RURAL BANKING AND FINANCE(III-Semester)

SECTION –I : EVOLUTION OF RURAL BANKING IN INDIA

1. Types of Banks - RBI, SBI, NABARD, Commercial Banks, Scheduled

Banks, Development Banks, Cooperative Banks and Regional Rural
Banks.
2. Social Control over Banks, Nationalization of Commercial Banks –
objectives, problems and prospects.
3. Priority Sector Advances – RBI Guidelines.
4. Lead Bank Scheme – Concept and genesis, phases of transformations.

SECTION –II : POLICIES AND STRATEGIES OF RURAL LENDING.

1. District Credit Plan and Potential link Plan (PLP), features, objectives and
planning process.
2. Village Adoption Scheme – Credit Planning and Supervision.
3. Service Area Approach – inception, objectives and salient features,
Method of implementation.
4. Production & Investment Credit – Salient Features & Components.
5. Credit for Non-Agricultural Sector – Financing of Rural Industries and
Small & Medium Enterprises (SMEs). Credit Guarantee Scheme for
SMEs.

SECTION –III :COMPOSITION OF INDIA’s RURAL ECONOMY—RURAL

FINANCE—PRINCIPLES & PROBLEMS.
1. Rural Finance & Credit – Concept, Definition, Short, Medium and Long
Term Credit requirements of Farmers.
2. Principle of Agricultural Credit, 3 Cs and 3 Rs off Credit – Problems of
Rural finance – Rural indebtedness, nature, extent and causes.
3. Methods and approaches of Credit requirement –Borrowing and
Expenditure Approach.

SECTION –IV : INSTITUTIONS IN RURAL FINANCE

1. Organized system of ST, MT, and LT Loans.

2. Sources of Rural Finance –Institutional and Non-Institutional Sources of
Finance, Multi-Agency Approach, CRAFICARD, Recommendation for
revamping the system.
3. Cooperative Credit Structure, FSS, LAMPS,-- Objectives and Functions,
Role of Rural Finance.
4. Micro-Finance –SHGs,and MFIs.

SECTION –V : TECHNIQUES OF RURAL LENDING AND PROCEDURES.

1. Loaning Procedure, Project Preparation & Project Appraisal, Assessment

of Credit requirement.
2. Norms for effective repayment – Follow-up, Penalty on default – willful
default—Legal Procedure for Recovery of Loans.
 3. Prudential Norms – Income Recognition and Asset Classification, Non-
Performing Assets (NPA).
4. Over dues of Agricultural Loans – Magnitude and Reasons , Remedial
Measures.
5. Crop Insurance and Insurance of Investment Credit.
6. Formulation and Appraisal of Rural Projects.

REFERENCES:
1. Dhingra, I.C., Rural Banking in India, Sultan Chand & Sons, New
Delhi.
2. Desai, S.S.M. (1991), Rural Banking in India, Himalaya
Publishing, Mumbai.
3. Desai, Vasant (1988), Indian Banking – Nature and Problems.,
Himalaya Publishing , Mumbai.
4. Mithani, D.M. (1992) Money , Banking, International trade and
public finance, Himalaya Publishing , Mumbai.
5. Varshney, P.N.(2008), Banking Law & Practice- Sultan Chand &
Sons, New Delhi.
6. Shekhar, K.C. (1993), Banking Theory andPractice, Vikas
Publishing House, New Delhi.
7. Srivastava ,R.M., Nigam, Priya et.al (2003), Manaagement of
Indian financial Institutions, Himalaya Publishing House, Mumbai.

TOPIC:

TYPES OF BANKS – RBI, NABARD, COMMERCIAL BANKS, SCHEDULED

BANKS, DEVELOPMENT BANKS, COOPERATIVE BANKS & REGIONAL
RURAL BANKS.

RESERVE BANK OF INDIA (RBI):--

RBI was established in 1934.
RBI started functioning from 1st April, 1935.
RBI is known as Central Bank of the Country.

ORGANISATION AND MANAGEMENT:

RBI has a organizational set up and the head of it is the Governor appointed
by the Central Government assisted by Dy. Governors who are also appointed by the
Central Government.

CENTRAL BOARD OF DIRECTORS

GOVERNOR

DEPUTY GOVERNORS ( 4 )

DIRECTORS (15)
 (Nominated by Central Government)

INTERNAL ORGANISATION

FUNCTIONAL SPECIALISATION DEPARTMENTS

|
BANKING FUNCTION ISSUE OF NOTES & CURRENCY

20 FUNCTIONAL DEPARTMENTS
I
- Reserve Bank as Note Issuing Authority.
- Issue of New Currency & Notes (as Currency Chest at 10 Centres
in India)
- Reserve Bank as Banker”s Bank
- Reserve Bank as Banker to Government (Central Govt. as well as
to State Govts. )
- (a) for rediscounting of bills.
- (b) for Loans and Advances (for 90 days)
- (c) for Emergency Advances
- As Supervisory and Controlling Authority over Banks.
- As Controller of Credit (CRR & SLR)
- As Collection and furnishing of Credit Information.

