RURAL BANKING IN INDIA

Rural sector occupies an important place in the Indian
economic system, as 75 % Indian live in rural areas and more than 83% of people
living in rural areas are dependent upon agriculture as means of income. Agriculture
(along with its related activities) contributes around 37 % to National Income.
Hence, the development of agriculture would mean development of rural areas and
related activities as a sector and different classes of people residing in the
country areas has been the primary focus of policy formulation in the successive
Five Year Plans of the country.

The agricultural production and productivity primarily
relies on the adoption of new farm techniques and technologies. The adoption of
new tools practices relies on the availability of larger and larger amount of funds,
and this is largely influenced by the structure and operations of the financial
institutions located in the country areas. India has been
successful in developing one of the largest rural banking systems in the world.
The National Bank for Agricultural and Rural Development (NABARD) is the apex
institution which looks after all matters concerning policy, planning, operation
in the field of credit for agriculture and other economic activity in rural areas.
Public policy are aimed at meeting rural credit needs and pushing out the
informal sector and the exploitation to which it subjected borrowers.

 

STRUCTURE OF RURAL
BANKING IN INDIA

 

The above chart presents the rural banking structure
in India.

 

The rural banking structure consists of three banking
institutions providing finance at the grass-root level:

·      
Co-operatives,

·      
Commercial
Banks

·      
Regional
Rural Banks

The co-operative credit structure comprises of two
types:

·      
Short
term engagement and Medium credit.

·      
Long
term credit

The short term credit structure is federal in nature,
based on 3 tier pattern with the apex banks at the state level, Central Co-operative
Banks at the district level and co-operative credit societies at the village
level. The State Co-operative Banks are the highest level institutions aimed at
financing the District Cooperative Central Bank. DCCBs in turn finance the
co-operative credit societies at the primary level. The long term credit
structure is either Federal in character with State Co-operative Land
Development Banks (SLDBs) as the highest institutions at the State Level and
Primary Land Development Banks (PLDBs) or branches of SLDBs at the Taluka/block
level. The GSLDB have unitary structure having branches located at the taluka
level.

Thus, the field level co-operative institutions which
provide credit to individual borrowers comprises of

(i)            
Primary
Agricultural Credit Society (PACS): Providing both short term and medium term
credit to their members

(ii)          
PLDBs
or branches of SLDBs dispensing long term credit to their members. The
reorganisation programme of PACS was introduced in early sixties to make them
strong.

Based
on the recommendations of CRAFICARD, the NABARD has designed a set of
guide-lines for planning the future development of re-organised societies in a
phased manner. State Bank of India and its associates along with nationalised
banks comprises the Public Sector banks. The CBs provides both short-term and
long-term loans to farmers and also finance related activities like marketing,
processing and storage in rural areas through their rural branch network.  

Regional
Rural Banks as new institutional agency were established in 1975, to meet the
credit requirements of rural poor those of which were neglected both until now
by co-operatives and CBs. The organizational
structure for RRB’s differs from every branch to branch and depends upon the
nature and size of business done by the branch.

Objectives of Regional Rural Bank are
the following:

·      
To provide credit and
other facilities in rural areas, specifically to the small and marginal
farmers, agricultural laborers, artisans and small entrepreneurs so as to
develop agriculture, trade, commerce, industry and other productive activities
in the rural areas.

·      
To mobilize rural saving
and inculcate banking habits in the rural areas.

·      
To provide employment to rural
educated youth who have the required orientation to look after the needs of the
rural folk.

·      
To reduce the costs of
rural banking.

 

Functions of Regional
rural banks

To
achieve the stated objectives as above, the regional rural banks undertake such
functions that contribute to the socio-economic development of the rural
people. The functions which they have undertaken are:

·      
Opening branches in
potential areas.

·      
 Mobilizing rural savings by inculcating saving
habit through designing appropriate saving schemes suitable to the rural
people.

·      
Deploying credit
adequately in right time to the target group such as small and marginal
farmers, agricultural labourers, artisans and small entrepreneurs etc., who are
economically potential.

·      
Undertaking the supply, extension
and customer services.

·      
 Monitoring the projects financed.

·      
 Recovering loans lent for recycling to the
economic significance programmes of the rural sector.

·      
Acting as agent for
marketing mutual fund units.

 

Organizational Structure
of Regional Rural Bank

Each
Regional Rural Bank is sponsored by a public sector bank which guides them in
different ways of subscription to its share capital, provision of such
managerial and financial assistance as may be mutually agreed upon and help in
the recruitment and training of personnel during the initial period of its
functioning. In addition to this, Central Government provides necessary
guidelines for the formulation and implementation of policies in respect of
these banks.

A
bird-eye-visualisation of facts pertaining to organisation of these banks shows
the following segments of organisation:

·      
Chairman

·      
Committees of Board

·      
Operating Personnel

·      
Branch Organization

 

Chairman:

Government
of India appoints an eligible individual as Chairman for five years and such
individual may be reappointed even after his term gets over. He receives salaries
(provided by the sponsoring banks) and allowances and are governed by terms and
conditions of service as laid by the Central Government. However, the Chairman
of the Regional Rural Banks is appointed by the Government of India on the
recommendation of the sponsoring banks. The latter is a recommended person from
among the employees of the bank for this post. The Chairman who is appointed
remains on deputation with the Regional Rural Banks.

 

Committees of Board:

All
matters related to operations of Regional Rural Banks may not be decided by one
individual alone (committee form of organisation has also been preferred). The
Board of Directors may comprise such committees, whether consisting only directors/other
persons or a combination of directors and other persons as it fits for such
purposes. Committees are expected to be formed to deal with certain matters. It
shows that organisation structure of these banks would provide room for
technical hands and subject experts.

 

Operating Personnel:

Every
Regional Rural Bank is empowered to appoint number of officers and other
employees as it may consider necessary for the efficient performance of its
functions and may determine the terms and conditions of their appointment and
service. However the sponsoring bank may send a certain number of officers and
employees on deputation as may be required and desirable but only when it has
been requested by the Regional Rural Bank sponsored by it and that too only in
the first five years of functioning. The remuneration of officers and other
employees appointed by a Regional Rural Bank shall be such as may be specified
by the Central Government keeping into account and giving due regard to the
salary structure of the employees of the State Government and the local
authorities of comparable level and equal status in the notified area in which
the Regional Rural Bank is to operate.

It
is not only necessary that persons from the locality of Regional Rural Banks
are recruited, there is great need for their proper training also. In order to
help them to have trained staff as early as possible, the RBI has undertaken
the task of providing training to the Chairman and Branch Manager.

 

Branch Organization:

One
of the objectives underlying the Regional Rural banking (RRB) channels is to
extend to remote rural areas particularly to un-banked and under banked
centres. One of the important objectives of Regional Rural Banks is to
implement a program of expending facilities which would provide full advantage
of the organised banking to the rural customer.