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7/31/2019 Rural Financing Strategy
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RURAL FINANCING STRATEGY
Submitted By:-Anish Wadhwa
Desai Anuja
Pawan Singh
Submitted To:Prof Akash
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Introduction
In India, over 65% of the population resides in villages.And approx, 70% of the villagers do not have bankaccounts.
But Finance is not completely absent. Just the sourcesof supply are informal like moneylenders
Moneylenders are said to control one third of all ruralloans, and wield considerable strength, given theirpersonal acquaintance with the local population andomnipresent distribution network.
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Rural finance- An understanding
Rural finance is a line of credit specificallyintended for the requirements of the agriculturalindustry. Ranging from mortgage assistance to
land development and farming equipment, thesecredit plans are a significant aspect of rural andsemi-urban support.
In a country like India, farming finance is a serviceof utmost importance and closely related to thecontinued progress of the country, as agriculturecontinues to play a central role.
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Rural finance- An understanding
A number of banks and finance companieshave begun to specialize in offering credit tofarmers.
Finance in this sector has the added benefit ofsupporting further work in regional areas. As
banks and financial services continue toextend their services into rural India they aregenerating employment in the vicinity.
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Financial aids for the poor clusters in rural
areas today are in the following forms:
Nationalized Banks
Private Banks
Credit Societies
Co-operative Banks
Informal loans (Money Lenders)
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Finance Presence in Rural India
Nationalized Banks Regional Rural Banks (RRB/ Gramin)
Rural banking in India started since the establishment of
banking sector in India. 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 process of the country.
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.
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Finance Presence in Rural India
Nationalized Banks Regional Rural Banks (RRB/ Gramin)
SBI
SBI, has a breathtaking rural branch network of 6,600 with
972 specialized branches. These branches have been setup in different parts of the country with the sole purposeof developing agriculture through credit deployment.
SBI has developed rural agricultural business units,education programs for local farmers and kisan cards. SBIhas gradually evolved to become the leader in agriculturalfinance with a portfolio of Rs. 18,000 crores in loans toaround 50 lakh farmers.
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Finance Presence in Rural India
Nationalized Banks Regional Rural Banks (RRB/ Gramin)SBI
One of their recent endeavors is the tie-up withNational Agricultural Cooperative Marketing
Federation (NAFED) to finance farmers for cultivationof various crops like soyabean, paddy, jute and potato.
SBI has 30 Regional Rural Banks in India known asRRBs. The rural banks of SBI is spread in 13 states
extending from Kashmir to Karnataka and HimachalPradesh to North East. The total number of SBIsRegional Rural Banks in India branches is 2349 (16%).
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Finance Presence in Rural India
Private banks- Commercial
ICICI ICICI Bank, the countrys second largest bank, has adopted the
franchise model of operation in rural markets.
A one man office (known as kendra) in the village forms an interfacebetween the villager and the Banks products and facilities. Crop loans,housing loans, automobile loans, farm equipment, seed financing andinsurance policies are all on offer.
The number of borrowers has risen from 130 in 2000 to over 42,000today, and the rural loan book has crossed Rs. 16,000 crore. And thebanks default rate in the rural retail sector is 1 2 % as compared to2 3% in the rural wholesale sector and 5% for the banking sector asa whole.
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Finance Presence in Rural India
Private banks- Commercial
ICICI
ICICI is looking at tying up with micro-financeinstitutions and local self-help groups (or creatingthem if already do not exist).
ICICI has gone further in tying up with large corporatemajors having significant presence rural India andproviding loans/banking services to theirdistributors/traders and also it is working in tandemwith postal department.
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Finance Presence in Rural India
Cooperative Banks Credit Cooperatives
The Co-operative Credit Structure (CCS) of India wasset up to serve the needs of both short term and long
term rural credit in India. Short term credit is suppliedin rural India by three institutions State Cooperative Banks (SCB)
District Central Cooperative Banks (DCCB)
Primary Agricultural Credit Societies (PACS)
Long term credit is supplied by the Primary Cooperative Agriculture and
Rural Development Banks (PCARDB).
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Challenges
Some of the major challenges which intermediaries(Local Financial Institutions) face today in India are:
The supply dilemma: The exclusion of large numbers ofthe rural population from the formal banking sector maybe for several reasons from the supply side:
Persons are un-bankable in the evaluation/perception ofbankers
The loan amount is too small to invite attention of the bankers The person is bankable on a credit appraisal approach but
supporting the accounts and expanding branch network is notfeasible and viable
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Challenges
The supply dilemma:
High transaction costs particularly in dealing with a large number ofsmall accounts
Lack of collateral security Inability to evaluate and monitor cash flowcycles and repayment capacities due to information asymmetry, lackof data base and absence of credit history of people with smallmeans
Human resources related constraints both in terms of inadequacy ofmanpower and lack of proper orientation/expertise
Adverse security situation prevailing in some parts of slums andother such localities
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Challenges
The demand dilemma:
There are several reasons for the rural poor remaining excluded fromthe formal banking sector:
High transaction costs at the client level due to expenses such as travel
costs, wage losses, incidental expenses Lack of awareness and lack of social capital
Non-availability of ideal products
Hassles related to documentation and procedures in the formal system
Easy availability of timely and doorstep services from money
lenders/informal sources Prior experience of rejection by/indifference of the formal banking system.
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Question 1
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