RURAL BANKING IN INDIA

Rural sector occupies an important place in the Indianeconomic system, as 75 % Indian live in rural areas and more than 83% of peopleliving 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 andrelated activities as a sector and different classes of people residing in thecountry areas has been the primary focus of policy formulation in the successiveFive Year Plans of the country.The agricultural production and productivity primarilyrelies on the adoption of new farm techniques and technologies. The adoption ofnew 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 financialinstitutions located in the country areas. India has beensuccessful in developing one of the largest rural banking systems in the world.The National Bank for Agricultural and Rural Development (NABARD) is the apexinstitution which looks after all matters concerning policy, planning, operationin 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 theinformal sector and the exploitation to which it subjected borrowers. STRUCTURE OF RURALBANKING IN INDIA  The above chart presents the rural banking structurein India.

 The rural banking structure consists of three bankinginstitutions providing finance at the grass-root level:·      Co-operatives,·      CommercialBanks ·      RegionalRural Banks The co-operative credit structure comprises of twotypes: ·      Shortterm engagement and Medium credit.·      Longterm creditThe short term credit structure is federal in nature,based on 3 tier pattern with the apex banks at the state level, Central Co-operativeBanks at the district level and co-operative credit societies at the villagelevel. The State Co-operative Banks are the highest level institutions aimed atfinancing the District Cooperative Central Bank. DCCBs in turn finance theco-operative credit societies at the primary level. The long term creditstructure is either Federal in character with State Co-operative LandDevelopment Banks (SLDBs) as the highest institutions at the State Level andPrimary Land Development Banks (PLDBs) or branches of SLDBs at the Taluka/blocklevel. The GSLDB have unitary structure having branches located at the talukalevel.

Thus, the field level co-operative institutions whichprovide credit to individual borrowers comprises of(i)            PrimaryAgricultural Credit Society (PACS): Providing both short term and medium termcredit to their members(ii)          PLDBsor branches of SLDBs dispensing long term credit to their members. Thereorganisation programme of PACS was introduced in early sixties to make themstrong.Basedon the recommendations of CRAFICARD, the NABARD has designed a set ofguide-lines for planning the future development of re-organised societies in aphased manner. State Bank of India and its associates along with nationalisedbanks comprises the Public Sector banks. The CBs provides both short-term andlong-term loans to farmers and also finance related activities like marketing,processing and storage in rural areas through their rural branch network.  RegionalRural Banks as new institutional agency were established in 1975, to meet thecredit requirements of rural poor those of which were neglected both until nowby co-operatives and CBs.

The organizationalstructure for RRB’s differs from every branch to branch and depends upon thenature and size of business done by the branch. Objectives of Regional Rural Bank arethe following: ·      To provide credit andother facilities in rural areas, specifically to the small and marginalfarmers, agricultural laborers, artisans and small entrepreneurs so as todevelop agriculture, trade, commerce, industry and other productive activitiesin the rural areas.·      To mobilize rural savingand inculcate banking habits in the rural areas.

·      To provide employment to ruraleducated youth who have the required orientation to look after the needs of therural folk.·      To reduce the costs ofrural banking. Functions of Regionalrural banksToachieve the stated objectives as above, the regional rural banks undertake suchfunctions that contribute to the socio-economic development of the ruralpeople. The functions which they have undertaken are:·      Opening branches inpotential areas.

·       Mobilizing rural savings by inculcating savinghabit through designing appropriate saving schemes suitable to the ruralpeople. ·      Deploying creditadequately in right time to the target group such as small and marginalfarmers, agricultural labourers, artisans and small entrepreneurs etc., who areeconomically potential.·      Undertaking the supply, extensionand customer services. ·       Monitoring the projects financed.·       Recovering loans lent for recycling to theeconomic significance programmes of the rural sector.

·      Acting as agent formarketing mutual fund units. Organizational Structureof Regional Rural BankEachRegional Rural Bank is sponsored by a public sector bank which guides them indifferent ways of subscription to its share capital, provision of suchmanagerial and financial assistance as may be mutually agreed upon and help inthe recruitment and training of personnel during the initial period of itsfunctioning. In addition to this, Central Government provides necessaryguidelines for the formulation and implementation of policies in respect ofthese banks.Abird-eye-visualisation of facts pertaining to organisation of these banks showsthe following segments of organisation: ·      Chairman·      Committees of Board·      Operating Personnel·      Branch Organization Chairman:Governmentof India appoints an eligible individual as Chairman for five years and suchindividual may be reappointed even after his term gets over. He receives salaries(provided by the sponsoring banks) and allowances and are governed by terms andconditions of service as laid by the Central Government.

However, the Chairmanof the Regional Rural Banks is appointed by the Government of India on therecommendation of the sponsoring banks. The latter is a recommended person fromamong the employees of the bank for this post. The Chairman who is appointedremains on deputation with the Regional Rural Banks.  Committees of Board:Allmatters related to operations of Regional Rural Banks may not be decided by oneindividual alone (committee form of organisation has also been preferred). TheBoard of Directors may comprise such committees, whether consisting only directors/otherpersons or a combination of directors and other persons as it fits for suchpurposes.

Committees are expected to be formed to deal with certain matters. Itshows that organisation structure of these banks would provide room fortechnical hands and subject experts. Operating Personnel:EveryRegional Rural Bank is empowered to appoint number of officers and otheremployees as it may consider necessary for the efficient performance of itsfunctions and may determine the terms and conditions of their appointment andservice. However the sponsoring bank may send a certain number of officers andemployees on deputation as may be required and desirable but only when it hasbeen requested by the Regional Rural Bank sponsored by it and that too only inthe first five years of functioning.

The remuneration of officers and otheremployees appointed by a Regional Rural Bank shall be such as may be specifiedby the Central Government keeping into account and giving due regard to thesalary structure of the employees of the State Government and the localauthorities of comparable level and equal status in the notified area in whichthe Regional Rural Bank is to operate.Itis not only necessary that persons from the locality of Regional Rural Banksare recruited, there is great need for their proper training also. In order tohelp them to have trained staff as early as possible, the RBI has undertakenthe task of providing training to the Chairman and Branch Manager. Branch Organization: Oneof the objectives underlying the Regional Rural banking (RRB) channels is toextend to remote rural areas particularly to un-banked and under bankedcentres. One of the important objectives of Regional Rural Banks is toimplement a program of expending facilities which would provide full advantageof the organised banking to the rural customer.