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Potential And Growth Or Regional Rural Bank

INTRODUCTION

Regional Rural Banks: These banks were first set up in the year 1975 particularly to give direct loans and advances to undersized and minor farmers, agricultural laborers as well as to rural artisans and other of small means. The loans are given for productive purposes to the farmers. There were around 196 RRBs which have been lending around Rs. 3600 crores annually by way of loans to rural people. Over 90 percent of the loans of RPBs are given to the weaker sections in rural areas.

The regional banks, though basically scheduled commercial banks, differ from the latter in certain respects:

The area of regional rural banks is limited to a specified region comprising one or more districts of a State.

The regional rural banks grant direct loans and advances only to small and marginal farmers, rural artisans and agricultural laborers and other of small means for productive purposes.

The lending rates of the regional rural banks should not be higher than the prevailing lending rates of co-operatives societies in any particular State. The sponsoring banks and the Reserve Bank of India provide many subsidies and concessions to RRBs to enable the latter to function effectively

Concessions to RRBs: From the beginning, the sponsor banks have continued to provide managerial and financial assistance to RRBs and also other concessions such as lower rate of interest on the latter’s borrowing from sponsor banks. Further, the cost of staff deputed to RRBs and training expenses of RRB staff are borne by the sponsor banks. The Reserve Bank of India has been granting many concessions to RRBs.

Progress of RRBs: There are now 196 regional rural banks in 23 States with 14,500 branches. As at the end of September 1990 the regional rural banks had advanced Rs.3,560 crores by way of short-term crop loans, term loans for agricultural activities, for rural artisans, village and cottage industries, retail trade and self employed, consumption loans etc. Nearly 90 percent of the loans of RRBs, were provided to the weaker sections. State wise Uttar Pradesh found large number of offices.

Objectives of RRBs:

RRBs had followed instructions given by RBI and Government of India regarding loan policies, procedures, etc.

The basic aim of setting up RRBs viz, developing the rural economy by providing credit for the development of agriculture, trade, commerce industry and other productive activities in rural areas, was being fulfilled and

RRBs had successfully maintained their image as a small man’s bank by confining their credit facilities to the target groups viz, small marginal farmers, agricultural labourers, artisans and small enterprises for productive activities.

The recovery position on the whole was not satisfactory.

Problems in functioning of RRBs:

On account of the many restrictions place on the business they can undertake, RRBs have low earning capacity.

The wage and salary scales of RRBs have been rising and, in fact, with the recent award of a tribunal, their scales would approximate those of commercial banks; with the increase in salary scales, an important rationale for the setting up of RRBs has ceased to exist.

The sponsoring banks are also running their own rural branches in the very area of operations of the RRBs; this has given rise to certain anamolies and to avoidable expenditure on controls and administration.

Regional rural banks were established under the provisions of an ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. The RRBs mobilize financial resources from rural, semi rural areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans. The area of operation of RRBs is limited to the area as notified by GOI covering one or more districts in the state.

RRBs are jointly owned by GOI, the concerned state government and sponsor banks (27 scheduled commercial banks and state cooperative bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively.

Importance of the Study

Scope of the study

OBJECTIVE OF THE STUDY

The study undertaken includes the study of Potential & growth or Regional Rural Bank.

Along with all this the basic objectives of the study undertaken are as follows:

To understand the role of Rural banking in India.

To find out those industries which are being facilitated by rural banks.

To find out causes and reasons for being successful in micro-financing.

To know the expansion rate of rural banking in India.

REVIEW LITERATURE

Chandrasekhar and Ghosh (1998) Classified the policies of financial liberalization in India in to three types: first, policies to curtail government intervention in the allocation of credit, secondly, policies to dismantle the public sector and foster private banking, and thirdly, policies to lower capital controls on the Indian banking system.

Later in 2000, V. K. Ramchandran madhura swaminathan (Indian statistical institute, Kolkata) studied the formal sector of rural credit is the sector in which loan transactions are regulated by legislation and other public policy requirements. The institutions in this sector include commercial banks, Regional Rural Banks, cooperative banks and credit societies, and other registered financial institutions. The informal sector of credit is not regulated by the public authority, and the terms and conditions attached to each loan are personalized, and therefore vary according to the bargaining power of borrowers and lenders in each case.

S. L. Shetty (2004) discusses

the narrowing of the branch network in rural areas after the onset of financial

liberalization. Such an “institutional vacuum,? he argues, is likely to affect outcomes of future policies in rural areas, even the new policy for provision of credit through self-help groups.

