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8/18/2019 Rural Banking Final
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$s stated earlier RRBs are %ointly owned by )overnment of *ndia, the
concerned State )overnment and sponsor Banks +2" scheduled commercial
banks and one State cooperative Bank- the issued capital of a RRB is shared
by the owners in the proportion of # /, #/ and 0#/ respectively.
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OVERVIEW OF REGIONAL RURAL BANKS
The institution of Regional Rural Banks +RRBs was created to meet
the e1cess demand for institutional credit in the rural areas, particularly
among the economically and socially marginali&ed sections. $lthough the
cooperative banks and the commercial banks had reasonable records in terms
of geographical coverage and disbursement of credit, in terms of population
groups the cooperative banks were dominated by the rural rich, while the
commercial banks had a clear urban bias. *n order to provide access to low(cost banking facilities to the poor, the arasimham 3orking )roup +!"#
proposed the establishment of a new set of banks, as institutions which
4combine the local feel and the familiarity with rural problems which the
cooperative possess and the degree of business organi&ation, ability to
mobili&e deposits, access to central money markets and moderni&ed outlook
which the commercial banks have5. The multi(agency approach to rural credit
was also to sub serve the needs of the input(intensive agriculture strategy
+)reen Revolution which had initially focused on betting on the strong7 but
by the mid(seventies was ready to spread more widely through the *ndian
countryside.
Table-1 Expansion o Re!ional Ban"in!#-1$%&-1$$'#
De()1$%& De()1$*' De()1$*& +a,)1$$'
Ban"s *& 1** 1$
B,an(.es 1% /0%$ 10' 1/
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By !!, there were !6 RRBs with over 8, predominantly rural branches
in 8"6 districts with an average coverage of three villages per branch. These
banks had disbursed over Rs.0, # crore in credit and mobili&ed over Rs.8,
crore in deposits. 9erhaps the most significant achievement of the RRBs during
this period was in enablin! 2.e 3ea"e, se(2ions o 2.e ,4,al (o554ni26
a((ess 2o ins2i242ional (,e7i2) The bulk of the loans from RRBs were to the
priority sectors, which accounted for over " per cent of the total. $griculture
and allied activities took up more than # percent of the total advances.
The year !! marks the end of the e1pansion phase of regional
banking, beyond which there has been no growth in the number of Regional
Rural Banks +including branches.
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ROLE OF RURAL BANKS IN ECONO+IC
DEVELO8+ENT
The importance of the rural banking in the economic development of a
country cannot be overlooked. $s )andhi%i said 4Real *ndia lies in villages,5
and village economy is the backbone of *ndian economy. 3ithout the
upliftment of the rural economy as well as the rural people of our country, the
ob%ectives of economic planning cannot be achieved. *n fact, the real growth
of *ndian economy lied in the emancipation of rural masses from acute
poverty, unemployment, and socio(economic backwardness. :eeping this end
in view, various important plans and programs of rural development have
been conceived and implemented by the government of *ndia since the
commencement of first five(year plan from !#(#6. But an appraisal of the
achievement of these programs clearly reveals that much programs failed to
achieve the desired ob%ectives due to the backward economic condition and
lack of ade;uate finance to the poor people in the rural areas.
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OB9ECTIVES OF RURAL BANKS
The RBBs $ct has made various provisions regarding the incorporation,
regulation and working of RRBs. $ccording to this $ct, the RRBs are to beset(up mainly with a view to develop rural economy by providing credit
facilities for the purpose of development of agriculture, trade, commerce,
industry and other productive activities in the rural areas.
Such facility is provided particularly to the small and marginal farmers,
agricultural laborers, artisans, and small entrepreneurs and for other related
matters.
T.e ob:e(2i;es o RRBs (an be s455a,i
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+vii To cater to the needs of the backward areas which are not covered by the
other efforts of the )overnment.
ROLES OF REGIONAL RURAL BANKS
8ROVISION OF CREDIT
The main function of RRBs is to provide short term and long(term finance
to farmers. The finance is provided for the following purposes=
Short term finance to meet working capital needs such as payment of
wages, purchase of seeds and fertili&ers, transportation e1penses, etc.
