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Preface

The Project work is field which uses tools and techniques to transfer subjectivity in the environment into objectives, also the findings of the research, when applied show results, which can be measured and evaluated so there is feedback this is what makes it a dynamic activity. This survey is an analytical study of a different facts of the product. The focus is given on the Brand profile. This project entitled Summer Training of Madhya Bharat Gramin Bank, is for the partial fulfillment of B.B.A.(Hons) Degree 15TH Batch. The idea behind this project is to give practical knowledge and to make them to face real life situation. The project survey is commonly used for the collection from the respondents through questionnaire. In this method statistical techniques have been used systematically. This project survey is not only with my own efforts but also that of others.

ASHISH RAIKWAR

BBA (HONS.) 15TH BATCH

ACKNOWLEDGEMENT
I would like to whole hearty thank and express my sincere gratitude to Prof. Y.S. Thakur Head of the Department of Faculty of Management Studies Dr. Hari Singh Gour Central University, Sagar for suggesting me this problem and for giving an insight in dealing with the subject

.I am highly obliged to Mr. Himanshu Katare, Miss Mayuri Jain, Mrs. Jyoti Pandey Miss Shakuntala Yadav Lecturer, , Mr. Ankur Randhelia, , , Dr. Shree Bhagwat, Mr. Ankur Gautam, Miss Devagya Shrivastava, , Mr. Girbal singh Lodhi, and All Faculty member, for guiding me in various aspects of this project like conducting field work and designing questionnaire and suggesting me the Project Work and helping me in finalising the Report. I express my gratitude to all the customers who very kindly discussed various aspects of this study and provided useful suggestions for discussing various problems. Lastly, I Must express my gratitude to all the elders of the family and citizen of the city who blessed me in course of discussion. I also extend my sincere thanks to my family and my friends for their encouragement and support.

ASHISH RAIKWAR

CERTIFICATE

This to certify that MR. ASHISH RAIKWAR Student of B.B.A. (Hons) 15th Batch, Department of Business Management Dr. Hari Singh Gour Central University, Sagar (M.P.) Has diligently worked on the Project Report of the Summer Training of Madhya Bharat Gramin

Bank. He has done this Work under My Guidance and Supervision. This
project work is original and not submitted earlier for the award of any degree or associate ship of any other University. During this study he made meticulous efforts for its completion. I wish him all the best in this sincere endeavors for a bright and successful future.

Signature of the Supervisor

Signature of the Head of the Department

Signature of the Examiner

DECLARATION

I hereby declare that the project work entitled Summer Training Report on Madhya Bharat Gramin Bank submitted to the Department of Business Management Dr. Hari Singh Gour Central University, Sagar (M.P.), is a record of an original work Mr. Himanshu Katare Lecturer & Faculty Member at the Department of Business Management Dr. Hari Singh Gour Central University , Sagar (M.P.). I also ensure that this work done by me is purely original and is my own creativity.

Date : Place :

ASHISH RAIKWAR Enrollment no.: Y1018050004

Preface
The Project work is field which uses tools and techniques to transfer subjectivity in the environment into objectives, also the findings of the

research, when applied show results, which can be measured and evaluated so there is feedback this is what makes it a dynamic activity. This survey is an analytical study of a different facts of the product. The focus is given on the Brand profile. This project entitled Summer Training of Madhya Bharat Gramin Bank, is for the partial fulfillment of B.B.A.(Hons) Degree 15TH Batch. The idea behind this project is to give practical knowledge and to make them to face real life situation. The project survey is commonly used for the collection from the respondents through questionnaire. In this method statistical techniques have been used systematically. This project survey is not only with my own efforts but also that of others.

DWARKA PRASAD PATEL

BBA (HONS.) 15TH BATCH

ACKNOWLEDGEMENT
I would like to whole hearty thank and express my sincere gratitude to Prof. Y.S. Thakur Head of the Department of Faculty of Management Studies Dr. Hari Singh Gour Central University, Sagar for suggesting me this problem and for giving an insight in dealing with the subject

.I am highly obliged to Mr. Ankur Gautam Mr. Himanshu Katare, Miss Mayuri Jain, Mrs. Jyoti Pandey Miss Shakuntala Yadav Lecturer, , Mr. Ankur Randhelia, , , Dr. Shree Bhagwat, , Miss Devagya Shrivastava, , Mr. Girbal singh Lodhi, and All Faculty member, for guiding me in various aspects of this project like conducting field work and designing questionnaire and suggesting me the Project Work and helping me in finalising the Report. I express my gratitude to all the customers who very kindly discussed various aspects of this study and provided useful suggestions for discussing various problems. Lastly, I Must express my gratitude to all the elders of the family and citizen of the city who blessed me in course of discussion. I also extend my sincere thanks to my family and my friends for their encouragement and support.

