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MANAGEMENT OF BANK IN RURAL AREA

INTRODUCTION OF MANAGEMENT OF BANK IN


RURAL AREA
India is the 12th largest economy in the world in terms of gross domestic product (GDP),
and fourth in terms of purchasing power parity (PPP)1. The growth of the economy is
equally impressive with an average of over 8.0% during the last three years2. However,
in terms of GDP per capita, India ranks a lowly 160th among other nations. Within the
country, there is a stark divide in the incomes of urban and rural areas with the average
monthly per capita consumption expenditure (MPCE) in urban India being almost double
that of rural India.
In addition, there are significant disparities in urban and rural consumption expenditure
between different states. Jharkhand and Orissa, for example, have an MPCE of
approximately Rs. 900 in urban areas and Rs. 410 in rural areas4. In other states like
Punjab and Haryana, the urban rural disparity is significantly lower. A fifth of the Indian
population is below the poverty line (BPL) today with a MPCE below Rs 340. In some
states like Jharkhand and Orissa, the proportion of BPL is greater than 40%. Diamond
believes that the segments that are not considered BPL should all be considered as
potentially bankable with genuine financial needs that could be met by formal financial
and banking systems.
Current State of Indian Banking

An important metric to determine the level of financial outreach/inclusion is the ratio of


the number of deposit accounts to population. It gives a snapshot of the penetration of
deposit accounts and credit accounts in India in comparison with a few select countries
with similar socio-cultural and economic conditions. Even in comparison with other
developing economies, India has a significant opportunity for increasing penetration of
both deposit and credit accounts.

MANAGEMENT OF BANK IN RURAL AREA


Not only is there a large disparity between India and other countries in banking
penetration but there is also a large variation in banking penetration within urban and
rural India. While urban India seems to be over-banked with more than 100% penetration
(many urban Indians have more than one bank account), rural India lags far behind with a
19% penetration. The variance in rural and urban deposit and credit account penetration
is not restricted only to few states but is common across all states.
In addition, the average value of a deposit account and a credit account is also quite low
in rural areas as compared to urban areas. Diamond believes that the reasons for lower
penetration levels are partly economic, as explained by the low GDP per capita in the
rural areas of the country, and partly a result of controllable factors that are inherent in
formal banking systems in India today. The low deposit and credit account penetration
and low average values in deposit and credit accounts demonstrate that banking outreach
in rural India is sub-optimal. This low outreach can be explained by two key parameters:
access and usage.
Simply defined, access is the availability of financial services, and usage is the actual use
of those services. Access is influenced by issues such as the basic economic state of rural
India, lack of physical infrastructure facilities, regulatory constraints, and the economics
of rural banking. Usage is constrained by social issues such as illiteracy, incomplete
service offerings by banks, and high transaction costs in the formal banking system.
Access and usage are not synonymous, as people may have access to financial services,
but decide not to use them, either for socio-cultural reasons or because opportunity costs
are too high.
List of Rural Banks in India
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.

MANAGEMENT OF BANK IN RURAL AREA

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.

Apart 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
Bihar

Andhra Pradesh Grameena Vikas Bank

Madhya Bihar Gramin Bank

Andhra Pragathi Grameena Bank

Bihar Kshetriya Gramin Bank

Deccan Grameena Bank

Uttar Bihar Kshetriya Gramin Bank

Chaitanya Godavari Grameena Bank

Kosi Kshetriya Gramin Bank

Saptagiri Grameena Bank

Samastipur Kshetriya Gramin Bank

Chhattisgarh

Gujarat

Chhattisgarh Gramin Bank

Dena Gujarat Gramin Bank

Surguja Kshetriya Gramin Bank

Baroda Gujarat Gramin Bank

Durg-Rajnandgaon Gramin Bank

Saurashtra Gramin Bank

Haryana

Himachal Pradesh

Harayana Gramin Bank

Himachal Gramin Bank

Gurgaon Gramin Bank

Parvatiya Gramin Bank

Jammu & Kashmir

Punjab

Jammu Rural Bank

Punjab Gramin Bank

Ellaquai Dehati Bank

Faridkot-Bhatinda Kshetriya Gramin Bank

MANAGEMENT OF BANK IN RURAL AREA

Kamraz Rural Bank

Malwa Gramin Bank

Assam

Kerala

Assam Gramin Vikash Bank

Narmada Malwa Gramin Bank

Langpi Dehangi Rural Bank

North Malabar Gramin Bank

Jharkhand

Tamil Nadu

Jharkhand Gramin Bank

Pandyan Grama Bank

Vananchal Gramin Bank

Pallavan Grama Bank

Madhya Pradesh

Maharashtra

Narmada Malwa Gramin Bank

Marathwada Gramin Bank

Satpura Kshetriya Gramin Bank

Aurangabad -Jalna Gramin Bank

Madhya Bharath Gramin Bank

Wainganga Kshetriya Gramin Bank

Chambal-Gwalior Kshetriya Gramin

Vidharbha Kshetriya Gramin Bank

Bank

Solapur Gramin Bank

Rewa-Sidhi Gramin Bank

Thane Gramin Bank

Sharda Gramin Bank

Ratlam- Mandsaur Kshetriya Gramin

Ratnagiri-Sindhudurg Gramin Bank

Bank

Vidisha Bhopal Kshetriya Gramin Bank

Mahakaushal Kshetriya Gramin Bank

Jhabua Dhar Kshetriya Gramin Bank


Karnataka

Rajasthan

Karnataka Vikas Grameena Bank

Baroda Rajasthan Gramin Bank

Pragathi Gramin Bank

Marwar Ganganagar Bikaner Gramin Bank

Cauvery Kalpatharu Grameena Bank

Rajasthan Gramin Bank

Krishna Grameena Bank

Jaipur Thar Gramin Bank

Chikmagalur-Kodagu Grameena Bank

Hodoti Kshetriya Gramin Bank

Visveshvaraya Gramin Bank

Mewar Anchalik Gramin Bank

Orissa

Kalinga Gramya Bank

West Bengal

Bangiya Gramin Vikash Bank

MANAGEMENT OF BANK IN RURAL AREA

Utkal Gramya Bank

Baitarani Gramya Bank

Neelachal Gramya Bank

Rushikulya Gramya Bank

Paschim Banga Gramin Bank

Uttar Banga Kshetriya Gramin Bank

Meghalaya

Ka Bank Nogkyndong Ri Khasi- Jaintia

Arunachal Pradesh

Arunachal Pradesh Rural Bank

Nagaland

Nagaland Rural Bank


Tripura

Manipur

Manipur Rural Bank

Tripura Gramin Bank


Mizoram

Mizoram Rural Bank

Uttar Pradesh

Purvanchal Gramin Bank

Kashi Gomti Samyut Gramin Bank

Uttar Pradesh Gramin Bank

Shreyas Gramin Bank

Lucknow Kshetriya Gramin Bank

Ballia Kshetriya Gramin Bank

Triveni Kshetriya Gramin Bank

Uttaranchal

Uttaranchal Gramin Bank

Nainital Almora Kshetriya Gramin Bank

MANAGEMENT OF BANK IN RURAL AREA

KEY DRIVERS OF FINANCIAL EXCLUSION OF


RURAL BANKING
According to Diamond estimates, approximately 245 million adults in rural India do not
have a bank account today. As depicted in Following Table, this reflects 24% of the total
population. While 60 million out of 245 million may not need banking services because
they are below the poverty line, Diamond believes that approximately 185 million
potentially bankable people do not use formal banking services because of reasons like
poor access or usage.