OTHER FUNCTIONS OF RBI :

` To maintain Monetary Stability in the Country.
To maintain Financial Stability in the Country,
To maintain Stable Payment System.
To promote the Development of Financial Infrastructure of markets &
System.
To ensure the credit allocation by the financial system.
To regulate the overall volume of money and credit in the Economy
Maintain Price Stability.

NATIONAL BANK FOR AAGRICULTURE AND RURAL DEVELOPMENT:

(1) FORMATION :
The NABARD is the Apex Development Bank for Agricultural and Rural
Development.
It was set-up on 12th July, 1982 by merging Agricultural Credit Department
(ACD) and Rural Planning and Credit Cell (RPCC) of the RBI
And the entire undertaking of Agricultural Refinance and Development Corporation
(ARDC).

ACD + RPCC + ARDC = N A B A R D

FUNCTIONS OF NABARD :
There are Three types of functions of NABARD :
(1) Credit Functions,
(2) The Developmental functions, and
(3) The Regulatory functionsi
THE CREDIT FUNCTIONS:
I- It provides through the Banking system :
(a) all kinds of Productive and Investment Credit to Agriculture,
(b) small scale industries,
(c) Cottage & Village Industries,
(d) Handicrafts, and
(e) Other allied Economic Activities.

II- It provides different types of Refinance (i.e. Short Term, Medium

Term and Long Term )to the eligible Institutions, namely ----

(a) State Co-operative Banks,

(b) Regional Rural Banks,
(c) State Land Development Banks (excluding Short Term),
(d) Commercial Banks (only Long Term ), and
(e) Other financial institutions approved by the RBI.

NABARD has prescribed lower rates of interest on the Refinance provided

by it and the rates payable by the ultimate Borrowers.

THE DEVELOPMENT FUNCTIONS :

(a)
NABARD coordinates the operations of Rural Credit Agencies.
(b)
Develops expertise to deal with agricultural and Rural Problems.
(c)
Assists Government, RBI and other Institutions in Rural Development
efforts.
(d) Acts as Agent to Government and RBI in relevant areas.
(e) It provides facilities for Training and Research.
(f) Of eligible Institutions.
THE REGULATORY FUNCTIONS:

(a)
The Banking Regulations Act, 1949 empowers the NABARD to
undetake Inspection of RRBs and Cooperative Banks ( other than
Primary Coop. Banks)
(b) If any such Bank seeks permission of the RBI for opening Branches, it
will have to obtain the recommendation of NABARD.
RESOURCES:

(i) Paid-up Capital of NABAARD is Rs. 1000 Crores contributed equally

by the Govt. of India and the RBI.
(ii) NABARD can raise funds (Resources) by issue of BONDS AND
DEBENTURES guranteed by the Central Government.
(iii) NABARD can borrow from RBI and Central Govt. or any other
organisation approved by the Central Government.

ORGANISATION :
The NABARD is managed by its Board of Directors :--
The Board of Director’s consists of following :--
1 CHAIRMAN
1 MANAGING DIRECTOR
1 EXPERTS IN RURAL ECONOMICS
2 EXPERTS IN CO-OPERATIVES AND
COMMERCIAL BANKS
3 DIRECTORS OF RBI
3 DIRECTORS FROM GOVT. OF INDIA
2 DIRECTORS FROM STATE GOVERNMENTS.

COMMERCIAL BANKS :(Public Sector Banks).:--

Commercial Banks had THREE stages of development :-

FIRST STAAGE ; Conversion of the then existing IMPERIAL BANK OF INDIA

into the STATE BANK OF INDIA(SBI)followed by the establishment of its SEVEN
SUBSIDIARY BANKS –
1. State Bank of Bikaner & Jaipur
2. State Bank of Patiala.
3. State Bank of Hyderabad.
4. State Bank of Indore.
5. State Bank of Mysore.
6. State Bank of Saurashtra.
7. State Bank of Travancore.

SECOND STAGE :
The Nationalisation of 14 major Commercial Banks on JULY 19, 1969.:

THIRD STAGE :
The Nationalisation of 6 more Commercial Banks on APRIL 15, 1980. One
of them – NBI, was later on merged with PUNJAB NATIONAL BANK.
Thus, 27 Banks constitute Public Sector Banks in INDIAN COMMERCIAL
BANKING.

PUBLIC SECTOR BANKS:

1. Allahabad Bank 2. Andhra Bank 3. Bank of Baroda

4. Bank of India 5. Bank of Maharashtra 6. Canara Bank.
7. Central Bank of India 8. Corporation Bank. 9. Dena Bank.
10. IDBI Bank. 11. Indian Bank. 12.Ind.
Over.Bank.
13. O.B.C. 14. Punjab & Sindh B. 15. P.N.B.
16. Syndicate Bank. 17. UCO. Bank. 18.Union B.of Ind.
19 United Bank of India. 20. Vijaya Bank.