>edium term finance to meet medium term needs such as purchase of
cattle, digging of wells etc.
?ong term finance to meet fi1ed capital needs such as purchase of land,
purchase of tractors, etc.
They provide finance at low interest rates. This has resulted in lessdependence on money lenders in respect of agricultural credit.
RESEARC= AND DEVELO8+ENTS
The RRBs finances research and development in the field of agriculture. Such
R @ A activities help to develop new and better inputs, techni;ues andtechnology, as a result, better ;uality of seeds, fertili&ers and farm e;uipment
is developed. This helped to improve the production and productivity of
agricultural crops.
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CO++UNIT> DEVELO8+ENTS
RRBs have helped in improving the life in rural areas. They provide
social education to farmers and others in villages so that they give up their
bad habits like gambling, drinking li;uor etc.
Through workshops and documentaries the RRBs have made attempts
to make rural masses about social evils like child marriages, reckless spending
during festivals, marriages etc.
+ARKETING SERVICES
The RRBs assists the farmers in their marketing activities. They
provide advice to the farmers in respect of packing, transportation- etc. the
marketing advice helps the farmers to take proper marketing decisions. This
in turn helps the farmers to get better prices for their products.
SU88L> OF FUNDS
The RRBs not only provide funds, but they also make efforts to supply
good ;uality inputs like seeds ,fertili&ers, pesticides, etc. this helps to improve
the productivity of land. The inputs are provided at good rates as part of the
discount on bulk purchases is passed on to the farmers.
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LI+ITATIONS
OF RURAL
BANKING
The institutional agriculture credit in *ndia is faced with many
problems. The *ndian continues to depend on the money lenders for his
financial re;uirements in spite of the institutional framework.
The various problems are=
INADE?UATE FINANCE
$ basic feature of the credit problem is its overall inade;uacy-
particularly of the institutional credit. The credit provided by the cooperative banks and commercial banks is not sufficient to meet the re;uirements of the
farmers. The banks mostly provide short term credit and not the long term
credit. There is a need of more long term finance from land development
banks.
ot only the right ;uantity of long term institutional finance is
available, but also it is not available at the right time.
8ROBLE+ OF SECURIT>
ormally the banks insist on security to sanction loans to the farmers.
The security may be in form of land or other assets. The small and marginal
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farmers find it difficult to obtain funds as they have limited amount of land to
offer as security.
8ROBLE+ OF +AINTAINING BRANC=ES
The commercial banks as well as the cooperative banks find it difficult to
maintain branches in rural areas. This is due to low banking business and high
overheads in form of staff salaries, offices rent, and other overheads.
There is the problem of recovery of credit provided to the farmers both
the rich farmers as well as the poor ones. The large and rich farmers
deliberately avoid repaying loans and the small farmers find it difficult to
repay their loans. $lso ;uite often, there is political pressure on the banks to
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write off the loans. This result in demotivation to the banks to provide credit
in rural areas.
CORRU8T OFFICIALS
The officials of banks adopt corrupt practices. They often provide
finance to their friends and relatives. Small and marginal farmers face great
difficulty in obtaining finance.
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UNDEFINED ROAD+A8
The rural banks share of woes also includes budgetary constraints, mounting
over(dues, lack of ade;uate infrastructure facilities, and limited channels of
investment. Cwing to these problems, some banks are not able to achieve
financial viability. *n addition, they have little visibility into operational and
business imperatives. 3orking for growth in very challenging conditions,
sustenance is possible only when they have a clear roadmap for=
• $biding relationships with customers through customer data analysis.
• Cperations with clear cost(efficiency and productivity.
• Dnified 06(degree view of the business.
• Relevant and timely product innovation.
URBAN-ORIENTATION OF STAFF
$ crucial practical difficulty e1perienced in their working by the RRBs is the
urban orientation of their staff which is rarely inclined to serve in rural areas.
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There is no true local involvement of the bank staff in the village where they
serve.
REGIONAL RURAL BANKS TODA>
There are around 00 RRBs spread over 20 states'Dnion Territories and with a
network of 8,8!8 branches, accounting for 88.# per cent of the total rural
network of all scheduled commercial banks +including RRBs. The rural and
semi(urban branches of RRBs constitute !E per cent of their network. Their
deposits and advances as on >arch 0, 20, were Rs. ",02! crore and
Rs.22, 2E crore respectively. Thus RRBs have done well in mobili&ing rural
deposits and infusing the thrift habit in their clients.