Source: Census India ;BSR 2008Reserve Bank of India; World Bank & NCAER (2008).

Access Issues for Rural Customers


Access is explained in terms of infrastructure, physical distance, limited delivery
capabilities, regulatory constraints and the economics of rural banking.
The banking infrastructure in rural India is not encouraging, with just 7% of villages
housing a bank branch. Whats more, the poor physical and social infrastructure also
impacts the access to financial services, with 23% of villages going without electricity,
67% without a Post Office, and an average rural literacy rate of 59% and secondary

MANAGEMENT OF BANK IN RURAL AREA


school penetration of 12%. This lack of physical and social infrastructure in rural India is
a key issue impacting access to formal financial services.
The average distance to a branch in India is approximately 3.8 Kms. While this compares
favorably to the average distance to a branch in a developed market like the U.S. (which
is 6 Kms6), there are significant additional challenges in India in the form of unpaved
roads and limited access to modern transportation. Most rural customers are likely to
sacrifice an entire days wage to travel to a bank branch which is open between 10:00am
and 5:00pm. While some banking transactions could be done over phone, this is rarely an
option in a country with such low rural tele-density.
Limited delivery capability is a significant challenge. Much of rural India is serviced
through branches because ATM penetration is low and other channels such as Phone and
Internet Banking are non-existent. Intermediaries like Non-Governmental Organizations
(NGOs), Self-Help Groups, and Micro Finance Institutions (MFIs) are being used by
banks to improve access to credit and savings. However, these channels, in their current
form, offer limited services.
There are some regulatory constraints imposed by the Reserve Bank of India (RBI)
which may inadvertently contribute further to the lack of formal banking services in rural
areas. For example, the RBI does not allow banks to post any person other than a security
guard at ATMs. Hence, banks cannot deploy many ATMs in rural areas as many rural
customers require in-person support. A second regulatory inhibitor is that new banks
planning to establish a branch in a rural area have to receive approval from the Lead
Bank and District Collector of that district. Hence, banks choose not to open new
branches in certain areas even when it is profitable to do so because there is no certainty
of getting approvals.
Many banks view the rural market as a regulatory requirement rather than an economic
opportunity. Banks have from time to time borne the social cost of lending to the rural
economy at rates below their costs. They have also faced capital erosion because of the

MANAGEMENT OF BANK IN RURAL AREA


write-off of loans, particularly agriculture loans. Banks are required via regulatory
requirements to open branches in rural areas to provide loans to agriculture and other
priority sectors.

Current Rural Banking Channels


Description

Service Provided

- Full fledged Branches and


Branch

Intermediaries

ATM

- 96% of total deposit and 95% of


total loans are with scheduled
commercial banks with
cooperative banks holding
the difference
- Has a high cost-to-serve

- NGOs, SHGs, MFIs and


Cooperatives that act as
Intermediaries to take financial
Services to the rural areas

- MFIs directly lend to the poor


and also act as agents for
he banks
- SHGs borrow from banks and
are beneficiaries of loans
themselves

- This channel delivers limited


services in its current form

- Onsite
ATM installed at a branch
- Offsite
ATM installed at a remote
Location

- Cash Withdrawal
- Cash Deposit
- Money Transfer
- Cheque Book Request
- Bill Payments

- Negligible presence of this


channel in rural areas

- Cash Withdrawal
- Cash Deposit
- Money Transfer
- Cheque Book Request
- Bill Payments

- Almost non-existent in rural


- India because of low:
Tele-density
Internet-penetration
Credit appetite of banks

-Phone Banking
Others

- Deposit Accounts
- Credit Accounts
- Remittances
- Cards
- Third-Party Products

Extension Counters of
Scheduled Commercial Banks
including Regional Rural Banks
Cooperative Banks

Remarks

Manual
Interactive Voice Response
- Internet Banking
- Kisan Credit Card
Provide short-term credit

Source: Reserve Bank of India; Diamond analysis.

MANAGEMENT OF BANK IN RURAL AREA

REASONS FOR UNPROFITABLE OF RURAL


BANKING IN INDIA

High Non-performing Loans (NPL):

Banks have higher non-performing loans in rural areas because rural households have
irregular income and expenditure patterns. The issue is compounded by the dependence
of the rural economy on monsoons, and loan waivers driven by political agendas. NPLs
from the agriculture sector are 7.7%, compared to 3.5% across non-agriculture sectors8.
In order for banks to view rural India as a growth opportunity, rather than a regulatory
requirement, a combination of these issues must be addressed. Increasing financial access
to rural areas is contingent upon basic conditions such as proper infrastructure and an
enabling regulatory framework, as well as innovative thinking on the part of commercial
banks. Access issues, however, explain only one part of the problem. Usage is an equally
important issue for rural customers.
Low Ticket Size:

The average ticket size of both a deposit transaction and a credit transaction in rural areas
is small. This means that banks need more customers per branch or channel to break
even. Considering the small catchments area of a branch in rural areas, generating a
customer base with critical mass is challenging.
High cost to serve:

Branches are the most used channel in rural areas. This is because many rural people are
not literate and are not comfortable using technology-driven channels such as ATMs,
phone banking or internet banking. On the other hand, a branch is an expensive channel
for banks (Following Table). In addition, rural people, whenever they have access to

MANAGEMENT OF BANK IN RURAL AREA


banks, have frequent low ticket and cash-based transactions, which increase the overall
transaction cost for their bank.

Cost Per Transaction in Indian Banks

Source: Reserve Bank of India; CGAP, World Bank.

