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Banking in rural

area

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CONTENTS

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INDIAN BANKING SYSTEM

SCHEDULEDBANK (338)

FOREIGN BANKSPUBLIC SECTOR

BANKS

NATIONALISED

NATIONALISED(6) JULY19 1969

NATIONALISED(4)APRIL 15 1980

REGIONAL RURAKBANKS

STATE BANK OFINDIA

ASSOCIATES OFSTATE BANK

PRIVATE SECTORBANK

NON SCHEDULEDBANKS (4)

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NABARD

(National Bank for Agriculture

and Rural Development)

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Spheres of activities

NABARD provides refinance for short ,medium and long term loansunder farm and non-farm sector.

It also provides short-term loan assistance to state co-operativebanks on behalf of DCCBs &RRBs for financing seasonalagricultural operations.

Purchases/Procurement and distribution of agricultural fertilizer and

other inputs likewise.

Medium term loan facilities are available to co-operative banks forapproved agricultural purposes

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ContdShort term refinance facilities under non-farm sector include

credit limit to SCBs, DCCBs for meeting working capitalrequirements.

Short term credit facilities are also available for RRBs&commercial banks for financing non agricultural activities.

it also provides refinance to banks for financing government

sponsored programes.

NABARD has introduced a floating refinance rate foradvances over Rs. 2lakhs in respect of commercial banks.

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Functions of NABARD Serves as an apex refinancing agency for institution

promoting various development activities in rural areas.

Takes measures towards institutions for improving.&monitoring, rehabilitation, restructuring of credit.

It will provide refinance credit for promotion of economic

activities in rural areas.

It will grant loans and advances to state government forperiods not exceeding 20yrs.

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Contd NABARD shall be responsible for development relating to

rural credit.

It will take inspections in co-oprative banks and RRBs.

Co-ordinate rural financing activities of all institutionsengaged in development work.

Undertake monitoring and evaluation of projects.

It will maintain research and development fund to promoteresearch in agricultural an rural development.

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RRBS(Regional Rural Banks)

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Functions of RRBsRRBs are mainly required to open branches & spread

their network in remote rural areas.

They are required to mobilize deposits & to promotesaving habits among rural people.

They are required to dispense credit in favor ofeconomically weaker sections of population.

To provide banking facilities.To avoid competition with other banks in rural areas.

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Problems of RRBs Inadequate Deposit Mobilization.

Poor recovery of loans.

More losses and less profit.

Rate of vested interest group.

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Contd. Poor development of rural areas.

Lack of co-ordination.

uncertain future of RRBs.

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Measures to improve Uniform policies.

Promote recovery.

Support of government.

Equipped with latest data.

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Contd. National rural bank.

Rationalize credit supply.

proper coordination.

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Difference between RRBs & Commercial Banks.

Basis of DifferenceRRBs Commercial Banks

(1) Act Applicable The Regional rural Banks

Act,1976 governs all theRRBs.

Whereas Commercial

banks are governed byBanking Regulation Act1949.

(2) Area of operation The area of operation ofRRBs is restricted to aregion comprising of one

or more districts in astate.

But the area of operationof commercial banks areunlimited.

(3)Cash reserves RRBs is required tomaintain 3%.

commercial banks isrequired to maintain9-10%.

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Contd

Basis of DifferenceRRBs Commercial Banks

(4) liquidity The RRBs are required to

maintain 25% of SLR.

Whereas Commercial

banks are required tomaintain 37% of SLR.

(5) Cost of operation The RRBs are expected towork at lower cost.

The cost of operation ofcommercial banks aremuch higher.

(6) Refinance facility RRBs enjoythe refinancefacility.

No such facility ofrefinancing available tocommercial banks.

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Contd

Basis of DifferenceRRBs Commercial Banks

(7) Staff pattern The RRBs recruit local

people to ensure the local

feel and familiarity.

Whereas Commercialbanks recruit their staff

on all India basis.

(8) Income tax payment The RRBs are exemptedfrom paying taxes onearning.

But the commercialbanks have to paycorporate tax on interestearnings and otherearnings.

(9) Inspections The NABARD has beenauthorized to havestatutory inspection ofthe RRBs.

Whereas the RBIperforms the statutoryinspection ofcommercial banks.

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Conclusion Rural banking has travelled long way since the first

nationalization of banks.

Government has aimed in accelerating ruraldevelopment.

overcome the difficulties and achieve ruraldevelopment by eradicating poverty and equal supplyof money.