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This is certifying that MISS. BINDIYA PATEL of TY.B.B.I BACHELOR OF BANKING AND INSURANCE STUDIES -- (2011-12) has successfully completed the project on BANKING

SERVICES IN INDIA under the guidance of Ms. SHILPA CHHEDA.

Project Guide



External Examiner


Internal Examiner


Course Co-ordinate

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I hereby declare that this project titled BANKING SERVICES IN INDIA. submitted by me is based on actual work carried out by me under the guidance and supervision of Mrs. Shipa Chheda. Any reference to work done by any other person or institution or any material obtained from other sources have been duly citied and reference. It is further to state that this work is not submitted anywhere else for any examination.

M.K.M.P College of Commerce & Science, Thakurli (E)-421201

Signature of studentPATEL BINDIYA NAVIN DATE: ______________

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This is to certify that PATEL BINDIYA NAVIN has completed the research project on BANKING SERVICES IN INDIA. under by guidance and supervision, and submitted the project work as laid down by University of Mumbai. The material that has been obtained from other sources is duly acknowledged. It is further certified that the work or its part has not been submitted to any other University far examination under my supervision. I consider this work worthy for the award of the degree of Bachelor of INSURANCE Studies.
_________________ ___________________


Mrs. L. R. Visaria CHHEDA (In charge Principal)



(Course Coordinator)

Internal Examiner

External Examiner

Prof. Shilpa Chheda

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The urge and need to complete this project successfully was not possible without the helping hands of erudite people. I take this opportunity to thank all of them who played a major role in completing this project. I express my deep gratitude towards Prof. SHILPA CHHEDA course coordinator for encouraging me to work on this project. I also thank our incharge Principal Mrs. Lekha.Visaria for her continuous encouragement to our activities. I must especially record my sincere thanks to my family members and all my friends for their constant support. Finally, my heartfelt appreciations to all those who worked behind the curtains to make this project a success.

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RURAL and DEVELOPMENT BANKING is a vital subject of research for the Institute. Issues relating to specific areas of agricultural lending, organizational structure relating to rural lending, strategies for developmental finance, special problems of backward regions, strategies and systems of developmental assistance to weaker and backward sections of the population, study of the developmental experiences of other countries, area approach to development planning, evaluation of various development schemes, are some of the issues of research in this area. There is an immediate need to step up the flow of credit to agricultural and other rural activities in India, to improve rural productivity and economic welfare.

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CHAPTER 1 Objective of the study Scope of the study Limitation of project study CHAPTER 2 Banking: introduction history types functions CHAPTER 3 Rural banking National policy and its aim Need and sources of credit for farmer History of rural eco structure Objective and progress of rural banking Functions and importance of rural banking Scope of rural banking Advantage and problems of rural bank Dos and donts of rural banking Approaches of rural banking Technology and rural banking Natural resources in rural india Changing scenario of rural credit
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Schemes & facilities of various rural banks Marketing mutual funds unit services of rural markets Research methodology CHAPTER 4 Questionnaire Analysis of IDBI bank Conclusion Bibliography

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o o o o o o o

To study Indian banking industry in detail. To study the rural banking in detail. To study the rural banking current status. To study the Functioning for the development of Rural area To know the Approach to Rural Banking. To study the technology and rural banking. To know the changing scenario of rural banking.

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Scope of the study:

Scope of the study is to to understand the concept of rural banking and what are the challenges faced in case of rural banking and our scope of the study is limited to few banks and rural areas. Future prospect of rural banking.

Limitation of project study:

Researcher found the following limitations: Many people are not aware and dont have any idea about rural banks. The study is limited area only. Sample size taken is small and may not be sufficient to predict the results with 100% accuracy. Time was not sufficient to research. I have visited IDBI bank of Dombivli branch they gave me all information about all rural facilities but I cant get certificate of survey because that branch itself not providing rural facilities.

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Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

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The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. In Calcutta, in the 1860s. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860. Another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Punjab National Bank, established in Lahore in 1895,

o The period between 1906 and 1911, such as Bank of India, Corporation
Bank, Indian Bank, Bank of Baroda ,Canara Bank and Central Bank of India

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Types of banks in India:

The History of banking in India dates back to the early half of the 18th century. 3 Presidency Banks that were established in the country namely the Bank of Hindustan, Bank of Madras and Bank of Bombay can also be referred to as some of the oldest banking institutions in the country. The State Bank of India that was earlier known as the Bank of Bengal is also one of the oldest in the genre. To know about the types of banks in India, it is necessary that we first comprehend the banking system so as to be able to distinguish about its various types.

All types of Banks in India are regulated and the activities monitored by a standard bank called the Reserve Bank of India that stands at the apex of the banking structure. It is also called the Central Bank, as major banking decisions are taken at this level. The other types of banks in India are placed below this bank in the hierarchy.