DWARKA PARASAD PATEL

CERTIFICATE

This to certify that MR. DWARKA PRASAD PATEL Student of B.B.A. (Hons) 15th Batch, Department of Business Management Dr. Hari Singh Gour Central University, Sagar (M.P.) Has diligently worked on the Project Report of the Summer Training of Madhya Bharat Gramin

Bank. He has done this Work under My Guidance and Supervision. This
project work is original and not submitted earlier for the award of any degree or associate ship of any other University. During this study he made meticulous efforts for its completion. I wish him all the best in this sincere endeavors for a bright and successful future.

Signature of the Supervisor

Signature of the Head of the Department

Signature of the Examiner

DECLARATION

I hereby declare that the project work entitled Summer Training Report on Madhya Bharat Gramin Bank submitted to the Department of Business Management Dr. Hari Singh Gour Central University, Sagar (M.P.), is a record of an original work Mr. Ankur Gautam Lecturer & Faculty Member at the Department of Business Management Dr. Hari Singh Gour Central University , Sagar (M.P.). I also ensure that this work done by me is purely original and is my own creativity.

Date : Place :

DWARKA PRASAD PATEL Enrollment no.: Y1018050007

CONTENTS
Preface Acknowledgement Declaration Certificate of Summer Training Certificate

CONTENT
No. Particulars Page No.

1. 2 3. 4. 5. 6. 7. 8 9 10 11 12 13 13

Current State of Rural Banking in India Madhya Bharat Gramin Bank at Bilhara Key Drivers of Financial Exclusion of Rural Banking in India Reasons for Unprofitable Rural Banking in India Usage Issues for Rural Customers Market Opportunity of Rural Banking in India Improving Access of rural Banking In India Research methodology Objective of the Study Limitation Conclusion Bibliography Annexure Questionnaire

CURRENT STATE OF RURAL BANKING IN INDIA


The Indian Economy

India is the 12th largest economy in the world in terms of gross domestic product (GDP), and fourth in terms of purchasing power parity (PPP)1. The growth of the economy is equally impressive with an

average of over 8.0% during the last three years2. However, in terms of GDP per capita, India ranks a lowly 160th among other nations. Within the country, there is a stark divide in the incomes of urban and rural areas with the average monthly per capita consumption expenditure (MPCE) in urban India being almost double that of rural India. In addition, there are significant disparities in urban and rural consumption expenditure between different states. Jharkhand and Orissa, for example, have an MPCE of approximately Rs. 900 in urban areas and Rs. 410 in rural areas4. In other states like Punjab and Haryana, the urban rural disparity is significantly lower. A fifth of the Indian population is below the poverty line (BPL) today with a MPCE below Rs 340. In some states like Jharkhand and Orissa, the proportion of BPL is greater than 40%. Diamond believes that the segments that are not considered BPL should all be considered as potentially bankable with genuine financial needs that could be met by formal financial and banking systems.
Current State of Indian Banking

An

important

metric

to

determine

the

level

of

financial

outreach/inclusion is the ratio of the number of deposit accounts to population. It gives a snapshot of the penetration of deposit accounts and credit accounts in India in comparison with a few select countries with similar socio-cultural and economic conditions. Even in comparison with other developing economies, India has a significant opportunity for increasing penetration of both deposit and credit accounts. Not only is there a large disparity between India and other countries in banking penetration but there is also a large variation in banking

penetration within urban and rural India. While urban India seems to be over-banked with more than 100% penetration (many urban Indians have more than one bank account), rural India lags far behind with a 19% penetration. The variance in rural and urban deposit and credit account penetration is not restricted only to few states but is common across all states. In addition, the average value of a deposit account and a credit account is also quite low in rural areas as compared to urban areas. Diamond believes that the reasons for lower penetration levels are partly economic, as explained by the low GDP per capita in the rural areas of the country, and partly a result of controllable factors that are inherent in formal banking systems in India today. The low deposit and credit account penetration and low average values in deposit and credit accounts demonstrate that banking outreach in rural India is suboptimal. This low outreach can be explained by two key parameters: access and usage. Simply defined, access is the availability of financial services, and usage is the actual use of those services. Access is influenced by issues such as the basic economic state of rural India, lack of physical infrastructure facilities, regulatory constraints, and the economics of rural banking. Usage is constrained by social issues such as illiteracy, incomplete service offerings by banks, and high transaction costs in the formal banking system. Access and usage are not synonymous, as people may have access to financial services, but decide not to use them, either for socio-cultural reasons or because opportunity costs are too high. List of Rural Banks in India

Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focused upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. 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

Andhra Pradesh Grameena Vikas Bank Andhra Pragathi Grameena Bank Deccan Grameena Bank Chaitanya Godavari Grameena Bank Saptagiri Grameena Bank

Madhya Bihar Gramin Bank Bihar Kshetriya Gramin Bank Uttar Bihar Kshetriya Gramin Bank Kosi Kshetriya Gramin Bank Samastipur Kshetriya Gramin Bank

Gujarat

Chhattisgarh

Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank

Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank Durg-Rajnandgaon Gramin Bank

Himachal Pradesh

Haryana

Himachal Gramin Bank Parvatiya Gramin Bank

Harayana Gramin Bank

Gurgaon Gramin Bank

Punjab

Jammu & Kashmir

Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank Malwa Gramin Bank

Jammu Rural Bank Ellaquai Dehati Bank Kamraz Rural Bank

Kerala

Assam

Narmada Malwa Gramin Bank North Malabar Gramin Bank

Assam Gramin Vikash Bank Langpi Dehangi Rural Bank Tamil Nadu

Jharkhand

Pandyan Grama Bank Pallavan Grama Bank

Jharkhand Gramin Bank Vananchal Gramin Bank Maharashtra

Madhya Pradesh

Marathwada Gramin Bank Aurangabad -Jalna Gramin Bank Wainganga Kshetriya Gramin Bank Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank Ratnagiri-Sindhudurg Gramin Bank

Narmada Malwa Gramin Bank Satpura Kshetriya Gramin Bank Madhya Bharath Gramin Bank Chambal-Gwalior Kshetriya Gramin Bank Rewa-Sidhi Gramin Bank Sharda Gramin Bank Ratlam- Mandsaur Kshetriya Gramin Bank Vidisha Bhopal Kshetriya Gramin Bank Mahakaushal Kshetriya Gramin Bank

Jhabua Dhar Kshetriya Gramin Bank Karnataka Rajasthan

Karnataka Vikas Grameena Bank Pragathi Gramin Bank Cauvery Kalpatharu Grameena

Baroda Rajasthan Gramin Bank Marwar Ganganagar Bikaner Gramin Bank Rajasthan Gramin Bank

Bank

Jaipur Thar Gramin Bank

Krishna Grameena Bank Chikmagalur-Kodagu Grameena Bank

Hodoti Kshetriya Gramin Bank Mewar Anchalik Gramin Bank

Visveshvaraya Gramin Bank Orissa Kalinga Gramya Bank Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank Rushikulya Gramya Bank Meghalaya Arunachal Pradesh West Bengal

Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank Uttar Banga Kshetriya Gramin Bank


Ka Bank Nogkyndong Ri KhasiJaintia Nagaland

Arunachal Pradesh Rural Bank

Manipur

Manipur Rural Bank

Nagaland Rural Bank Tripura Mizoram

Tripura Gramin Bank Uttar Pradesh Purvanchal Gramin Bank Kashi Gomti Samyut Gramin Bank
Uttar Pradesh Gramin Bank

Mizoram Rural Bank Uttaranchal

Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank

Shreyas Gramin Bank Lucknow Kshetriya Gramin Bank Ballia Kshetriya Gramin Bank Triveni Kshetriya Gramin Bank

Madhya Bharat Gramin Bank


(A joint venture of Govt. of India, State Bank of India & State Govt. of Madhya Pradesh)

About us :
Madhya Bharat Gramin Bank is established on 30.06.2006 by amalgamation of 3 Regional Rural Banks sponsored by State Bank of India namely Damoh Panna Sagar Kshetriya Gramin Bank, Shivpuri Guna Kshetriya Gramin Bank & Bundelkhand Kshetriya Gramin Bank under the notification issued by Govt. of India (Ministry of Finance). These amalgamated RRBs were joint venture

company established under Regional Rural Bank Act 1976 (23 of 1976). The capital structure comprised of Govt. of India (50%), State Bank of India (35%) & State Government of Madhya Pradesh (15%). The Head office of the bank is at Sagar (M.P.). The Bank is serving rural masses through its 221 branches covering 8 districts of state of Madhya Pradesh namely Sagar, Damoh, Panna, Shivpuri, Guna, Ashoknagar, Tikamgarh & Chhatarpur.

Our Mission :
Our mission is "Prosperous Rural India". We are catering banking services to rural people for their financial upliftment. We support marginal & small farmers, artisans, self employed & small trader to carry on their activities by the way of providing finances.