Chandrasekhar and Ray (2004) point

To the growing presence of foreign banks in India, their direct presence and their indirect presence through the purchase of shares in existing private banks. This expansion is not good news for the priority sector. When data for scheduled commercial banks are disaggregated by type of bank (public sector banks, regional rural banks, private banks and foreign banks), we find that foreign banks did not lend to rural areas or agriculture.

Pallavi Chavan (2004) has examined

The growth and regional distribution of rural banking over the period 1975-2002. Chavan’s paper documents the gains made by the historically underprivileged regions of east, north-east, and central India during the period of social and development banking. These gains were reversed in the 1990s: cutbacks in rural bank branches and in rural credit-deposit ratios were steepest in the eastern and north-eastern states of India. Policies of financial liberalization have unmistakably worsened regional inequalities in rural banking in India.

History Of The Rural Economic Structure Of India

Indian Economy in the Pre-British period:-

The Indian economy in the pre-British period consisted of isolated and self-sustaining villages on the one hand, and towns, which were the seats of administration, pilgrimage, commerce and handicrafts, on the other. Means transport & communication were highly underdeveloped and so the size of the market was very small..

Industries & handicrafts in Pre-British India:

The popular belief that India had never been an industrial country, is incorrect. It was true that agriculture was the dominant occupation of its people but the products of Indian industries enjoyed a worldwide reputation. The Muslim of Dacca, the calicos of Bengal, the sarees of Banaras and other cotton fabrics were known to the foreigners. The chief industry spread over the whole country was textile handicrafts. The textile handicrafts includes chintzes of Lucknow, dhotis and dopattas of Ahmedabad, silk, bordered cloth of Nagpur and Murshidabad. In addition to cotton fabrics, the shawls of Kashmir, Amritsar and Ludhiana were very famous. India was also quite well-known for her artistic industries like marble-work, stone-carving, jewellery, brass, copper and bell-metal wares, wood-carving, etc. The cast-iron pillar near Delhi is a testament to the high level of metallurgy that existed in India. In this way Indian industries, “Not only supplied all local wants but also enabled India to export its finished products to foreign countries?.

Agricultural Impact on National Economy

Agriculture is a backbone of the Indian Economy. It is important to note that importance is given to industrialization in last four decades, agriculture is largest industry in the country.

AGRICULTURAL PRODUCTION

The agricultural sector as a whole is estimated to record a real growth rate of 6.6 per cent during 1998-99. The overall growth in agricultural production during 1998-99 has been provisionally estimated at 6.8 per cent, as against a negative growth rate of (-) 5.4 per cent during 1997-98.img_agr

Foodgrains Production

The production of kharif foodgrains estimated at 102.5 million tonnes during 1998 showed a marginal growth of 1.4 per cent over the production achieved (101.1 million tonnes) in 1997. The rabi foodgrains production for 1998-99 is expected to go up to 98.4 million tonnes compared to 91.3 million tonnes in 1997-98. The foodgrains production is estimated to be 200.9 million tonnes in 1998-99 compared to 192.4 million tonnes during 1997-98, recording an impressive increase by 4.4 per centimg_food

Agricultural Production-Major crops (in million tonnes)

Year

1995-96

1996-97

1997-98

1998-99

Crops

Achiev-ement

Target

Achievement

% change over

1995-96

Target

Achiev-ement

% change over

1996-97

Target

Produ-ction

(Adv. Est.)

% change over

1997-98

Rice

77.0

81.0

81.7

6.1

83.0

82.3

0.7

84.2

84.5

2.7

Wheat

62.1

65.0

69.4

11.8

68.5

65.9

(-) 5.0

70.0

70.6

7.1

Coarse Cereals

29.0

29.0

32.5

34.1

17.6

33.5

31.1

(-) 8.8

34.3

30.6

Pulses

12.3

15.0

14.2

15.4

15.0

13.1

(-) 7.7

15.5

15.2

16.0

Total Foodgr-ains

180.4

193.5

199.4

10.5

200.0

192.4

(- 3.5

204.0

200.9

4.4

Oilseeds

22.1

23.0

24.4

10.4

25.5

22.0

(-) 9.8

27.0

25.3

15.0

Sugarca-ne

281.1

270.0

277.6

(-) 1.2

280.0

276.3

(-) 10.5

300.0

282.7

2.3

Cotton*

12.9

13.0

14.2

10.0

14.8

11.1

(-) 21.8

14.8

13.3

19.8

* Million bales of 170 kg. each.