Cut of !6 RRBs, in 22(20 the number of profit making banks
stood at 6" in 2(22 as compared with " in 2(2.arch 26.
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$s a result of the various reforms measures, the RRBs showed
substantial turn(around in their performance. The RRBs also displayed
;ualitative improvement in their 9$ management and gross 9$s as
percentage of gross advances stood at 0.!!/ as on 0(0(26, down from
02.E at >arch(end !!E.Similarly, the recovery performance of the RRBs
steadily improved with the percentage of recovery to demand raised at E/ as
on 2#(26 from 6.2/ at end(Fune !!E+8.2/ at end(Fune !!0.
The bulk of the loans from RRBs have been to priority sectors, which
accounted for over " per cent of the total. $griculture alone took up 86 per
cent of the priority sector advances. The involvement of RRBs in providing
credit support to small and retail trade and other non(farm rural activities is
better than that of co(operative and commercial banks. $s on >arch 0, 22,
the outreach of RRBS in terms of number of deposits and advances was #.2
million and .!8 million respectively. lientele for loans and deposits in the
rural sector are low(value, but large volume. RRBs have served this clientele
in a more productive and efficient manner vis(G(vis other Banks.
9er(employee, EE# accounts are handled by RRBs against the national
average of 868 accounts per employee in the banking industry.
RRBs have also taken a lead role in financing of Self
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empowerment. The share of RRBs in Soreover, the agrarian distress and stagnation of the rural
economy has become too stark and imminent and, of course, the political
ramifications of the crisis can no longer be ignored.
$mong the various official committees that were set up review the situation
and make policy recommendations on the future course of development of the
RRBs, the 9arliamentary Istimates ommittee +22(0 had come up with anumber of useful suggestions to tackle the shrinking credit delivery to the
priority sector and the rural areas=
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• $mong RRBs which are making absolute profit, the credit(deposit ratio
should not be lower than "#/ and for those which are making profits but
still have accumulated losses, an increasing trend of the ratio should be
ensured and their investment portfolio should get reduced accordingly.
• The priority sector lending by RRBs has been declining and as per latest
figures, priority sector lending to agriculture and other allied activities
comes to about #" / of the total lending. There could be no rationale for
fi1ing the same norms for lending to priority'agricultural sector by the
RRBs as in the case of commercial banks. The RB* should apply proper
checks to ensure that the present level of #"/ of lending by the RRBs to
the priority sector is not allowed to decline further. $nd it should look into
the desirability of enhancing the percentage of lending to the priority
sector.
• The committee is constrained to note that the percentage of loans to small
and marginal farmers out of total loans disbursed by the RRBs has been
declining steadily. The RRBs do not maintain separate details of number
of accounts of small and marginal farmers. *n the absence of such
information it is difficult to understand as to how RRBs ensure credit
disbursement to small'marginal farmers and other weaker sections of
society as per the guidelines issued by the )overnment'the RB*. The
committee recommended that the RRBs should take steps for compiling
and maintaining data regarding credit facility e1tended to small and
marginal farmers and other weaker sections of the society to monitor that
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credit facilities being provided by the RRBs reach the targeted
beneficiaries.
Cn the issue of 9$s of the RRBs, the committee e1pressed its dissatisfaction
at the current levels. 3hile the official statistics highlights the decline in
9$s from 08 percent in >arch !!6 to 0.!! percent in >arch 26.Jery few
of the above recommendations were, in fact, accepted by the
RB*')overnment of *ndia. Krom the year 20(8, the RB* revised upwards
the lending target for priority sector to 6 percent of the total advances for the
RRBs. $mbitious overall credit targets were laid down for the RRBs by the
Dnion )overnment.
The farm credit target for the RRBs at Rs ,! crore for the fiscal year
2#(26 is 8 percent higher than Rs E,# crore target set during the fiscal
year 28(2#. But little else happened. *n reviewing the action taken by the
RB*')C* on the proposals of the Istimates ommittee +22(20, the
committee in 28(2# finds that 7no specific action has been taken7 on most
of the ma%or recommendations.