Products :
1. Deposit (i) Current Account (iii) Fix Deposit (ii) Savings Bank (iv) Recurring Deposit

(v) Tax Sever Scheme 2. Advances (i) (iii) (v) Kisan Credit Card Finance for Agriculture Allied Activity Artisans Financing Self Help Group Operator (ii) Kisan Gold Card

(iv) Finance for Rural (vi) Road Transport (viii) Finance for Self (x) Personal loans for

(vii) Small Business Finance Employed Person (ix) Finance on ware house receipt vehicle etc

(xi)

Finance for Rural Housing

(xii) Housing loans

(xiii) Loans against NSCs, KVIP, Fix deposit receipt etc.

Services :
1. Gramin Pay order 2. Bank Guarantee

3.

Cross Selling (SBI Life)

4. NEFT

Interest on Fix Deposit : PERIOD From 15 Days to 45 Days From 46 Days to 90 Days From 91 Days to 180 Days From 181 Days to 240 Days 240 Days and Grater than 240 Days but less than 01 Year 01 Year and Grater than 01 Year but less than 02 Year 02 Year and Grater than 02 Year but less than 03 Year 03 Year and Grater than 03 Year but less than 05 Year 05 Year and Grater than 05 Year but less than 08 Year From 08 Years to 10 Years Tax Saver Scheme (Lock in Period 5 years) For Senior Citizen 01 Year and Grater than 01 Year but less than 02 Year 02 Year and Grater than 02 Year but less than 03 Year 03 Year and Grater than 03 Year but less than 05 Year 05 Year and Grater than 05 Year but less than 08 Year From 08 Years to 10 Years We adopt the Banking Codes and Standards & Code of Bank's commitment to Micro & Small Enterprises formulated by The Banking Codes And Standard Board of India. View\Download Hindi version of Codes in PDF format : 1. BankingCodeCustomers_HindiOct09.pdf 2. Code Of Bank's Commitment to Micro & Small Enterprises

Administrative Structure :
A-Board of Directors :

1. 2. 3. 4. 5. 6.

Chairman

(Top Management Grade Scale VI from State Bank of India)

Two nominees from State Bank of India One official from Reserve Bank of India One official from GRAMIN BANK Two officials from State Govt. (Madhya Pradesh) Two non-officials Nominated by Govt. of India

Some Important Statistics : (Amt. in Lacs) Parameter


No. of Regional Offices No. of District Covered No. of Branches (as on 31 March 2012) No. of Branches in Core Banking No. of employees Total Deposits (as 31.03.11) Total Advances (as on 31.03.2011) No. of Kisan Credit Card Issued No. of Self Help Group Profit before Tax Per Branch Business Per employee Business Per Branch Profit Per employee Profit

Mar 2012
4 8 228 228 1019 20,03,96 11,67,93 22,14,11 16,757 9,49 13,91 3,11 2.33 0.93 District
Sagar Sagar Sagar Sagar Sagar Sagar

Jun 2012
4 8 228 228 1011 21,03,40 11,90,62

14,45 3,26

List of Branches :
Sr Br. No. Code
1 2 3 4 5 6 1100 1101 1102 1103 1104 1105

Name of the Branch


Head Office Gadakota Dhana Surkhi Khimalasa Bada Bazar Sagar

Pin Telephone Code No.


470002 470229 470228 470221 470118 470002 07582-237704 07585-258238 07582-285218 07582-280224 07581-284348 07582-249046

7 8 9 10 11 12 13 14 15 16 17 18 19

1106 1107 1108 1109 1110 1111 1112 1113 1114 1115 1116 1117 1118

Bilhara Barokalan Bara Chandpur Shahpur Agasaud Bhangarh Barodiya Nongar Kesali Shahgarh Chanaua Bujurg Barayatha Banda

Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar Sagar

470051 470441 470335 470227 470669 470114 470113 470117 470235 470339 470232 470335 470335

07584-270408 07581-274213 07583-277755 07585-287241 07582-282288 07580-285240 07580-283234 07581-281210 07586-224314 07583-259194 07585-247755 07583-277122 07583-252237

Contact Us : Head Office : Poddar Colony, Tilli Road Sagar (M.P.) - 470 001 Phone : (07582) 236299, 236277, 237071, 236599 Fax : (07582) 236488, 237704 E- mail : mbgbgm@gmail.com, mbgbho@gmail.com Contact Person : N. R. Jain Mobile : 09893820075

KEY DRIVERS OF FINANCIAL EXCLUSION OF RURAL BANKING


According to Diamond estimates, approximately 245 million adults in rural India do not have a bank account today. As depicted in Following Table, this reflects 24% of the total population. While 60 million out of 245 million may not need banking services because they are below the poverty line, Diamond believes that approximately 185 million potentially bankable people do not use formal banking services because of reasons like poor access or usage.