Agricultural Exports and Imports

Agriculture Exports

The share of exports of agriculture and allied products in the total exports had declined marginally, from 18.9 per cent during 1997-98 to 17.8 per cent during 1998-99. During the same period, the value of exports of agriculture and allied products amounted to US$ 5,994 million, showing a decline of 9.6 per cent from a level of US$ 6,634 million in 1997-98. Major items of agricultural exports were basmati and non-basmati rice, raw cotton, meat, oilmeals, tea, coffee, unmanufactured tobacco, cashew, spices, fresh and processed fruits and juices, vegetables and marine products, etc.

Agriculture Imports

Agricultural imports related to food and other items constituted 5.8 per cent of the total imports during 1998-99, as against 4.0 per cent during corresponding period of the previous year. Important agricultural items imported during the year were vegetable oils (edible), sugar, wheat and fruits & nuts. During 1998-99, the volume of agricultural imports aggregated US$ 2,409 million, as against US$ 1,678 million during the corresponding period of the previous year, recording a growth of 43.6 per cent.

Agricultural markets:

There were 7,062 agricultural regulated markets operating in India, 162 agricultural commodities considered for grading standards and 3,253 cold storage with capacity of 8.73 million tonnes as on end March 1998.

Role Of Rural Banking in Agriculture and in Indian Economy

Agriculture for Industrial Development:

Indian agriculture has been the source of supply of raw materials to our leading industries. Cotton and jute, textiles, sugar, plantations— all these directly depend on agricultural output. There are many industries, which depend on agriculture indirectly. Many of our small scale and cottage industries like handlooms, oil crushing, etc depend on agriculture for their raw materials.

But then, in recent years, agriculture is losing its significance to industries such as iron and steel, engineering, chemicals, etc. However in recent years, the importance of food processing industries is being increasing recognized both for generation of income and generation of employment.

Agriculture in economic planning:

Importance of agriculture in the national economy is indicated by many facts. For example, agriculture is main support for transport sector as railways and roadways secure bulk of their business from the movement of agricultural goods. Further it is seen that good crops implying large purchasing power with the farmers lead to greater demand for manufactures and therefore better prices. In other words prosperity of farmers is also the prosperity of the industries and vice-versa. Agriculture is backbone of the Indian economy and the prosperity of agriculture can also stand for the prosperity of the economy. At the same time it is true that per capita productivity in agriculture is less than in the industry. Many scholars think that so long as the Indian Economy is dominated by agricultural activity, per capita income will not rise to an extent, which is necessary and desirable

Structure of Rural Credit In India

“In the village itself no form of credit organization will be suitable except the Co-operative Society—Co-operation has failed, but co-operation must succeed.?

--All-India Rural Credit Survey

National Policy & It’s Aim:

Agricultural credit is one of the most crucial inputs in all agricultural development programmes. From olden days private money-lenders are main sources of credit towards agricultural or rural products .

The basic aim of this Policy is as follows:-

a. To ensure timely & sufficient flow of credit to the farming sector;

b. To avoid money-lender chain from rural scene.

c. To reduce regional imbalance through their credit facilities.

d. To provide larger credit support to areas covered by special programmes. e.g. National Oilseeds Development Project.

SOURCES OF RURAL CREDIT

There are mainly two sources available to the farmers private agencies & institutional. Private agencies means relatives, landlords, agricultural moneylenders, professional private moneylenders, traders & commission agents, others. Where institutional agencies are

a. commercial banks,

b. the state bank,

c. co-operative societies & land mortgage banks

d. agricultural finance Corporation.

Private agencies giving 93% of the total credit requirements in 1951-52 and institutional sources including government giving for only 7% of the total credit needs. But in 1960-61, the share of private agencies came down to 81.3 which was as follows:- Relatives 8.8%, Landlords 0.6%, Agricultural moneylenders 36.0, Professional private moneylenders 13.2%, traders & commission agents 8.8%, other sources 13.9. that time institutionals sources were 18.7 and the break up was government 2.6%, Co-operative 15.5%, Commercial banks 0.6%. As per the All India Debt and Investment Survey (1981), estimated that the share of private agencies had further slumped to about 37% & share of institutional credit jumped to 63% break up was 30% of co-operative & 29% of commercial banks. Government & Reserve Bank of India is supporting commercial bank & co-operatives to meet the growing demand for agricultural credit.

Role of reserve bank of India in development of rural banks

RBI had shown keen interest in agricultural credit and maintained a separate department for this purpose. RBI extended short-term seasonal credit as well as medium-term and long-term credit to agriculture through State level co-operative banks and land developments banks. RBI had also set up the Agricultural Refinance Development Corporation (ARDC) to provide refinance support to the banks to promote programmes of agricultural development, particularly those requiring term credit.