Higher risk of credit:

Rural households may have highly irregular and volatile income streams. Irregular wage
labor and the sale of agricultural products are the two main sources of income for rural
households. The poor rural households (landless and marginal farmers) are particularly
dependent on irregular wage employment. Rural households also have irregular
expenditure patterns. The typical expenditure profile of rural households is small, with
daily or irregular expenses incurred through the month. Furthermore, a majority of
households incur at least one unscheduled expenditure per year, with the most frequent
reasons being medical or social emergency7. In short, the rural customer is generally
considered to be a risky one.

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Information Asymmetry:

Since many rural people do not have bank accounts, there is a lack of information on
customer behavior in rural India. Absence of a Credit Information Bureau also
complicates the problem as banks have to rely on informal sources to learn the credit
history of rural customers. A lack of reliable information can result in either missed
opportunities in not approving otherwise eligible loan candidates, or nonperforming
loans.

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USAGE ISSUES FOR RURAL CUSTOMERS

Even if access to formal banking is provided to rural customers, there is no guarantee that
these services will be used. According to a study conducted by the World Bank, many
households, even in developed countries, choose not to have a bank account as they do
not engage in many financial transactionsthey collect wages in cash, spend in cash and
do not wish to be burdened by a bank account9. To compound the situation many
customers in rural India, who have access to and would otherwise choose to use formal
financial services, do not do so because the product and service mixes do not meet their
needs.
The financial service needs of rural customers are not confined to just savings and credit,
as is usually assumed. Their financial needs are linked to their life cycle needs, ranging
from savings to credit to insurance to remittances. In fact, even the savings and credit
products currently offered to rural customers do not entirely meet their needs.
Access to savings and investment facilities is critical for the poor. The two critical needs
for the rural poor are micro-savings and frequent withdrawals. These needs facilitate a
customer in building capital over the long term, as well as coping with income shocks in
the near term. However, banks do not offer adequate services to address these needs. The
lack of services, therefore, leaves the rural poor with little option than to transact with the
informal banking market. A study conducted by Micro Save also concludes that the poor
transact with the informal sector because it will accept small amounts, provide doorstep
service, and ensure ease of enrolment.
Rural customers need loans not only for productive purposes but also for consumption
needs (Following Table). A part from agricultural support, rural customers need micro
credit for consumption, education and emergencies. Though banks offer purpose free
loans (personal loans and credit cards) in urban areas quite liberally, in rural areas
sanction of such loans is significantly restricted. Therefore, the poor raise these loans

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through the informal financial system (it is worth noting that these loans taken from the
informal system are almost always repaid or renewed12). In addition, larger households
need occasional high value micro-enterprise loans for small capital investment. Though
banks offer these loans, they require excessive documentation and time-consuming
processes which discourage customer applications.
Purpose of Borrowing
Rural Household Borrowing

Bank Lending to Rural Households

A significant percentage of borrowing is toward consumption and other household expenditure, whereas
formal financial institutions in rural India provide loans primarily for productive purposes.
Source: AIDIS2008, National Sample Survey Organization (NSSO); Diamond analysis.

Insurance reduces the vulnerability of poor households by replacing the uncertain


prospect of large losses with the certainty of payout against small, regular premium

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payments. It is integral to a comprehensive risk management strategy for poor
households. This includes life, health, accident and asset (dwelling, crop, and livestock)
insurance. Banks and insurance firms do not offer these services in many rural areas,
leading the poor to rely on the informal financial system.
There are many rural households which depend on weekly or monthly remittances from
their family members who have moved to urban areas. At present, they depend on
informal channels to remit the money and consequently either risk the loss of money or
pay high transaction fees. Banks do not offer seamless remittance facilities between urban
and rural branches as many of the rural branches are not computerized and connected to
the main banks computer systems. This often results in the beneficiary receiving the
amount two weeks after it has being transferred. This represents yet another key service
which is not provided.
The transaction cost for a rural customer to receive credit primarily constitutes four
attributes: the interest rate, loan amount received as a percentage of amount applied,
bribes paid, and the lead time to process the loan. Though the formal banking system
offers loans at interest rates lower than informal banking systems, the time taken for a
loan to be sanctioned is high which increases uncertainty and opportunity cost. In
addition, the customer needs to pay almost 10% of the loan amount in bribes and
eventually receives an amount that is less than what was applied for. Therefore, while the
interest rates are usurious in the informal financing system, rural customers still resort to
this channel because the waiting time to receive the loan is negligible and there are no
indirect costs or commission. Banks also insist on collateral security which many rural
poor cannot afford.
As far as savings are concerned, though the formal banking system provides financial
security, the cost of opening and operating an account is high. The overall cost of
transacting with the formal financial system increases for a rural person because of
additional costs such as expenses incurred to reach a branch and the opportunity cost of
lost wages. Since rural banks are generally not within an accessible area and do not
operate at convenient times, the rural customer must forgo a days wage to reach a
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branch. Informal systems, on the other hand, involve a lower transaction cost, but they
are risky and in some cases result in the loss of ones entire capital. In short, this leaves
the rural customer to choose between two unfavorable options.
In summary, the services being offered by the formal banking system do not seem to meet
the needs of the rural poor. A World Bank study suggests that the poor apply a set of
criteria to judge the services being offered by any financial service provider, including:
ProductsAre financial services available and tailored to my needs?
CostWhat is the total cost of the service (including opportunity cost)?
ConvenienceHow easy is it to access and use?
EligibilityAm I eligible for financial services and can they be accessed repeatedly?
As explained earlier, the savings products offered in the current format do not qualify as a
flexible, convenient and cost-efficient service. Similarly, loan products do not meet
product and eligibility criteria. In addition, insurance and remittance services are not even
available. The cost of services, despite lower interest rates, is high because of other
indirect costs which make the banking services cost-inefficient.

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MARKET OPPORTUNITY OF RURAL BANKING


At present, a rapidly growing urban India is the focus of the banking sector; however, as
the deposit penetration numbers suggest (Figure 3 & 4), the market is highly competitive
and over banked. Despite this, most banks are still not shifting their focus to the rural
opportunity, as they are apprehensive about the total market potential of the rural market
and the profitability of rural banking channels. Contrary to the widely held notion,
however, the rural market is attractive from both a credit and deposit perspective. The
credit demand in rural areas is approximately Rs 1,330 billion (based on an estimate by
World Bank). There are other studies by the Planning Commission and ICICI Bank which
put the figure even higher at Rs 1,440 billion and Rs 1,500 billion respectively. Similarly,
on the deposit side, a large segment of the rural population does not save with formal
banking channels because banks are not accessible and do not provide the appropriate
products and service, leaving a significant opportunity to grow the deposit base.
At present, the penetration of banking in rural areas is sub-optimal with a large market
remaining untapped in both the liability (~ Rs 215 billion) and asset (~ Rs 1,204 billion)
sides of the business. These estimates clearly suggest that there is sufficient demand in
the rural market to encourage banks to think seriously about rural areas as an alternative
growth opportunity.
As we identified earlier, access and usage are two broad concerns which explain why the
potentially bankable are unbanked. With regard to access, the challenge for banks is to
identify profitable channels that meet the needs of rural customers. With regard to usage,
banks need to understand the requirements of the rural customer and customize products
and services
Accordingly (Following Table).