The major types of banks in India are as follows:

Public sector banks in India -

All government owned banks fall in this variety. Besides the Reserve Bank of India, the State Bank of India and its associate banks and about 20 nationalized banks, all comprises of the public sector banks. Many of the regional rural banks that are funded by the government banks can also be clubbed in this genre.

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Private sector banks in India A new wave in the banking industry came about with the private sector banks in India. With policies on liberalization being generously taken up, these private banks were established in the country that also contributed heavily towards the growth of the economy and also offering numerous services to its customers. Some of the most popular banks in this genre are: Axis Bank, Bank of Rajasthan, Catholic Syrian Bank, Federal Bank, HDFC Bank, ICICI Bank, ING Vysya Bank, Kotak Mahindra Bank and SBI Commercial and International Bank. The Foreign Banks in India like HSBC, Citibank, and Standard Chartered bank etc can also be clubbed here.

Cooperative banks in India With the aim to specifically cater to the rural population, the cooperative banks in India were set up through the country. Issues like agricultural credit and the likes are taken care of by these banks.

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The Functions of Banking:

The most important functions of banking may be classified as follows: (1) To assemble capital and make it effective; (2) To receive deposits and make collections; (3) To check out and transfer funds; (4) To discount or lend; (5) To exercise fiduciary or trust powers; (6) To issue circulating notes. Every bank which expects to succeed must first of all prove its value to the community. The services which a bank performs are so generally taken for granted that the public is unaware of the real extent of the facilities offered. Banks are equipped to utilize funds, for either a short or long period of time, safely, and with some profit. Depositors individually do not enjoy the same ability. An individual's unused funds are perhaps small in amount, cannot be loaned to advantage with the assurance of immediate return when desired, and the care of the money involves worry and risk. The bank, on the other hand, possesses the necessary men, machinery and experience. By obtaining deposits, each perhaps small in itself, from many people, it acquires a large reservoir of funds. From this supply, which is constantly being increased by additional deposits and decreased by withdrawals according to the needs and circumstances of the depositors, the bank can now make loans and other investments from time to time. It is known as a place where loans may be sought, and it is protected in making these loans of funds which it has had left with it on deposit by the law of averages which usually operates in such a way those withdrawals and deposits about balance each other, the normal tendency being in favor of a net increase.

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Banking in India


Central bank

Reserve Bank of India NABARD

Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Nationalize-+d Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of State bank group: Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore

Axis Bank Bank of Rajasthan Catholic Syrian Bank Dhanalakshmi Bank South Indian Bank City Union Bank Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya Private banks: Bank Jammu & Kashmir Bank Karnataka Bank Limited Karur Vysya Bank Kotak Mahindra Bank Lakshmi Vilas Bank Nainital Bank Ratnakar Bank Saraswat Bank Tamilnad Mercantile Bank Limited Yes Bank Development Credit Bank

ABN AMRO Abu Dhabi Commercial Bank Antwerp Diamond Bank Arab Bangladesh Foreign banks: Bank Bank International Indonesia Bank of America Bank of Bahrain and Kuwait Bank of Ceylon Bank of Nova Scotia The Bank of Tokyo-Mitsubishi UFJ Barclays Bank Citibank India Credit Suisse HSBC Standard Chartered Deutsche Bank Royal Bank of Scotland

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These banks were first set up in 1975 specifically to give direct loans and advances to small and marginal farmers, agricultural laborers, rural artisans and other of small means. The loans are given for productive purposes. There were 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.

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Structure of Rural Credit In India:

In the village itself no form of credit organization will be suitable except the Co-

operative SocietyCo-operation has failed, but co-operation must succeed. --All-India Rural Credit Survey

National Policy & Its Aim:

Agricultural credit is one of the most crucial inputs in all agricultural development programmers. From olden days private money-lenders are main sources of credit towards agricultural or rural products. After independence multi-agency approach consisting of cooperatives, commercial banks and regional rural banks are adopted due to its cheaper and adequate credit to farmers. The major policy in the sphere of agricultural credit has been its progressive institutionalization for supplying agriculture and rural development programmes with adequate and timely flow of credit to assist weaker sections and less developed regions. The basic aims of this Policy are as follows:a. To ensure timely & sufficient flow of credit to the farming sector; b. To avoid money-lender chain from rural scene.
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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.

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Need of Credit for Farmers:Farmers need finance mainly for the following thingsto pay current expenses of cultivation such as the purchase of seed, manures, etc.; the purchase of cattle, implements and raw materials; acquire new land; or improve land by irrigation, drainage, wedding and planting; pay up old debts to build and repair houses, to purchase food stuffs and other personal necessaries; pay land revenue to the Government; meet expenses connected with marriage and other social events in the family, but jewellery and conduct law suits. The credit need of agriculturists can, therefore, be broadly divided into directly productive & indirectly unproductive expenses. Unfortunately fact is that underdeveloped and old countries are in need of both the types of credit.