RESEARCH METHODOLOGY

Research methodology is a systematic way, which consists of series of action steps, necessary to effectively carry out research and the desired sequencing to these steps. The marketing research is a process which involves a no. of inter-related activities, which overlap and do rigidly follow a particular sequence. It consists of the following steps:-

Formulating the objective of the study

Designing the methods of data collection

Selecting the sample plan

Collecting the data

Processing and analyzing the data

Reporting the findings

Objective of Study

Research Design

Sample Design

Data Collection

Data Analysis

Report of findings

RESEARCH DESIGN

Research design specifies the methods and procedures for conducting a particular study.

A research design is the arrangement of conditions for collection and analysis of the data in a manner that aims to combine relevance to the research purpose with economy in procedure. Research design is broadly classified into three types as

Exploratory Research Design

Descriptive Research Design

Causal Research Design

DESCRIPTIVE RESEARCH DESIGN:

Descriptive research studies are those studies which are concerned with described the characteristics of particular individual.

In descriptive as well as in diagnostic studies, the researcher must be able to define clearly, what he wants to measure and must find adequate methods for measuring it along with a clear cut definition of population he want to study. Since the aim is to obtain complete and accurate information in the said studies, the procedure to be used must be carefully planned. The research design must make enough provision for protection against bias and must maximize reliability, with due concern for the economical completion of the research study.

SAMPLE DESIGN

A Sample Design is a definite plan for obtaining a sample from a given population. It refers to the technique to the procedure adopted in selecting items for the sampling designs are as below:

SAMPLE SIZE

Sample method

Survey period

SAMPLE SIZE:

The substantial portions of the target customer that are sampled to achieve reliable result are 94.

The cost and time limitation completed me to select 94 respondents as sample size

SAMPLING METHOD:

In this marketing research project, I am using

Non probability sampling method

SAMPLE DESIGN

As complete enumeration of all the members of the population (Member and Non-member) I have understate sampling technique.

SAMPLE SIZE

94 Customers

SAMPLE TYPE

AREA SAMPLING

Sample area

Agra

SAMPLE SELECTION

Simple random selection sampling

SAMPLE TECHNIQUE

I have taken the Statistical tool of percentage method to analysis and interpretation of the collected data.

DATA ANALYSIS AND INTERPRETATION

1. Rural Banking has been a parallel banking stream in Indian Banking System.

Response

No

%

1

Strongly agree

2

2

2

Agree

15

16

3

Neutral

19

20

4

Disagree

21

22

5

Strongly disagree

37

40

Fig.1: parallel banking

Interpretation:

Till today date rural banking is not able to compete with those of commercial banks. as 40% people are in against of this statement.

2. Rural Banking has contributed to economic growth equivalent to Commercial Banking

Response

No

%

1

Strongly agree

1

1

2

Agree

5

5

3

Neutral

12

13

4

Disagree

32

34

5

Strongly disagree

44

47

Fig.2: economic growth

Interpretation: Rural banking has not contributing equivalent to the commercial bank. Only 47% respondents are not in favour of this statement.

3.Rural Banking in India has been so far neglected by the Financial System

Response

No

%

1

Strongly agree

35

37

2

Agree

13

14

3

Neutral

20

21

4

Disagree

14

15

5

Strongly disagree

12

13

Fig.3 neglected by the Financial System

Interpretation:

This chart is showing that most of the people think that rural banking is not being supported by commercial bank.

4. Rural Banking is risky venture as a business avenue.

Response

No

%

1

Strongly agree

39

42

2

Agree

36

38

3

Neutral

10

11

4

Disagree

7

7

5

Strongly disagree

2

2

Fig.4 Risky venture

Interpretation:

Rural Banking is risky venture as a business avenue which is supported by 42 % respondents.

5. Commercial banks entered in to Rural Banking business voluntarily.

Response

No

%

1

Strongly agree

15

16

2

Agree

19

20

3

Neutral

30

32

4

Disagree

11

12

5

Strongly disagree

19

20

Fig.5 commercial bank entrance

Interpretation:

Commercial banks entered in to Rural Banking business voluntarily. This statement is showing ambiguity.

6. Rural Banking has been successful in upliftment of the living standards of the poor people.

Response

No

%

1

Strongly agree

29

31

2

Agree

32

34

3

Neutral

25

27

4

Disagree

6

6

5

Strongly disagree

2

2

Fig.6 Living standard

Interpretation:

Most of the people feel that rural bank has helped to living standard to grow, 34% respondents were agree with this statement.