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Proposed Approach to Tap Potentially Bankable Population

Improve
Access
For Rural
Customers

Address
Access Needs
Of Rural
Customers
Ensure
Channel
Profitability

Convert
Potentially
Bankable

Encourage
Usage of
Services

Address
Usage Needs
Of Rural
Customers
Bank
Initiatives
To Improve
Usage

Source: Diamond analysis

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IMPROVING ACCESS FOR RURAL BANKING


Today, branches are the primary delivery channel in rural areas. Though there are 32,000
commercial bank branches in India, they cover less than 7% of total villages. Opening
more branches is not necessarily profitable as many pockets of rural areas do not have
business enough to justify an expensive branch channel. Therefore, to improve access in
rural areas, banks need to modify existing channels, introduce new channels and identify
innovative ways to integrate the two.
Modify Existing Channels

Fortunately there are a variety of options available for banks looking to modify their
existing channels. To reduce the costs imposed by branches, banks should consider the
option of sharing their branch infrastructure. This would not be too dissimilar to the
example of the telecom industry sharing network infrastructure or the fast food industry
sharing food courts in urban areas. Though infrastructure sharing may raise concerns over
client confidentiality and data leakage, in the long run banks will only benefit from such
collaboration.
ATMs are an effective channel which can deliver many of the services frequently used by
a branch customer. However, ATMs, in their current form, are not suitable for rural areas
as the literacy level and transaction ticket amount is too low. ATMs can, however, be
designed to meet the needs of rural customers. For example, ICICI Bank is working with
IIT Chennai to develop an ATM that has a biometric fingerprint login, accepts soiled
notes, and lower value denominations. In addition to modifying the design of the
machines, banks should also hold discussions with the RBI to allow an attendant to be
posted at ATMs. This will enhance the usability of ATMs.
Though phone banking and internet banking are cost-effective channels, given very
low tele-density and low internet penetration in rural areas, the ability to use these
channels to reach the rural customer is low. However, phone and internet banking should

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be considered once infrastructure and literacy levels improve in rural India. A business
correspondent could then run an e-kiosk to assist customers to transact over these
channels. For example, Centenary Bank in Uganda uses internet and phone banking to
provide bill payments, money transfers and loan repayments.
Business correspondents can be provided with point-of-sale (POS) functionality to allow
customers to deposit and withdraw cash from their accounts. Combining POS with a
smart card is one way to improve access. Brazil has successfully used banking
correspondents who use POS and card readers to provide current accounts, loans, and
insurance, accept bill payments, and perform other transactions.

Introduce New Channels

The RBI allows banks to appoint business correspondents and facilitators to be used as
intermediaries in providing banking services. NGOs, MFIs, Societies, Section 25
companies, registered NBFCs not accepting public deposits, and Post Offices can be
appointed as Business Correspondents. Business Correspondents can provide several
services which are not currently offered by SHGs and MFIs, including: (i) identification
of borrowers and fitment of activities; (ii) collection and preliminary processing of loan
applications including verification of primary information/data; (iii) creating awareness
about savings and other products and education and advice on managing money and debt
counseling; (iv) processing and submission of applications to banks; (v) promotion and
nurturing Self Help Groups/Joint Liability Groups; (vi) post-sanction monitoring; (vii)
monitoring and handholding of Self Help Groups/Joint Liability Groups/Credit
Groups/others; and (viii) follow-up for recovery; (ix) disbursal of small value credit, (x)
recovery of principal/collection of interest (xi) collection of small value deposits (xii) sale
of micro-insurance/ mutual fund products/ pension products/ other third-party products
and (xiii) receipt and delivery of small value remittances/ other payment instruments.
The introduction of Business Correspondents may face some challenges from labor
unions. However, Diamond believes that there may be some options to address the

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concerns of the current workforce while using Business Correspondents to capture more
value from rural customers.
Caixa Economica, a state-owned bank in Brazil, manages the countrys lottery network
and distributes government benefits. To increase the access of its services, Caixa
extensively utilizes the Banking Correspondent channel, with 14,000 banking
correspondents covering all of Brazils 5,500 municipalities. In less than 2 years, Caixa
opened about 2.8 million new accounts and estimates that 40% of its banking transactions
are handled through the banking correspondent channel.
Satellite offices are a cost-effective alternative to branches. These offices can be
established at fixed premises in villages and are controlled and operated from a base
branch located at a block headquarters. All types of banking transactions may be
conducted at these offices. Banks have, however, not used this channel actively, despite
the argument that this channel is relatively less expensive, as it can draw personnel from
the main branch and can remain open for just two days a week. This channel, therefore, is
appropriate in blocks and districts which are densely populated. In the urban areas, most
Indian banks opt for an extension counter where the business does not justify a full-fl
edged branch. Similarly, satellite branches can cater to rural areas which do not justify a
large branch.
Where banks do not find it economical to open full-fl edged branches of satellite offices,
mobile offices may be more appropriate. Mobile offices extend banking facilities through
a well-protected truck or van. The mobile unit visits villages on specified days/ hours.
The mobile office would be affiliated with a branch of the bank, and serve areas which
have a large concentration of villages. This will not be dissimilar to the mobile ATMs
implemented by some of the Indian banks in the urban areas.
Determine the Combination of Channels

There is no one right channel or solution to improve access in rural areas. Banks have to
evaluate the trade-offs between those channels that are most convenient to customers and

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those that are the most profitable. Banks are not comfortable opening new rural branches
because many of those that already exist are unprofitable. Therefore, determining the
right combination of channels is critical to improving access in profitable ways. An
innovative approach to improving access will consider a combination of these channels.
For example:
Branches and Satellite Branches In addition to providing regular banking operations,
providing backend support to manage and audit the operations of business
correspondents.
A low-cost, custom-made ATM Managed by a business correspondent to bring down
the operating cost and scale the channel.
An e-kioskManaged by a business correspondent with internet banking, ATM and
POS terminal in relatively large rural areas.
A business correspondentUsing manual ledgers or POS/Palmtop to act as deposit
collector and remitting agent in smaller rural areas.
While this list is not exhaustive, it highlights the need for creative solutions that apply the
right channel to the right market and transaction. In South Africa, Capitec has combined
convenient branches along transportation routes (for example, train and bus stations, and
taxi stops). In addition, it has rolled-out debit cards and automatic teller machines across
200 of these branches to stimulate savings among low-income earners. Between February
and August 2007, the number of customers jumped from around 30,000 to more than
90,000.