120 100 80 60 40 20 0
Po pu l at io

100 47 53 16

37 13

24 6

Series1 18

Source: Census India ;BSR 2008Reserve Bank of India; World Bank & NCAER (2008).

Access Issues for Rural Customers Access is explained in terms of infrastructure, physical distance, limited delivery capabilities, regulatory constraints and the economics of rural banking. The banking infrastructure in rural India is not encouraging, with just 7% of villages housing a bank branch. Whats more, the poor physical and social infrastructure also impacts the access to financial services, with 23% of villages going without electricity, 67% without a Post Office, and an average rural literacy rate of 59% and secondary school penetration of 12%. This lack of physical and social infrastructure in rural India is a key issue impacting access to formal financial services. The average distance to a branch in India is approximately 3.8 Kms. While this compares favorably to the average distance to a branch in a developed market like the U.S. (which is 6 Kms6), there are significant additional challenges in India in the form of unpaved roads and limited access to modern transportation. Most rural customers are likely to sacrifice an entire days wage to travel to a bank branch which is open

Ad ul tP op U rb ul an at io Ad n ul tP op R ul ur at al ion A du lt Po pu la Ba tio nk n ed P op U ul nb at io an n ke d P op Fi na ula nc tio ia n lly C on st Po ra nt in en ts tia lly Ba nk ab le

n To ta l N on

Ad ul tP

op ul at io n

between 10:00am and 5:00pm. While some banking transactions could be done over phone, this is rarely an option in a country with such low rural tele-density. Limited delivery capability is a significant challenge. Much of rural India is serviced through branches because ATM penetration is low and other channels such as Phone and Internet Banking are non-existent. Intermediaries like Non-Governmental Organizations (NGOs), Self-Help Groups, and Micro Finance Institutions (MFIs) are being used by banks to improve access to credit and savings. However, these channels, in their current form, offer limited services. There are some regulatory constraints imposed by the Reserve Bank of India (RBI) which may inadvertently contribute further to the lack of formal banking services in rural areas. For example, the RBI does not allow banks to post any person other than a security guard at ATMs. Hence, banks cannot deploy many ATMs in rural areas as many rural customers require in-person support. A second regulatory inhibitor is that new banks planning to establish a branch in a rural area have to receive approval from the Lead Bank and District Collector of that district. Hence, banks choose not to open new branches in certain areas even when it is profitable to do so because there is no certainty of getting approvals. Many banks view the rural market as a regulatory requirement rather than an economic opportunity. Banks have from time to time borne the social cost of lending to the rural economy at rates below their costs. They have also faced capital erosion because of the write-off of loans, particularly agriculture loans. Banks are required via regulatory requirements to open branches in rural areas to provide loans to agriculture and other priority sectors.

Description

Service Provided

Remarks
-

- Full fledged Branches and - Deposit Accounts 96% of total deposit and 95% of Extension Counters of - Credit Accounts total loans are with scheduled Scheduled Commercial Banks - Remittances commercial banks with including Regional Rural Banks - Cards cooperative banks holding Current Rural Banking Channels Cooperative Banks - Third-Party Products the difference
- Has a high cost-to-serve

channel delivers limited

- NGOs, SHGs, MFIs and


Cooperatives that act as

- MFIs directly lend to the poor

- This

and also act as agents for he banks - SHGs borrow from banks and are beneficiaries of loans themselves - Cash Withdrawal - Cash Deposit - Money Transfer - Cheque Book Request

services in its current form

Branch

Intermediaries to take financial Services to the rural areas

- Onsite - Negligible presence of this Intermediaries channel ATM areas in rural Others ATM installed at a branch - Offsite ATM installed at a remote

Source: Reserve Bank of India; Diamond analysis.

REASONS FOR UNPROFITABLE OF RURAL BANKING IN INDIA

High Non-performing Loans (NPL):

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 banks, have frequent low ticket and cash-based transactions, which increase the overall transaction cost for their bank.

Cost Per Transaction in Indian Banks


6 0 5 0 4 0 3 0 2 0 1 0 0 B n ra ch P o e (C ll hn a Cn ) e tre AM T P o e (I ) h n VR I te e n rn t 2 5 1 8 8 4 S rie e s1 4 8

Source: Reserve Bank of India; CGAP, World Bank.