7. Rural Banking has created sustainable development for rural people.

Response

No

%

1

Strongly agree

14

15

2

Agree

27

29

3

Neutral

35

37

4

Disagree

12

13

5

Strongly disagree

6

6

Fig.7 sustainable development

Interpretation:

For developing the rural people rural banking is not successful, chart is showing 6% people were strongly disagreee with this statement.

8. Rural Banking shall emerge an equally commercially viable business stream in near future..

Response

No

%

1

Strongly agree

10

10

2

Agree

15

16

3

Neutral

28

30

4

Disagree

30

32

5

Strongly disagree

11

12

Fig.8 commercially viable business stream in near future..

Interpretation:

32% people are disagree with this statement and theythink that rural bank is not successful in this area.

9. Rural Banking has tremendous growth potential in Indian perspectives.

Response

No

%

1

Strongly agree

11

12

2

Agree

23

24

3

Neutral

39

41

4

Disagree

9

10

5

Strongly disagree

12

13

Fig.9 tremendous growth

Interpretation:

Rural Banking has tremendous growth potential in Indian perspectives, 41% people are neutral with this point.

10.Less profitable

Response

No

%

1

Strongly agree

21

22

2

Agree

18

19

3

Neutral

23

25

4

Disagree

17

18

5

Strongly disagree

15

16

Fig.10 Profitability

Interpretation:

Most of the people think that rural banking is less profitable, and 22% people are agree with this.

FINDINGS

This survey finds that rural banking has not been a parallel banking stream in Indian banking system even today.

Contribution of Rural banking is not as significant as commercial bank, economic growth.

Today also rural banking in India has been so far neglected by the financial system.

Rural banking is becoming more risky ventures to step up in and that too in Business Avenue.

Standards of poor people can be better boosted up and can be levered through rural banking.

Rural Banking has created sustainable development for rural people.

The near future shall be supporting rural banking as commercial business stream.

Because of parting lesser profit and high of installation & distribution of branches of the rural bank it faced lesser success.

Because of the variability in the literacy and the status of the local customers it is very difficult to customize the product.

People hesitate to take the services through banking because of lack of trust and time consuming facilities.

Rural Banking shall not emerge an equally commercially viable business stream in near future.

Recommendations & suggestions

As per the above evaluation of the major problems and issues relating to the rural financial system I can submit the following observations & recommendations:

Government support: to give proper guidance and knowledge to the local people government support is important.

Integration with commercial bank: commercial banks are having more creditability among the customers so integration should be there of that rural banks with commercial bank.

Awareness among the people: local people believe more on indigenous bankers cause of lack awareness, for this program must be organized.

Agent system: In rural banking there should be agent system exists because the people who are shy in nature and don’t feel comfortable to go at bank and are unable to share their problem.

Technology advancement: Now this is the age of technology so the infrastructure of rural bank should be modified, and new technical machines should be used like computer, printer, calculation machines, counting machines etc.

Attractive offerings: whatever the product, policies rural banks are having they should be attractive, understandable, believable.

Conclusion

Agriculture and its associated activities are found constituting the economic base and the main source of livelihood and employment for the people in the state. However, unprecedented growth of population on one hand and decreasing rate of available agriculture land along with degradation of supporting natural resources as required for sustaining crop productivity on the other have been seriously forcing the problems of sustaining livelihood for farming communities. It is becoming difficult to do the farming activity without external or internal sources. In this context the significance of extending non-farm sector becomes only alternative but it also required finance assistance for its development.

Means a lot of hard work & government awareness is required to flow the finance assistance in Rural Economy. But various schemes which are provided by the various banks & government should be specific in its eligibility criteria to stop the misuse of these funds by large farmers and to ensure that the credit reaches the farmers who are in need of finance.

Questionnaire

Respondent’s Profile:

Name: ...........................................................................................................................................

Phone No.: ........................................................ E-mail: .............................................................

Address: .......................................................................................................................................

Gender: .............................................................. Organizational Experience: ..........................

 

Attributes / Statements

Strongly Agree

Agree

Neutral

Disagree

Strongly Disagree

Total

1

Rural Banking has been a parallel banking stream in Indian Banking System

2

Rural Banking has contributed to economic growth equivalent to Commercial Banking

3

Rural Banking in India has been so far neglected by the Financial System

4

Rural Banking is a risky venture as a business avenue.

5

Commercial Banks entered into Rural Banking business voluntarily.

6

Rural Banking has been successful in upliftment of the living standards of the poor people.

7

Rural Banking has created sustainable development for rural people.

8

Rural Banking shall emerge an equally commercially viable business stream in near future.

9

Rural Banking has tremendous growth potential in Indian perspectives.

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