registering a growth of 27.90%. Samastipur
KGB reported highest growth rate of 123% during 2010-11 followed by Andhra Pradesh
GVB at 112%.
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Working Results
1. Profitability: 75 RRBs (out of 82 RRBs) have earned profit (before tax) to the extent of
2420.75 crore during the year 2010-2011. The profit was marginally lower than the
previous year. After payment of Income Tax of 634.22 crore, the net profit aggregated to
1786.53 crore. The remaining 7 RRBs incurred loss to the tune of 71.32 crore.
accumulated losses to the tune of 1532.39 crore as against 1775.06 crore (27 RRBs) as on
31 March 2010. The accumulated loss decreased by 242.67 crore during the year under
review.
3. Non-performing Assets (NPA): The Gross NPA of RRBs stood at 3712 crore as on
31.03.2011 (i.e.3.75%). The percentage of Net NPA of RRBs has shown an increase from
1.8% to 2.05% during the year. The data revealed that 15 RRBs had gross NPA
during 2009-10 from 80.09% as on 30 June 2009 to 81.18% as on 30 June 2010. The
aggregate overdue, however, increased by 934 crore to 9805 crore as on 30 June 2010.
5. Credit Deposit Ratio: The aggregate CDR of RRBs increased over the years from
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6. Credit Flow to Agriculture: RRBs are actively participating in the credit flow to
agriculture sector. Disbursement of agriculture credit with reference to the total credit for
It may be observed from the above table that the share of agriculture credit to total credit
has hovered around 60-62% during the last five years but in absolute terms, the
agriculture credit has been doubled in 2010-11 from the year 2006-07. Agriculture credit
growth rate has kept pace with the total credit deployment.
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7. Productivity of Branch and Staff: The branch productivity increased to 16.57 crore in
2010-11 from 14.72 crore in 2009-10 with a growth of 12.57%. Similarly, staff
productivity in 2010-11 increased to 3.78 crore from 3.70 crore in 2009-10 with a growth
of 2.16%.
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Chapter-IV
Summary & Conclusion
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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
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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Limitations of Study
study.
Since the study is based on a small sample size, it is not sufficient to cover
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Suggestions
RRBs are well positioned to play a major role in financial inclusion particularly in areas
with high rates of financial exclusion. RRBs were originally created to cater to neglected
sections as they were expected to have sound financial management combined with local
RRBs should concentrate on asset quality and earnings. With the increasing competition
among banks to meet customer expectations, banks should offer a broader range of
deposits, Investments and credit products through diverse distribution channels including
The RRB staff is required locally and their postings or transfers are within the banks area
of operation which is ordinarily a district or two. The need for maintaining the local ethos
makes it imperative that the emoluments and services conditions of the RRB staff should
be inline with those of State Government staff in comparable cadres who constitute bulk
of the salaried people in the area and with whom the former have to establish a close
Therefore, the emoluments of the staff should be continued to be determined as per the
state government scales. It is obvious that the terms of service and facilities available to
the government staff may differ from state to state. However the terms and service
conditions of the staff of RRBs operating within a state have to be uniform. RRBs face
many problems in finding suitable staff and in giving them adequate training.
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In States like U.P, Bihar, West Bengal etc., RRBs could not adhere to their branch
RRBs.
Facilities for recruitment and training and technical assistance should continue to be
provided by the sponsor banks, on the same terms for a period of 10 years for each RRB.
Thereafter, any arrangement of assistance of this type can be decided upon by mutual
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Bibliography
https://en.wikipedia.org/wiki/Regional_Rural_Bank
www.nabard.org
www.rbi.org.in
http://bvpinst.edu.in/download/Publication/4.%20A%20Study%20on%20Performance%2
0Evaluation%20of%20RRBS%20of%20India%20By%20Taral%20P,%20Nisarg%20S.p
df
Books:-
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