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BACKGROUND
NABARD was established on 12th July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit
Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of
India, and Agricultural Refinance and Development Corporation (ARDC).
MISSION
NABARD being an Apex Development Bank promotes agriculture and rural
development through refinance support to all banks for investment credit and to cooperatives and RRBs for production credit. The objective of providing refinance to
eligible institutions is to supplement their resources for delivering credit for agriculture,
cottage & village industries, SSIs, rural artisans, etc. thus influencing the quantum of
lending in consonance with the policy of Govt. of India. It directs the policy, planning
and operational aspects in the field of credit for agriculture and integrated rural
development.
STRUCTURE
NABARD operates throughout the country through its 28 Regional Offices and
one Sub-office, located in the capitals of all the states/union territories. It has 336 District

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MANAGEMENT OF BANK IN RURAL AREA


Offices across the country, one Sub-office at Port Blair and one special Cell at Srinagar.
It also has 6 training establishments.

NABARD ROLE AND FUNCTIONS


OVERVIEW
NABARD is set up by the Government of India as a development bank with the
mandate of facilitating credit flow for promotion and development of 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. With a capital base of 2,000 crore provided by the
Government of India and Reserve Bank of India.
NABARDS ROLES AND FUNCTIONS ARE SUMMARIZED BELOW
DEVELOPMENT AND PROMOTIONAL FUNCTIONS
Credit is a critical factor in development of agriculture and rural sector as it
enables investment in capital formation and technological up gradation. Hence,
strengthening of rural financial institutions, which deliver credit to the sector, has been
identified by NABARD as a thrust area. Various initiatives have been taken to strengthen
the cooperative credit structure and regional rural banks, so that adequate and timely
credit is made available to the needy.
In order to reinforce the credit function and to make credit more productive,
NABARD has been undertaking a number of developmental and promotional activities
such as:

Help cooperative banks and Regional Rural Banks to prepare development


actions plans for themselves.

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MANAGEMENT OF BANK IN RURAL AREA

Enter into MoU with state governments and cooperative banks specifying their
respective obligations to improve the affairs of the banks in a stipulated
timeframe.

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

Monitor implementation of development action plans of banks and fulfillment of


obligations under MoUs.

Provide financial assistance to cooperatives and Regional Rural Banks for


establishment of technical, monitoring and evaluations cells.

Provide Organization development intervention (ODI) through reputed training


institutes like Bankers Institute of Rural Development (BIRD), Lucknow
www.birdindia.com, National Bank Staff College, Lucknow www.nbsc.in and
College of Agriculture Banking, Pune, etc.

Provide financial support for the training institutes of cooperative banks.

Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks.

Create awareness among the borrowers on ethics of repayment through Vikas


Volunteer Vahini and Farmers clubs.

Provide financial assistance to cooperative banks for building improved


management information system, computerization of operations and development
of human resources.

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MANAGEMENT OF BANK IN RURAL AREA

CREDIT FUNCTIONS
REFINANCE AGAINST INVESTMENT CREDIT
This is a long-term refinance facility. It is intended to create income generating
assets in the following

Investment in agriculture and allied activities such as minor irrigation projects,


farm mechanization, 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.

Investment for artisans, small scale industries, tiny sector, village and cottage
industries, handicrafts, handlooms, power looms, etc.

Activities of voluntary agencies and self help groups working among the rural
poor.

Investment in share capital/securities of institutions involved in agriculture and


rural development
The credit is normally provided for a period of 3 to15 years
Sr.no.

Year

Amount (Rs.Lakhs)

1
2
3
4

1995-96
1996-97
1997-98
1998-99

83.000
128.484
261.364
467.486

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MANAGEMENT OF BANK IN RURAL AREA


ELIGIBLE INSTITUTIONS
NABARD provides refinance support to SCARDBs, SCBs, RRBs, CBs,
scheduled primary urban cooperative banks, North East Development Finance
Corporation Ltd. (NEDFI) etc. against their investment credit in the rural sector
PURPOSES
Some of the major purposes covered under investment credit are farm
mechanization, minor irrigation, plantation / horticulture, animal husbandry, storage /
market yards, fisheries, post harvest management, food / agro processing, non-farm
sector including rural industries, microfinance, purchase of land ( for small/marginal
farmers, share croppers etc.), rural housing and disbursements under poverty alleviation
programmes like SGSY and SC/ST Action plan etc. Hi-tech projects and agri export
zones are identified as thrust areas and NABARD helps in techno-financial appraisal of
such projects besides providing refinance.
In recent years, refinance support has been extended to new activities like
financing of diesel generator sets in Madhya Pradesh and LPG kits to rural households all
over the country.
CRITERIA
The technical feasibility of the project, financial viability and generation of
incremental income to ultimate borrowers thereby, enabling them to have a reasonable
surplus after repayment of the lone installments are the necessary conditions to be
satisfied for sanctioning investment credit. The period of loan ranges between 3 and 15
years depending on the purpose for which it is provided.
The refinance is provided to SCARDBs, SCBs, CBs and RRBs. However, the
beneficiaries of the programme are partnership concerns, companies, state-owned

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MANAGEMENT OF BANK IN RURAL AREA


corporations or cooperative societies. But, finally the assistance reaches the individuals,
who are members of the primary credit institutions.
The refinance is usually 50% to 95% of the project cost. The balance will be met
by the banks or the concerned state governments or the Government of India in the case
of SCARDBs.With a view to ensure credit flow to certain thrust areas, the quantum of
refinance is enhanced to 100% as in the case of special category beneficiaries like SC/ST
members and self help groups

SUPERVISORY FUNCTIONS
OVERVIEW
As an apex bank involved in refinancing credit needs of major financial
institutions in the country engaged in offering financial assistance to agriculture and rural
development operations and programmes, NABARD has been sharing with the Reserve
Bank of India certain supervisory functions in respect of cooperative banks and Regional
Rural Banks (RRBs)
As part of these functions, it:

Undertake inspection of Regional Rural Banks (RRBs) and cooperative bank


(other than urban/primary cooperative banks) under the provisions of Banking
Regulation Act, 1949.

Undertakes inspection of state Cooperative Agriculture and Rural Development


Banks (SCARDBs) and apex non-credit cooperative societies on a voluntary
basis.

Undertakes portfolio inspections, system study, besides off-site.

Surveillance of cooperative banks and Regional Rural Banks (RRBs).