Wi7enin! ne23o," an7 Expan7in! Co;e,a!e#-
$s on $pril 2", RRBs were covering #0# districts. They may be directed
to cover all unbanked areas in these districts, taking the village as a unit,
either by opening a branch +wherever feasible or through the BK'B model
in a time bound manner.
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$s on $pril 2", E" districts in the country were not covered by RRBs
and their area of operation may be e1tended to cover these districts.
• Co5p42e,i
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$ll recent circulars relating to financial inclusion, vi&., no frills accounts,
), Cne Time Settlement +CTS for loans up to Rs 2#, , use of
intermediaries, etc., should be implemented by RRBs.
NRFI8 o, RRBs#-
The strategy recommended earlier for RK*9 for commercial banks would be
e;ually applicable for RRBs. The process of undertaking a survey,
identification of e1cluded households, dissemination of the information,
settings of bank(wise' branch(wise targets etc., could be followed. RRBs will
have certain handicaps in e1ecuting the plan. They would re;uire
promotional, funding and technology support in different areas as outlined
below. RRBs may Indeavour to cover to a large part of their incremental
lending thru7 the group mode +S
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OVERVIEW OF NABARD IN RELATION TO RURAL
BANKING
BACKGROUND
$B$RA was established on 2th Fuly !E2 to implement the
ational Bank for $griculture and Rural Aevelopment $ct !E. *t replaced
the $gricultural redit Aepartment +$A and Rural 9lanning and redit ell
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+R9 of Reserve Bank of *ndia, and $gricultural Refinance and
Aevelopment orporation +$RA.
+ISSION
$B$RA being an $pe1 Aevelopment Bank promotes agriculture and
rural development through refinance support to all banks for investment credit
and to co(operatives and RRBs for production credit. The ob%ective of
providing refinance to eligible institutions is to supplement their resources for
delivering credit for agriculture, cottage @ village industries, SS*s, rural
artisans, etc. thus influencing the ;uantum of lending in consonance with the
policy of )ovt. of *ndia. *t directs the policy, planning and operational aspects
in the field of credit for agriculture and integrated rural development.
STRUCTURE
$B$RA operates throughout the country through its 2E Regional
Cffices and one Sub(office, located in the capitals of all the states'union
territories. *t has 006 Aistrict Cffices across the country, one Sub(office at
9ort Blair and one special ell at Srinagar. *t also has 6 training
establishments.
NABARD ROLE AND FUNCTIONS
$B$RA is set up by the )overnment of *ndia as a development bank
with the mandate of facilitating credit flow for promotion and development of
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agriculture and integrated rural development. The mandate also covers
supporting all other allied economic activities in rural areas, promoting
sustainable rural development and ushering in prosperity in the rural areas.
3ith a capital base of 2, crore provided by the )overnment of *ndia and
Reserve Bank of *ndia.
NABARD@S ROLES AND FUNCTIONS
DEVELO8+ENT AND 8RO+OTIONAL FUNCTIONS
redit is a critical factor in development of agriculture and rural sector
as it enables investment in capital formation and technological up gradation.
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• oD with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe.
• oDs
specifying their respective obligations to improve the affairs of the Regional
Rural Banks in a stipulated timeframe.
• >onitor implementation of development action plans of banks and
fulfillment of obligations under >oDs.
• 9rovide financial assistance to cooperatives and Regional Rural Banks for
establishment of technical, monitoring and evaluations cells.
• 9rovide Crgani&ation development intervention +CA* through reputed
training institutes like Bankers *nstitute of Rural Aevelopment +B*RA,
?ucknow www.birdindia.com, ational Bank Staff ollege, ?ucknow
www.nbsc.in and ollege of $griculture Banking, 9une, etc.
• 9rovide financial support for the training institutes of cooperative banks.
• 9rovide training for senior and middle level e1ecutives of commercial banks,
Regional Rural Banks and cooperative banks.
• reate awareness among the borrowers on ethics of repayment through Jikas
Jolunteer Jahini and Karmer7s clubs.
• 9rovide financial assistance to cooperative banks for building improved
management information system, computeri&ation of operations and
development of human resources.