Higher risk of credit:

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.
Information Asymmetry:

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.

USAGE ISSUES FOR RURAL CUSTOMERS


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 through the informal financial system (it is worth noting that these loans taken from the informal system are almost

always repaid or renewed12). In addition, larger households need occasional high value and micro-enterprise loans for small capital investment. Though banks offer these loans, they require excessive documentation time-consuming processes which discourage customer applications.

Purpose of Borrowing
Rural Household Borrowing

Other business expenditure, 14% Agriculture expenditure, 38%

Other business expenditure Household expenditure Agriculture expenditure

Household expenditure, 48%

Bank Lending to Rural Households

Personel Loans, 12% Personel Loans Other Business Loan, 52% A griculture Loan Agriculture Loan, 36% Other Business Loan

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.

Insurance reduces the vulnerability of poor households by replacing the uncertain prospect of large losses with the certainty of payout against small, regular premium payments. It is integral to a comprehensive risk management strategy for poor households. This includes life, health, accident and asset (dwelling, crop, and livestock) insurance. Banks and insurance firms do not offer these services in many rural areas, leading the poor to rely on the informal financial system. There are many rural households which depend on weekly or monthly remittances from their family members who have moved to urban areas. At present, they depend on informal channels to remit the money and consequently either risk the loss of money or pay high transaction fees. Banks do not offer seamless remittance facilities between urban and rural branches as many of the rural branches are not computerized and connected to the main banks computer systems. This often results in the beneficiary receiving the amount two weeks after it has being transferred. This represents yet another key service which is not provided. The transaction cost for a rural customer to receive credit primarily constitutes four attributes: the interest rate, loan amount received as a percentage of amount applied, bribes paid, and the lead time to process the loan. Though the formal banking system offers loans at interest rates lower than informal banking systems, the time taken for a loan to be sanctioned is high which increases uncertainty and opportunity cost. In addition, the customer needs to pay almost 10% of the loan amount in bribes and eventually receives an amount that is less than what was applied for. Therefore, while the interest rates are usurious in the informal financing system, rural customers still resort to this channel because the waiting time to receive the loan is negligible

and there are no indirect costs or commission. Banks also insist on collateral security which many rural poor cannot afford. As far as savings are concerned, though the formal banking system provides financial security, the cost of opening and operating an account is high. The overall cost of transacting with the formal financial system increases for a rural person because of additional costs such as expenses incurred to reach a branch and the opportunity cost of lost wages. Since rural banks are generally not within an accessible area and do not operate at convenient times, the rural customer must forgo a days wage to reach a branch. Informal systems, on the other hand, involve a lower transaction cost, but they are risky and in some cases result in the loss of ones entire capital. In short, this leaves the rural customer to choose between two unfavorable options. In summary, the services being offered by the formal banking system do not seem to meet the needs of the rural poor. A World Bank study suggests that the poor apply a set of criteria to judge the services being offered by any financial service provider, including: ProductsAre financial services available and tailored to my needs? CostWhat is the total cost of the service (including opportunity cost)? ConvenienceHow easy is it to access and use? EligibilityAm I eligible for financial services and can they be accessed repeatedly? As explained earlier, the savings products offered in the current format do not qualify as a flexible, convenient and cost-efficient service. Similarly, loan products do not meet product and eligibility criteria. In addition, insurance and remittance services are not even available. The

cost of services, despite lower interest rates, is high because of other indirect costs which make the banking services cost-inefficient.

MARKET OPPORTUNITY OF RURAL BANKING


At present, a rapidly growing urban India is the focus of the banking sector; however, as the deposit penetration numbers suggest (Figure 3 & 4), the market is highly competitive and over banked. Despite this, most banks are still not shifting their focus to the rural opportunity, as they are apprehensive about the total market potential of the rural market and the profitability of rural banking channels. Contrary to the widely held notion, however, the rural market is attractive from both a credit and deposit perspective. The credit demand in rural areas is approximately Rs 1,330 billion (based on an estimate by World Bank). There are other studies by the Planning Commission and ICICI Bank which put the figure even higher at Rs 1,440 billion and Rs 1,500 billion respectively. Similarly, on the deposit side, a large segment of the rural population does not save with formal banking channels because banks are not accessible and do not provide the appropriate products and service, leaving a significant opportunity to grow the deposit base. At present, the penetration of banking in rural areas is sub-optimal with a large market remaining untapped in both the liability (~ Rs 215 billion) and asset (~ Rs 1,204 billion) sides of the business. These estimates clearly suggest that there is sufficient demand in the rural market to encourage banks to think seriously about rural areas as an alternative growth opportunity. As we identified earlier, access and usage are two broad concerns which explain why the potentially bankable are unbanked. With regard to access, the challenge for banks is to identify profitable channels that

meet the needs of rural customers. With regard to usage, banks need to understand the requirements of the rural customer and customize products and services Accordingly (Following Table).
Proposed Approach to Tap Potentially Bankable Population