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MANAGEMENT OF BANK IN RURAL AREA

Provides recommendations to Reserve Bank of India on opening of new branches


by State Cooperative Banks and Regional Rural Banks (RRBs).

Administering the Credit Monitoring Arrangements in SCBs and CCBs

CORE FUNCTION
NABARD has been entrusted with the statutory responsibility of conducting
inspections of State Cooperative Banks (SCBs), District Central Cooperative Banks
(DCCBs) and Regional Rural Banks (RRBs) under the provision of the Banking
Regulation Act, 1949. In addition, NABARD has also been conducting periodic
inspections of state level cooperative institutions such as State Cooperative Agriculture
and Rural Development Banks (SCARDBs), Apex Weavers Societies, Marketing
Federations, etc.on a voluntary basis.
OBJECTIVES OF INSPECTION

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


NABARD/RBI/Government.

To examine 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.

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MANAGEMENT OF BANK IN RURAL AREA

IMPORTANT SCHEMES OF NABARD


RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF)
In 1995-96 RIDF-I set up with a corpus fund of Rs. 2000 crore for the purpose of
financing rural infrastructure projects such as irrigation projects, construction of rural
roads and bridges, etc. The RIDF fund has been continued in subsequent years. The
RIDF IX (last in the Series) was introduced in 2003-04.
The RIDF came to an end with the commencement of the Lok Nayak Jai Prakash
Narayan fund in February 2004.

LOK NAYAK JAI PRAKASH NARAYAN FUND (AGRICULTURE


INFRASTRUCTURE AND CREDIT FUND)
The fund came into existence in Feb-2004.It replaced the RIDF.NABARD has
prepared this scheme with the following three components:

Finance for infrastructure through State Governments (Rs. 30000 crore).


Activities includes minor irrigation, rain fed agriculture, and flood control, public
sector cold storage facilities, etc. Eligible clients are state Governments, state
undertakings, and local bodies.

Finance for investments in agriculture and commercial infrastructure


through banking system (Rs.18000 crore).
Activities includes priority areas like micro irrigation, rain fed agriculture, postharvest related support, agriculture marketing, investment credit, etc. Eligible
clients are corporate, NGOs, and individual, etc.

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MANAGEMENT OF BANK IN RURAL AREA

Development measures and Risk Management Mechanism (Rs. 2000 crore).

REHABILITATION OF COOPERATIVE BANKS SCHEME


NABARD undertakes a rehabilitation programme for weak CCBs and SCBs.
Under this programme, it assists CCB and SCBs, which are financially and
administratively weak due to large overdue and untrained staff.

KISAN CREDIT CARD (KCC) SCHEME


This scheme was introduced in 1998-99 with a view to facilitate the flow of
timely and adequate 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 414 lakh KCCs involving credit of about Rs.97,
710 crore up to March 2004.
The KCC scheme is an ongoing scheme, which is envisaged to gradually replace
the traditional system and procedures in the issue of shot-term crop loan.
REFINANCE UNDER SGSY
NABARD has issued operational instructions to cooperative banks and RRBs
with regard to implementation of self employment projects under SGSY on similar lines
as was issued by RBI to commercial banks.
SELF-HELP GROUPS SCHEME
NABARD has been active in promoting and linking more and more self-help
groups (SHGs) to the banking system. The banks provide finance to SHGs. NABARD

30

MANAGEMENT OF BANK IN RURAL AREA


provides 100% refinance assistance to banks at an interest rate of 6.5% p.a. for financing
SHGs.
The concept pf SHGs promoted by NABARD for financing the poor was
introduced in 1991-92 under this scheme, the SHGs are linked with formal credit
agencies (banks). By March 2004, over 1.7 crore rural poor families accessed financial
services and credit through 10.79 lakh credit linked SHGs. Around 90% of these SHGs
are exclusive women SHGs. More than 30,000 branches and 500 banks which participate
in the programme have extended loans amounting to Rs.3,904 crore by March 31,2004
backed by refinance support of Rs.2,124 crore from NABARD.

MILESTONES OF NABARD
Some of the milestones in NABARDs activities are:

With its effective overseeing and monitoring of the implementation of the


Government of Indias programme to double the flow of credit to agriculture
over.

A three-year period from 2004-2005, the total disbursement of credit reached Rs.
1, 25,309 during 2004-2005. Ground level credit flow to agriculture and allied
activities reached Rs 1, 57,480 crore in 2005-2006.

Refinance disbursement to commercial banks, state cooperative banks, state


cooperative agriculture and rural development banks, RRBs and other eligible
financial institutions aggregated Rs 8,622.37 crore.

As on 31 January 2007 through the Rural Infrastructure Development Fund


(RIDF), Rs. 59,795.35 crore have been sanctioned for 2,31,702 projects covering
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MANAGEMENT OF BANK IN RURAL AREA


irrigation, rural roads and bridges, health and education, soil conservation,
drinking water schemes, etc. Development among hosts of other infrastructures,
RIDF will create 20971 schools, 6239 primary health centers and provide
drinking water supply in 7267 villages.

Watershed Development Fund, with cumulative sanctions of Rs. 578.95 crore


for 427 projects in 124 districts of 14 states, has created a Peoples Movement in
rural India.

Farmers now enjoy financial access and security through 582.50 lakh Kisan
Credit Cards that have been issued through a vast rural banking network.

District Rural Industries Project (DRIP) has generated employment for 23.34 lakh
persons with 10.95 lakh units in 105 districts.

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MANAGEMENT OF BANK IN RURAL AREA

NABARD TODAY

Initiates measures towards institution building for improving absorptive capacity


of the credit delivery system including monitoring formulation of rehabilitation
schemes restructuring of credit institutions, training of personnel etc.

Promotes research in the fields of rural banking, agriculture and rural


development.

Functions as regulatory authority, supervising, monitoring and guiding


cooperative and regional rural banks.

Undertakes monitoring and evaluation of projects refinance by it.

Prepares 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.

Coordinates the rural financing activities of all the institutions engaged in


developmental work at the field level and maintain liaison with the government of
India, state governments, Reserve Bank of India and other national level
institutions concerned with policy formulation.

