“RURAL BANKING IN INDIA”

A PROJECT REPORT
Under the guidance of
Mr.Nitesh Kulkarni

Su
bmitted by
Mr.V
asantha Shetty
Rol
l No:510921574

In partial fulfillment of the

requirement for the award
of the degree of MBA in

Financial
Management

MFM-09-11
October 2010
 Acknowledgement
I take this opportunity to express a deep sense of gratitude to
the teaching staff and especially to my project guide. I am also
thankful to him for giving his suggestions and encouragement
throughout the project work and helping me continuously at each
and every stage

I would like to acknowledge and extend my heart felt gratitude to

all persons who have made the completion of this project
possible. I also like to thank all my classmates for their vital
encouragement and support.

Place: Mumbai.
Date: 25th November 2010
Name : Vasantha Shetty

Roll No : 510521574

Center Code : 2754

Course: MBA Finance

 BONAFIDE CERTIFICATE
Certified that this project report titled “RURAL BANKING
IN INDIA” is the bonafide work of “Mr.Vasantha Shetty” who
carried out the project work under my supervision.

SIGNATURE SIGNATURE

HEAD OF THE DEPARTMENT FACULTY IN

CHARGE
 EXECUTIVE SUMMARY

After independence, India faced many critical problems. One

of them was to remove rural indebtedness and liberation of
rural masses from clutches of indigenous moneylenders.
Hence, the agenda was prepared to provide institutional
credit to rural masses. Heavy thrust was given for creation of
co-operative institutions, both credit cooperatives and
multipurpose cooperatives. All India rural credit survey in its
report in 1954 suggested establishment of apex level
cooperative banks and land development / mortgage bank.
Imperial bank of India was converted into state bank of India
in 1955 and again in 1959, state owned banks were
nationalized and made subsidiaries to the state bank of
India.

Again a major decision was taken to nationalize 14

commercial banks in 1969 and 6 more were nationalized in
1978. Thus efforts of the government to provide banking
facilities to rural India through cooperative and commercial
bank brought some relief but not the desired results.
Another major problem faced by the government was to
create a viable network of financial institutions to support
vast expanding need of funds in rural areas due to green
revolution of 1970,s.

In order to provide banking institutions with local feel, a

working group on regional rural banks was appointed with
suggested a model for establishment of “REGIONAL RURAL
BANK, S “in India. The government of India accepted its
recommendations and promulgated in ordinance in 1975
under which 5 regional rural banks were established. In 1976
regional rural banks act was passed and commercial banks
were charged with the responsibility to act as Sponsor Banks
for creation of RRB,s . As a result, a vast network of RRB,s
was created with a view to provide cheaper banking system
with local feel to Rural India .
Thus, at present 91 RRB,s (earlier it was 196 RRB,s) , are an
important segment of rural financial institutions in India .
They have carved out a special place for themselves in
terms of geographical coverage clientele, outreach, business
volume and contribution in development of rural economy of
the country. But their common characteristics include low
productivity, high transaction costs, lower credit deposit
ration, and low recovery of advances, high NPA, s and low
profitability. Hence, the idea came to embark upon a
research project which provided the base.
Understanding Rural Market

India’s vast rural market offers a huge potential for a

marketer facing stiff competition in the urban markets. The
rural market environment is very different from the familiar
surroundings of the urban market. Rural consumers have
customs and behavior that the marketer may find difficult to
contend with.
The opportunities in the rural market are demonstrated by
comparing consumption levels in urban and rural markets for
different product categories. Their volumes and growth show
the importance of this market. Understanding demographic
profiles of consumers and their response to brand offering is
a useful approach to analyse the rural market. A large
number of caselets in the book capture the consumer
response to brand offering. The need for appropriate
methodology for researching consumers is demonstrated by
non-applicability of the urban reference points and measures
in the context of rural markets. Literature available on rural
development provides alternative methods to research rural
markets. The understanding of the rural consumers is
utilised in decision-making situations. The critical aspect of
reaching the consumer with the message and the product
offered is examined in great detail. Short cases and data
illustrated later in this book provide the decision-maker with
important criteria for evaluation of options in these markets.
The influence of consumer perceptions on product design in
different product–market situations is identified.
Consequently, the concepts and the framework developed
are relevant for marketing decisions.

The use of the existing network of channel members in rural

markets is the key to connecting with the rural heartland.
Haats and melas, which are unique to rural markets,
supplement the retailer route to rural markets. The
interaction between consumers and these unique institutions
provides information for use in marketing decisions. The
marketing strategy is examined in the context of the
competitive situations in the rural market. Competition is
categorized into

(a) Generic competition,

(b) Competition with the unorganized sector,

(c) New entrants, and

(d) Meeting the challenges created by limitations.

 CONTENT LIST

SR.NO TOPIC PAGE

. NO.
1 INTRODUCTION 5-6

2 CONCEPT AND HISTORY OF REGIONAL 7 - 25

RURAL BANKS IN INDIA :

3 NEED OF RURAL BANKING IN INDIA 26

4 RRBs AS CATALYST OF RURAL 27 –

DEVELOPMENT IN INDIA 37

5 ROLE OF RRBs IN RURAL DEVELOPMENT 38 –

41

6 SWOT ANALYSIS 42 -
43

7 RRBs CONTRIBUTION TOWARDS INDIA,S 44 -

GDP GROWTH , 56

8 CONCLUSION 57 -
58

9 BIBILIOGRAPHY OF REFERENCES 59
 INTRODUCTION

Banking in India is as old as its civilization. But in its present

form it started on British model of 18th century. however,
the commercial banking in India till 1947 was characterized
by four things. Firstly, it was only urban banking leaving the
vast rural sector un banked. the only deposit accepting
government agency in villages are post office whose primary
function was to provide postal services. Secondly, Indian
commercial banking was elite class banking and not a mass-
banking system. In other words, it was armed chair banking
where bankers used to wait for the customers to reach them
for depositing their savings and / or for availing credit.
Thirdly, the banks were conservative and highly risk aversive
and, hence, provided credit mostly against highly liquid
collateral securities. The result was that there was shortage
of venture capital and entrepreneurship. Finally, each
business house in India promoted its own bank with the
result that the banks became a source of funding specific
industries. For example, Birlas promoted UCO bank. Likewise
Central Bank of India was Tatas Bank. In a nutshell , in pre-
independence India the banking facilities were meager and
that too were concentrated in cities.
BIBILIOGRAPHY OF REFERENCES

BOOKS:

1. SANJAI SINGH RATHOD: RURAL BANKING IN INDIA

– PUBLISHED BY NEW ROYAL BOOKS CO.-
LUCKNOW, 2004.

2. MEENU AGRAWAL: REGIONAL RURAL BANKS

(RRBs) IN INDIA – PUBLISHED BY NEW CENTURY
PUBLICATIONS – NEW DELHI, 2009.

OTHER SOURCE OF DATA:

1. RBI WEBSITE : rbi.org.in

2. NABARD : ANNUAL REPORT

3. OTHER WEBSITE