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

Source: Diamond analysis

IMPROVING ACCESS FOR RURAL BANKING


Today, branches are the primary delivery channel in rural areas. Though there are 32,000 commercial bank branches in India, they cover less than 7% of total villages. Opening more branches is not necessarily profitable as many pockets of rural areas do not have business enough to justify an expensive branch channel. Therefore, to improve access in rural areas, banks need to modify existing channels, introduce new channels and identify innovative ways to integrate the two.
Modify Existing Channels

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 be considered once infrastructure and literacy levels improve in rural India. A business correspondent could then run an e-kiosk to assist customers to transact over these channels. For example, Centenary Bank in Uganda uses internet and phone banking to provide bill payments, money transfers and loan repayments. Business correspondents can be provided with point-of-sale (POS) functionality to allow customers to deposit and withdraw cash from their accounts. Combining POS with a smart card is one way to improve access. Brazil has successfully used banking correspondents who use POS and card readers to provide current accounts, loans, and insurance, accept bill payments, and perform other transactions.

Introduce New Channels

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 Groups/Joint monitoring to and banks; (v) promotion (vi) of Self and Help nurturing Self Help (vii) Liability Groups; post-sanction monitoring;

handholding

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 microinsurance/ 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 concerns of the current workforce while using Business Correspondents to capture more value from rural customers. Caixa Economica, a state-owned bank in Brazil, manages the countrys lottery network and distributes government benefits. To increase the access of its services, Caixa extensively utilizes the Banking Correspondent channel, with 14,000 banking correspondents covering all of Brazils 5,500 municipalities. In less than 2 years, Caixa opened about 2.8 million new accounts and estimates that 40% of its banking transactions are handled through the banking correspondent channel.

Satellite offices are a cost-effective alternative to branches. These offices can be established at fixed premises in villages and are controlled and operated from a base branch located at a block headquarters. All types of banking transactions may be conducted at these offices. Banks have, however, not used this channel actively, despite the argument that this channel is relatively less expensive, as it can draw personnel from the main branch and can remain open for just two days a week. This channel, therefore, is appropriate in blocks and districts which are densely populated. In the urban areas, most Indian banks opt for an extension counter where the business does not justify a full-fl edged branch. Similarly, satellite branches can cater to rural areas which do not justify a large branch. Where banks do not find it economical to open full-fl edged branches of satellite offices, mobile offices may be more appropriate. Mobile offices extend banking facilities through a well-protected truck or van. The mobile unit visits villages on specified days/ hours. The mobile office would be affiliated with a branch of the bank, and serve areas which have a large concentration of villages. This will not be dissimilar to the mobile ATMs implemented by some of the Indian banks in the urban areas.
Determine the Combination of Channels

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 those that are the most profitable. Banks are not comfortable opening new rural branches because many of those that already exist are unprofitable. Therefore, determining the right combination of channels is critical to improving

access in profitable ways. An innovative approach to improving access will consider a combination of these channels. For example: Branches and Satellite Branches In addition to providing regular banking operations, providing backend support to manage and audit the operations of business correspondents. A low-cost, custom-made ATM Managed by a business correspondent to bring down the operating cost and scale the channel. An e-kioskManaged by a business correspondent with internet banking, ATM and POS terminal in relatively large rural areas. A business correspondentUsing manual ledgers or POS/Palmtop to act as deposit collector and remitting agent in smaller rural areas. While this list is not exhaustive, it highlights the need for creative solutions that apply the right channel to the right market and transaction. In South Africa, Capitec has combined convenient branches along transportation routes (for example, train and bus stations, and taxi stops). In addition, it has rolled-out debit cards and automatic teller machines across 200 of these branches to stimulate savings among low-income earners. Between February and August 2007, the number of customers jumped from around 30,000 to more than 90,000.

Research Methodology:
The research methodology will include following steps: Step 1: Data collection (a) Primary data Sample Size: 50 It is proposed to collect primary data from homes of common people through proper sampling Sample Unit: Homes of relatives, friends living in nearby area Sampling Instrument: Observation Personal Interview Telephonic Interview Internet feedback Sample area: Village Bilhara Distt. Sagar (b) Secondary data Newspaper Magazines Journals Internet

Limitations of the study:


The study may have some limitations which are listed below: 1. Primary data might not be too realistic and may suffer from personal biases of the respondents 2. The study may suffer from financial constraints and hence the above limited sample size. 3. Subjective nature of the study may affect its interpretation by different individuals.