33

MANAGEMENT OF BANK IN RURAL AREA

COMMERCIAL BANKS CONTRIBUTION

STATE BANK OF INDIA


State Bank of India Caters to the needs of agriculturists and landless agricultural
specialized branches which have been set up in different parts of the country exclusively
for the development of agriculture through credit deployment. These branches include
427 Agricultural Development Branches (ADBs) and 547 branches with Development
Banking Department (DBDs) which cater to agriculturists and 2 Agricultural Business
Branches at Chennai and Hyderabad catering to the needs of hi-tech commercial
agricultural projects.
Their branches have covered a whole gamut of agricultural activities like crop
production, horticulture, plantation crops, farm mechanization, land development and
reclamation, digging of wells, tube wells and irrigation projects, forestry, construction of
cold storages and godowns, processing of agri-products, finance to agri-input dealers,
allied activities like dairy, fisheries, poultry, sheep-goat, piggery and rearing of silk
worms. The branch also has farmers meet in villages to explain to farmers about various
schemes offered by the bank.
To give special focus to agriculture lending Bank has set up agri business unit.
Bank has also agri specialists in various disciplines to handle projects/ guide farmers in
their agri ventures. Advances are given for very small activity covering poorest of the
poor to hi-tech activities involving large fund outlays. They are the leaders in agri finance
34

MANAGEMENT OF BANK IN RURAL AREA


in the country with a portfolio of Rs. 18,000 crores in agri advances to around 50 lakhs
farmers.
State Bank of India has sponsored 30 RRBs, which operate in 102 districts of 16
States viz. Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chattisgarh, Himachal
Pradesh, Jammu & Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Meghalaya,
Mizoram, Nagaland, Orrissa, Uttaranchal and Uttar Pradesh, with a network of 2336
branches.

VARIOUS SCHEMES OFFERED BY STATE BANK OF INDIA


CROP LOAN (ACC)

PURPOSE
To provide financial assistance to meet cultivation expenses for various crops.
ELIGIBILITY FOR CROP LOAN
Agriculturists, Tenant farmers and share Croppers who actually cultivate the lands are
eligible for these loans. All categories of farmers Small/Marginal (SF/MF) and others
are included.
LOAN AMOUNT

35

MANAGEMENT OF BANK IN RURAL AREA


Loan amount is worked based on the cost of cultivation incurred for each crop per acre of
crop cultivated and 90% of the cost of cultivation (Scale of Finance) is given as loan.

KISAN CREDIT CARD SCEME (KCC) :-

PURPOSE
To extend adequate and timely support to farmers for their short term credit needs.
ELIGIBILITY FOR THE LOAN
Farmers with excellent repayment record for 2 years and new farmers with sizeable
deposits with branches for 3 to 4 years are eligible. Borrowers with good track record in
other Banks are also eligible. Farmers who have defaulted in repayment but have
liquidated the outstanding are also eligible.
LOAN AMOUNT
Loan amount is decided based on the cropping pattern, ancillary and contingency needs
of the farmer for the full year. 90% of the cost of cultivation (Scale of Finance) is given
as loan per acre. 100% of the cost is available as loan up to Rs. 50,000/- and 85% of the
cost is available as loan above Rs. 1, 00,000/-

36

MANAGEMENT OF BANK IN RURAL AREA

ARM MECHANISATION SCHEMES


PURPOSE
Credit for purchase of farm equipment and machinery for agricultural operations. The
scheme covers activities ranging from purchase of tractors and accessories, trailers.
Power tillers, combine harvesters, power sprayers, dusters, threshers etc.
ELIGIBILITY FOR TERM LOANS
Farmers owning mare than minimum acreage of perennially irrigated lands are eligible
(for power tillers 2 acres, for tractors 4 acres for > 35 HP and 6 acres for above 35 HP
and for combine 8 acres). Eligibility for purchase of other farm equipment is decided on
the income generated by the agri activity undertaken by.
LOAN AMOUNT
Up to Rs. 50,000/- 100% of the cost of the asset is provided as loan. Above Rs. 50,000/up to 85% of the cost of the asset provided as loan.

37

MANAGEMENT OF BANK IN RURAL AREA


LAND DEVELOPMENT SCHEMES

PURPOSE
To provide credit solution for land development projects in the form of direct finance to
cultivators for better productivity.
Loans under this head cover various activities like land clearance ( removal bushes, trees,
etc.), land leveling and shaping, contour/ graded bunding, bench terracing for hilly areas,
contour stone walls, staggered contour trenches, disposal drains, reclamation of saline/
alkaline soils and fencing etc.
ELIGIBILITY FOR TERM LOANS
All farmers owning agricultural land are eligible.
LOAN AMOUNT
Up to Rs. 50,000/- 100% of the cost of the asset / project cost is provided as loan. Above
Rs. 50,000/- up to 85% of the cost of the asset / project is given as loan.

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MANAGEMENT OF BANK IN RURAL AREA

LOAN AGAINST WAREHOUSE RECEIPTS / COLD STORAGE RECEIPTS


PURPOSE
The Bank extends financial assistance to farmers storing produce in private / government
warehouse/ cold storages against pledge of warehouse / cold storage receipt to prevent
distress sale. The maximum repayment period of the loan is 6 months.
WHO IS ELIGIBLE FOR THE LOAN
All categories of farmers availing crop loan.
LOAN AMOUNT
The lone amount will be 60% of the value (minimum support price) of the produce
stored.

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MANAGEMENT OF BANK IN RURAL AREA


MINOR IRRIGATION SCHEMES

PURPOSE
To provide credit for creating irrigation facilities from underground / surface water
sources. All structures and equipments connected with it are also financed. Loans cover
various activities like digging of new wells (open/bore wells), deepening of existing
wells (traditional/in well bore), energisation of wells (oil engine/electrical pump set),
laying of pipe lines, installing drip/ sprinkler irrigation system and lift irrigation system.
ELIGIBILITY FOR TERM LOANS
All farmers having a known source of water which can be exploited for irrigation
purpose.
LOAN AMOUNT
Up to Rs. 50,000/- 100% of the cost of the asset/ project cost is provided as loan. Above
Rs. 50,000/- up to 85% of the cost of the asset / project is provided as loan.

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MANAGEMENT OF BANK IN RURAL AREA


OTHER SCHEMES INCLUDES

PRODUCE MARKETING LOAN SCHEME

FINANCE TO HORTICULTURE

FARM MECHANISATION SCHEMES

AGRICULTURAL TERM LOANS (ATL)

LAND DEVELOPMENT SCHEMES

MINOR IRRIGATION SCHEMES

LEAD BANK SCHEME

FINANCING OF COMBINE HARVESTERS

KISAN GOLD CARD SCHEME

BROILER PLUS SCHEME

KRISHI PLUS SCHEME

ARTHIAS PLUS SCHEME

DAIRY PLUS SCHEME

LAND PURCHASE SCHEME

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MANAGEMENT OF BANK IN RURAL AREA

KEY PERFORMANCE INDICATORS: RRBS


Amount in Rs. Crore
Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

No. of RRBs

196

196

133

2.

