Professional Documents
Culture Documents
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
Chhattisgarh
Gujarat
Haryana
Himachal Pradesh
Punjab
Assam
Kerala
Jharkhand
Tamil Nadu
Madhya Pradesh
Maharashtra
Bank
Bank
Rajasthan
Orissa
West Bengal
Meghalaya
Arunachal Pradesh
Nagaland
Manipur
Uttar Pradesh
Uttaranchal
Source: Census India ;BSR 2008Reserve Bank of India; World Bank & NCAER (2008).
Service Provided
Intermediaries
ATM
- Onsite
ATM installed at a branch
- Offsite
ATM installed at a remote
Location
- Cash Withdrawal
- Cash Deposit
- Money Transfer
- Cheque Book Request
- Bill Payments
- Cash Withdrawal
- Cash Deposit
- Money Transfer
- Cheque Book Request
- Bill Payments
-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
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
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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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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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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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.
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15
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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
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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
18
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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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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21
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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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.
Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks.
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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 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.
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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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:
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 ensure that the business conducted by this banks is in conformity with the
provisions of the relevant acts, rules, regulations bye-laws etc.
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MILESTONES OF NABARD
Some of the milestones in NABARDs activities are:
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.
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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NABARD TODAY
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.
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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
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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/-
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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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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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FINANCE TO HORTICULTURE
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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%
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
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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%
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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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.
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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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.
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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
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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