OBJECTIVE OF THE STUDY

To know about GRAMIN BANK its service. SWOT analysis of GRAMIN BANK. A study on the Debt of the GRAMIN BANK.

Comparison of financial report of GRAMIN BANK of various year.

Limitation of the study The study is based on secondary data. The study is confined only to specific sectors and few examples are given only due to data and time constraints. Researcher cannot get wide information during Research. Researcher is only on indicator and cannot solve the problem. This research report is part of my course-curriculum and I have analysed the problem with the limited time and knowledge which was at my disposal. Complex statistical tools for data analysis have not been employed.

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.

ANNEXURE

Table 1 : Bank Loan outstanding against SHGs Agency-wise Position

(Amount Rs. crore)

Agency

During Total Bank Loan outstanding the year against SHGs as on 31 March 2008

Per SHGbank loan (Rupees)

Out of Total : Bank loan outstanding under SGSY No. of SHGs Amount

Outstanding against SHGs

No. of SHGs
Commercial Banks (Public & Private Sector) 200708 200809 % growth Regional 2007Rural 08 Banks 200809 % growth Cooperative 2007Banks 08 200809 % growth TOTAL 2007-08 200809 % growth

% Shar e

Amount

% Shar e

2378847 65.6 2831374 67.1 19.0 875716 977834 11.7 371378 415130 11.8 3625941 10.2 9.8 100.0 24.2 23.1

11475.47 67.5 16149.43 69.6 40.7 4421.04 5224.42 18.2 1103.39 1306.00 18.4 16999.90 6.5 5.8 100.0 26.0 23.0

48,240 57,037 18.2 50,485 53,428 5.8 29,711 31,460 5.9 46,884 53,689 14.5

638283 3225.92 645145 3961.53 1.1 22.8

223191 1332.33 258890 1508.10 16.0 55504 72852 31.3 916978 13.2 258.62 392.09 51.6 4816.87

4224338 100.0 16.5

22679.85 100.0 33.4

976887 5861.72 6.5 21.7

Table 2 : Agency-wise NPAs of Bank loans to SHGs (Amount Rs. crore)

Agency

Total no. of Banks reported data on NPAs

NPAs as on 31 March 2009 Outstanding Loans against SHGs**


15086.65 363.27 2.4

Amount of NPAs

% of NPAs to Outstanding bank loans

Commercial Banks (Public Sector ) Commercial Banks (Private Sector) Regional Rural Banks (RRBs) Cooperative Banks

26

12

1376.93

23.83

1.7

72

4203.46

177.79

4.2

182

894.00

60.97

6.8

TOTAL

292

21561.04

625.86

2.9

Table 3 : Recovery Performance Agency-wise (All SHGs)

Agency

No. of Banks reported recovery data

No. of banks based on percentage distribution of recovery performance of bank =/> 95%
6

loans to SHGs as on 31 March 2009 80-94% 50-79% < 50%


12 7 0

Commercial Banks (Public Sector) Commercial Banks (Private Sector) Regional Rural Banks Cooperative Banks

25

65 170

12 56

31 58

15 37

7 19

TOTAL

267

79 29.6

102 38.2

59 22.1

27 10.1

Percentage of Banks

QUESTIONNAIRE 1. Your Age: ____________________

2. Education Qualification. Undergraduate Graduate Post graduate

3. Marital Status. Married Single

No. of Children: __________ 5. Occupation. Business Profession Service Farming

(Please mention below the type of business/profession you are in incase of service please mention your organization name and designation)

6.Your annual household income. <than 1 lack Between 1 to 2 lack Between 2 to 3 lack >than 3 lack Lucrative Not lucrative No idea

8. What is your perception about different products and services offered by Bank?

9. Do you want to open an savings account with Damoh Panna Sagar Madhya Bharat
Kshetriya Gramin Bank ?

Yes No Will tell later

10. Do you have all the documents which are required to open an account? Yes No

Date: Place: Thank You Signature

BIBLIOGRAPHY

1. World Bank 2008 2. Reserve Bank of India 2008 3. www.cia.gov 4. National Sample Survey Organization (NSSO), Household Consumer Expenditure in India (2006) 5. Census 2006 6. Access to and Usage of Financial Services, World Bank 2008 7. RFAS, 2008, World Bank & NCAER 8. www.mbgb.gov.in