No. of districts

518

523

525

3.
4.
5.

covered
No. of branches
No. of staff
Credit-deposit

14446
69249
46%

14484
68912
53%

14494
68629
56%

(CD) ratio (%)

KEY PERFORMANCE INDICATORS: RRBS


Amount in Rs. Crore
Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

Owned Funds

5438

6181

6647

2.

Deposits

56350

62143

71329

3.

Borrowings

4595

5524

7303

4.

Investments

36135

36761

41182

5.

Loans

26114

32870

39713

outstanding

KEY PERFORMANCE INDICATORS: RRBS

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MANAGEMENT OF BANK IN RURAL AREA


Amount in Rs. Crore
Nos.

Indicators

Year
31.03.2004

31.03.2005

31.03.2006

1.

Loans issued

15579

21082

25427

2.

No. of RRBs

90

83

58

having
accumulated
3.

losses
Accumulated

2725

2715

2637

4.

losses
No. of RRBs in

163

166

111

5.

profit
Net NPA (%)

8.55%

4.84%

3.99%

KEY PERFORMANCE INDICATORS: RRBS


Amount in Rs. Crore
Nos.

1.

Indicators

Recovery (%)

Year
31.03.2004

31.03.2005

31.03.2006

73%

78%

80%

(as on 30 June)
2.

Per branch

5.71

6.56

7.66

3.

Productivity
Per staff

1.19

1.38

1.62

Productivity

IMPORTANT TRENDS

111 RRBs out of total 133 registered profit in the year 2005-06.

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MANAGEMENT OF BANK IN RURAL AREA

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 2003-04 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.

Per staff productivity has increased from Rs. 1.19 crore on 31 March 2004 to Rs.
1.62 crore on 31 March 2006.

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MANAGEMENT OF BANK IN RURAL AREA

MUHAMMAD YUNUS & GRAMEEN BANK

NOBEL PEACE PRIZE WINNER MUHAMMAD YUNUS


Muhammad Yunus ideas about lending to the poor to lift millions out of poverty.
Have changed lives in his native Bangladesh and beyond. Known as the banker to the
poor, Yunus, winner of the 2006 Nobel Peace Prize, has helped people rise above
poverty by giving them small, usually unsecured loans through his Grameen Bank.
Through Yunuss efforts and those of the bank he founded, poor people around
the world, especially women, have been able to buy cows, a few chickens or the cell
phone they desperately needed to get ahead.
Yunus is the first Nobel Prize winner from Bangladesh, a poverty-stricken nation
of about 141 million people located on the Bay on Bengal.
Yunus received a Ph.D. in economics from Vanderbilt University in 1970 and
taught at Middle Tennessee University from 1969 to 1972. After returning to Bangladesh,
he joined the University of Chittagong as head of the Economics Department. He also
holds honorary doctorate degrees from dozens of universities around the world.

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MANAGEMENT OF BANK IN RURAL AREA


Yonus has won dozens of international awards, including the Simon Bolivar
Prize, the Indira Gandhi Peace Prize, the Seoul Peace Prize and the Freedom Award of
the International Rescue Committee.
He has also been appointed as an International Goodwill Ambassador for
UNAIDS by the United Nations and inducted as a member of Frances Legion
dHonneur.
From 1993 to 1995, Yunus was a member of the International Advisory Group for
the Fourth World Conference on Women, a post to which he was appointed by the U.N.
secretary general. He has served on the Global Commission of Womens Health, the
Advisory Council for Sustainable Economic Development and the U.N. Expert Group on
Women and Finance.
In addition to Grameen Bank, Yunus has created numerous other companies in
Bangladesh to address poverty and development issues. Those companies are involved in
a range of industries, including mobile telephony, Internet access, capital management
and renewable energy.
Grameen Bank was the first lender to hand out microcredit, giving very small
loans to poor Bangladeshis who did not quality for loans from conventional banks. No
collateral is needed and repayment is based on an honor system.
Grameen, which means rural in the Bengali language, says the method
encourages social responsibility.

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MANAGEMENT OF BANK IN RURAL AREA

A LOOK AT GRAMEEN BANK


WHAT IS IT: The Grameen Bank hands out microcredit, or very small loans, to the poor
peoples of Bangladesh who, do not qualify for loans from conventional banks. No
collateral is needed and repayment is based on an honor system.
HOW DID IT START: In 1974, Yunus, then an economics professor recently returned
from the United States, lend a total of $27 to 42 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. Emboldened by his experiment, Yunus won
government approval in 1983 to open Grameen, Bengali for rural.
WHO QUALIFIES: Anyone can qualify, but they must belong to a five-member group.
Once the first two members begin to pay back their loans, the others can get theirs. While
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: Grameen claims a 99 percent repayment rate. According to a recent
Grameen survey, 58 percent of the families of Grameen borrowers have crossed the
poverty line.
WHO OWNS THE BANK: The government of Bangladesh owns 6 percent of the bank
while the borrowers own the other 94 percent.
WHAT ARE THE NUMBERS: The bank has handed out $ 5.72 billion since its
inception to 6.61 million people had been repaid $ 5.07 billion. Women account for 97
percent of the loan takers. Grameen Bank has 2,226 branches, works in 71,371 villages
and has a total staff of 18,795

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MANAGEMENT OF BANK IN RURAL AREA

CONCLUSION

There are 185 million bankable adults in rural India who are unbanked because of access
and usage issues. This presents a significant opportunity for commercial banks.
However, to reach this market and subsequently build an inclusive financial system, there
must be a coordinated and concerted effort by the three key stakeholders: the Government
of India, the Reserve Bank of India and the commercial banks.
In addition, a partnership between banks and business correspondents, and collaboration
amongst banks is critical.
Furthermore, banks should tailor their product and service mix to meet rural
needs, and adapt their delivery models to ensure commercial viability of their rural
banking operations.

48

MANAGEMENT OF BANK IN RURAL AREA

BIBLIOGRAPHY

Books Referred:
Investment Banking and Securities Trading.
Book : Commercial banking management
Business Banking (Business Library Series) Paperback January 1, 2001
Commercial Bank Management 5th Edition
Commercial Banking: The Management of Risk
James W. Kolari

The Bank Director's Handbook: The Board Member's Guide to Banking & Bank
Management (Bankline Publication)
Benton E. Gup

Commercial Bank Financial Management (6th Edition)


Joseph F. Sinkey

Business Banking (Business Library Series)


Theodore A. Platz Jr.

Modern Banking
Shelagh Heffernan

Internet Websites:

www.google.com
www.wikipedia.orgwww.economictimes.com
www.timesofindia.com
www.rbi.org
www.hindubusinessline.com

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MANAGEMENT OF BANK IN RURAL AREA

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