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CREDIT FUNCTIONS
REFINANCE AGAINST INVEST+ENT CREDIT
This is a long(term refinance facility. *t is intended to create income
generating assets in the following=
• *nvestment in agriculture and allied activities such as minor irrigation
pro%ects, farm mechani&ation, land development, soil conservation, dairy,
sheep rearing, poultry , piggery, plantation'horticulture, forestry, fishery,
storage and market yards, biogas and other alternative sources of energy,
sericulture, apiculture, animals and animal driven carts, agro(processing,
agro(service centers, etc.
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• *nvestment for artisans, small scale industries, tiny sector, village and
cottage industries, handicrafts, handlooms, power looms, etc.
• $ctivities of voluntary agencies and self(help groups working among the
rural poor.
• *nvestment in share capital'securities of institutions involved in
agriculture and rural development the credit is normally provided for a
period of 0 to# years.
SU8ERVISOR> FUNCTIONS
$s an ape1 bank involved in refinancing credit needs of ma%or financial
institutions in the country engaged in offering financial assistance to
agriculture and rural development operations and programmes, $B$RA has
been sharing with the Reserve Bank of *ndia certain supervisory functions in
respect of cooperative banks and Regional Rural Banks +RRBs
As pa,2 o 2.ese 4n(2ions i2#
• Dndertake inspection of Regional Rural Banks +RRBs and cooperative
bank +other than urban'primary cooperative banks under the provisions
of Banking Regulation $ct, !8!.
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• Dndertakes inspection of state ooperative $griculture and Rural
Aevelopment Banks +S$RABs and ape1 non(credit cooperative
societies on a voluntary basis.
• Dndertakes portfolio inspections, system study, besides off(site.
• Surveillance of cooperative banks and Regional Rural Banks +RRBs.
• 9rovides recommendations to Reserve Bank of *ndia on opening of new
branches by State ooperative Banks and Regional Rural Banks +RRBs.
• $dministering the redit >onitoring $rrangements in SBs and Bs
CORE FUNCTION
$B$RA has been entrusted with the statutory responsibility of
conducting inspections of State ooperative Banks +SBs, Aistrict entral
ooperative Banks +ABs and Regional Rural Banks +RRBs under the
provision of the Banking Regulation $ct, !8!. *n addition, $B$RA has
also been conducting periodic inspections of state level cooperative
institutions such as State ooperative $griculture and Rural Aevelopment
Banks +S$RABs, $pe1 3eavers Societies, >arketing Kederations, etc.on a
voluntary basis.
OB9ECTIVES OF INS8ECTION
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• To protect the interest of the present and future depositors.
• To ensure that the business conducted by this banks is in conformity with
the provisions of the relevant acts, rules, regulations bye(laws etc.
• To ensure observance of rules guidelines etc. formulated and issued by
$B$RA'RB*')overnment.
• To e1amine the financial soundness of the banks.
• To suggest ways and means of strengthening the institutions so as to
enable them to play more efficient role in rural credit.
I+8ORTANT SC=E+ES OF NABARD
RURAL INFRASTRUCTURE DEVELO8+ENT FUND RIDF
*n !!#(!6 R*AK(* set up with a corpus fund of Rs. 2 crore for the
purpose of financing rural infrastructure pro%ects such as irrigation pro%ects,
construction of rural roads and bridges, etc. The R*AK fund has been
continued in subse;uent years. The R*AK *L +last in the Series was
introduced in 20(8.
The R*AK came to an end with the commencement of the ?okayak Fai
9rakash arayan fund in Kebruary 28.
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LOK NA>AK 9AI 8RAKAS= NARA>AN FUND AGRICULTURE
INFRASTRUCTURE AND CREDIT FUND
The fund came into e1istence in Keb(28.*t replaced the
R*AK.$B$RA has prepared this scheme with the following three
components=
Finan(e o, in,as2,4(24,e 2.,o4!. S2a2e Go;e,n5en2s Rs) /''''
(,o,e)
$ctivities includes minor irrigation, rain fed agriculture, and flood control,
public sector cold storage facilities, etc. Iligible clients are state
)overnments, state undertakings, and local bodies.