PRIVATE SECTOR BANKS.(COMMERCIAL BANKS):--

1. AXIS Bank. 2. Bank of Rajasthan. 3. Bharat Overseas Bank.

4. Catholic Syrian Bank. 5. Centurian Bank of Punjab, 6. City Union Bank.
7. Dev. Credit Bank. 8. Dhanlakshmi Bank. 9. Federal Bank.
10. Ganesh Bank of Kurundwad. 11. HDFC Bank. 12. ICICI Bank.
13/ IndusInd Bankk. 14. ING- Vysya Bank. 15. J&K Bank.
16. Karnataka Bank. 17. Karur Vysya Bank. 18. Kotak Mahindra Bank.
19. Laxmi Vilas Bank. 20. Lord Krishna Bank. 21. Nainital Bank.
22. Ratnakar Bank. 23. SBI Commercial & International Bank.
24. South Indian Bank. 25. Tamilnad Merchant Bank. 26. YES Bank.

NEW PRIVATE BANKS:

Narsimhaam Committee on Financial Sector (1991) recommended the

establishment of such Private Banks in India with some recommendations : RBI have
issued guidelines in 1993 as under :--
1. Share Capital of Rs.200 Crore (to be registered as Public Ltd.
Company under the Companies Act, 1956).,
2. Financially viable & Technologically up-to-date.
3. To function in a Professional manner.
4. They are governed under RBI Act and the B.R. Act, 1949.

SCHEDULED BANK:
RBI is the Banker to the Banks--, Banks includes :
(a) Commercial Banks
(b) Cooperative Banks.
(c) Regional Rural Banks.

 The name of the bank is included in the SECOND SCHEDULE to the

RBI Act, 1934.
 Such banks, called the Scheduled Banks, are entitled to avail of the
facilities of refinance from the RBI.
 Since 1966, the STATE COOPERATIVE BANKS have also been made
eligible for inclusion in the SECOND SCHEDULE TO THE ACT.
 The RRBs, established since 1975, also enjoy the status of SCHEDULED
BANKS.
 The Public Sector Banks (including the SBI group) have been notified as
SCHEDULED BANKS by the Central Government.
 A “Scheduled Bank”means a bank included in the Second Schedule to the
RBI Act, 1934. The RBI is empowered to include in the SECOND
SCHEDULE the name of a bank which carries on the business of Banking
in India and which satisfies the following conditions laid down in Section
42(6) of RBI Act, 1934:---
 It must have a paid-up capital and reserves of an aggregate
value of not less than Rs.5 lakhs.
 It must satisfy the RBI that its affairs are not being conducted
in a manner detrimental to the interest of its depositors, and
 It must be (a) a State Cooperative Bank, or (b) a company as
defined in the Companies Act, 1956, or (c) an institution
notified by the Central Government in this behalf, or (d) a
Corporation or a Company incorporated by or under any law in
force in any place outside India.
  The status of Scheduled Bank confers certain privileges upon the Banks,
e.g. they become eligible for availing of the facilities of “accommodation”
from the RBI.
 A Scheduled Ban on the other hand has to fulfil the obligation to maintain
Statutory Reserves with the RBI.

LOCAL AREA BANKS:

In 1996, Government decided to allow new local area banks with two
objectives :
(a) Providing an Institutional Mechanism for promoting RURAL and
SEMI URBAN savings, and
(b) for providing credit for viable Economic Activities in the local areas.

1. Registered as:- these banks will be established as public Ltd .

companies, trusts, and societies.
2. Minimum paid –up capital of such banks would be Rs. 500 Crores
with promoter’s contribution as at least Rs.2.00 crores.
3. Area : district, towns and maximum of 3 geographical districts
where they can open their branches. ( e.g. Adarsh credit coop.
society in Rajasthan)

CO-OPERATIVE BANKS:
The Cooperative banks also perform the basic function of banking but differ from the
commercial banks in many respects as follows:
1. The Cooperative banks have been established under the Cooperative societies
acts of different states. Bus commercial banks have been organized under
companies Act,1956 or public corporation under special acts of parliament.
2. The Cooperative banks have three –tier set up state, districts and village level,
whereas commercial banks which is a scheduled bank is entitled to avail the
refinance from the RBI.
3. Area of operation: Cooperative banks function within a given area.
(state/district) . Cooperative banks function over a wider area (over the
country or more states).
4. till 1969 the Cooperative banks were urban –oriented . Cooperative banks are
basically rural –oriented , financing agriculture and allied activities.
5. application of BR act , 1969- all schemes are applicable on Cooperative banks
but only some of the sections are applicable to Cooperative banks.
6. Cooperative banks proceed on the principles of cooperation, whereas
Cooperative banks on sound business principles .
7. only state Cooperative banks have an access to RBI , whereas all Cooperative
banks which is a scheduled bank is entitled to the refinance from the RBI.

RRBs
Started in 1975
There are 196 RRBs established under the provision of RRBs act , 1976.
RRBs have been closely linked with Commercial banks.
Commercial banks are sponsored banks.
RRBs have local limit of area of operation i.e. notified area.