Finan(e o, in;es25en2s in a!,i(4l24,e an7 (o55e,(ial in,as2,4(24,e
2.,o4!. ban"in! s6s2e5 Rs)1*''' (,o,e)
$ctivities includes priority areas like micro irrigation, rain fed agriculture,
post(harvest related support, agriculture marketing, investment credit, etc.
Iligible clients are corporate, )Cs, and individual, etc.
De;elop5en2 5eas4,es an7 Ris" +ana!e5en2 +e(.anis5 Rs) 0'''
(,o,e)
RE=ABILITATION OF COO8ERATIVE BANKS SC=E+E
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$B$RA undertakes a rehabilitation programme for weak Bs and
SBs. Dnder this programme, it assists B and SBs, which are financially
and administratively weak due to large overdue and untrained staff.
KISAN CREDIT CARD KCC SC=E+E
This scheme was introduced in !!E(!! with a view to facilitate the
flow of timely and ade;uate short(term credit to the farmers. This scheme is
operated through cooperative banks, RRBs and commercial banks. The
cooperative banks, RRBs and commercial banks together issued about 88
lakh :s involving credit of about Rs.!", " crore up to >arch 28.
The : scheme is an ongoing scheme, which is envisaged to
gradually replace the traditional system and procedures in the issue of short(
term crop loan.
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SELF-=EL8 GROU8S SC=E+E
$B$RA has been active in promoting and linking more and more
self(help groups +S
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• Dndertakes monitoring and evaluation of pro%ects refinance by it.
• 9repares on annual basis rural credit plans for all the districts in the
country. These plans form the base for annual credit plans of all rural
financial institutions.
• oordinates the rural financing activities of all the institutions engaged in
developmental work at the field level and maintain liaison with the
government of *ndia, state governments, Reserve Bank of *ndia and other
national level institutions concerned with policy formulation.
GRA+EEN BANK
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NOBEL 8EACE 8RIE WINNER +U=A++AD >UNUS
3henever rural banking is discussed the contribution of >uhammad
Munuas7 is to be remembered. >uhammad Munus7 ideas about lending to the
poor to lift millions out of poverty.
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Krom !!0 to !!#, Munus was a member of the *nternational $dvisory
)roup for the Kourth 3orld onference on 3omen, a post to which he was
appointed by the D.. secretary general.
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=OW DID IT START# *n !"8, Munus, then an economics professor recently
returned from the Dnited States, lend a total of N2" to 82 villages who, made
bamboo furniture. The loans, which were all paid back, allowed them to cut
out the middlemen and purchase their own raw materials. Imboldened by his
e1periment, Munus won government approval in !E0 to open )rameen,
Bengali for 4rural.5
W=O ?UALIFIES# $nyone can ;ualify, but they must belong to a five(
member group. Cnce the first two members begin to pay back their loans, the
others can get theirs. 3hile there is no group responsibility for returning the
loans, the bank believes it creates a sense of social responsibility, ensuring all
members pay back their loans.
DOES IT WORK# )rameen claims a !! percent repayment rate. $ccording
to a recent )rameen survey, #E percent of the families of )rameen borrowers
have crossed the poverty line.
W=O OWNS T=E BANK# The government of Bangladesh owns 6 percent
of the bank while the borrowers own the other !8 percent.
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W=AT ARE T=E NU+BERS# The bank has handed out N #."2 billion
since its inception to 6.6 million people had been repaid N #." billion.
3omen account for !" percent of the loan takers. )rameen Bank has 2,226
branches, works in ",0" villages and has a total staff of E,"!#.
CONCLUSION
RRBsO 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. *n recent years, they have taken a leading role in financing Self(
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really re;uires an ape1 body that would cover and oversee all the RRBs, something
like a ational Rural Bank of *ndia +RB*.
The contribution of $B$RA to the *ndian rural banking has been immense in the
past few years. The concept of )R$>II B$: has helped the banking sector
to reach the remote areas in our country. *t was helped in financial inclusion of the
people. $nd it increases the savings habits amongst the people. *t helps in
mobili&ation of funds in the economy.
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 ra% institutions and
the banks operating in rural areas. Cnly then will the RRBs fulfill the promise that
is so essential for rural development.