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 commercial banks, b. the state bank, c. co-operative societies & land mortgage banks d. agricultural finance Corporation.


Rural banking is the process of conducting banking transactions out in the country where bank branches are too far away to be of use. Rural banking is popular for very small towns and farmers who live far away from areas of larger population and cannot make the drive to these locations whenever they need to use banking services. Typically, an agent of the bank will visit these rural locations and offer to make transactions in an official capacity
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of the Rural Economic Structure of India:

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...

The structure and organization of villages:

The village community was based

on a simple division of labour. The farmers cultivated the soil and tended cattle. Similarly, there existed classes people called weavers, goldsmiths, carpenters, potters, oil pressers, washer men, cobblers, barber-surgeons, etc. All these occupations were hereditary and passed by tradition from father to son. Most of the food produced in the village was consumed by the village population itself. The raw materials produced from primary industries were the feed for the handicrafts. Thus interdependence of agriculture and hand industry provided the basis of the small village republics to function independently. The villages of India were isolated and self-sufficient units which formed an enduring organization. But this should not lead us to the conclusion that they were unaffected by wars or political decisions. They did suffer the aggressors and were forced to submit to exactions, plunder and extortion, but the absence of the means of transport and communications and a centralized government helped their survival.

b) Classes of Village India:

There were three distinct classes in village India: (i)

the agriculturists, (ii) the village artisans and menials, and (iii) the village officials. The agriculturists could be further divided into the land-owning and the tenants. Labour and capital needed was either supplied by the producers themselves out of their supplied by the producers themselves out of their savings or by the village moneylender. These credit agencies supplied finance at
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exorbitant rates of interest but since the moneylender and the landlord were the only sources of credit, the peasants and even the artisans were forced to depend on them. The village artisans and menials were the servants of the village. Most of the villages had their panchayats or bodies of village elders to settle local disputes. The panchayats were the court of justice


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 office


of RRBs:

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.

Each RRB will operate within the local limits specified by notification.

If necessary a RRB will also establish branches or agencies at places notified by the Government.
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Every RRB is authorized to carry on transacting the business of banking as defined in the Banking Regulation Act and may also engage in other business specified in Section 6 (1) of the said Act. In particular a RRB is required to undertake the business of (a) granting loans and advances to small and marginal farmers and agricultural laborers whether individually or in groups, and to cooperative societies including agricultural marketing societies agricultural processing societies cooperative farming societies primary agricultural credit societies or farmers service societies primary agricultural purposes or agricultural operations or other related purposes, and (b) Granting loans and advances to artisans small entrepreneurs and persons of small means engaged in trade commerce industry or other productive activities within its area of operation. The Reserve Bank of India has brought RRBs under the ambit of priority sector lending on par with the commercial banks. They have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances to go to weaker section.

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Importance of Rural Banking:


They need credit to meet short-term requirements of working capital

and for long-term investment in agriculture and other income-bearing activities.


Agricultural and non-agricultural activities in rural areas typically are seasonal,

and households need credit to smoothen out seasonal fluctuations in earnings and expenditure.


Rural households, particularly those vulnerable to what appear to others to be

minor shocks with respect to income and expenditure, need credit as an insurance against

In a society that has no law of free, compulsory and universal school education, no arrangements for free and universal preventive and curative health care, rural households need credit for different type of consumption. These include expenditure on food, housing, health and education.

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Scope of rural banking:

The rural market in India is a huge unorganized market as well as much of it is still untapped in various domains. A huge scope for services exists in these markets where still major companies have directed their focus on. Since major of Indian population exists in rural segment, prospects of huge demand exists for the products offered by various companies or service providers. But the demand and supply pattern in the rural segment is majorly different than those in the urban segment. This difference is due to vast difference in: Income level Expenditure capacity Taste and preferences Educational level Social, Cultural and environmental These differences results in Gaps between Service provider and the consumers/customers in both the market segments. Hence a service provider clearly needs to understand these gaps and the strategies to fill these gaps effectively. Therefore the mantra for successful strategy implementation in rural markets for service delivery is Think Global Act Local

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Advantages of rural banking: a) The advantage of lower cost of handling a transaction.

b) It allows the possibility of improved quality and an enlarged range of services being available to the customer more rapidly and accurately at his convenience. c) As the level of education in rural areas rises and affluence spreads, customers will start seeking efficient, quicker and low cost services. d) The development of the telecom infrastructure in the rural areas has made doing business easy. e) The actual level of non-performing assets (NPAs) in the rural sector is less than elsewhere, and this coupled with the low cost of operations, less expensive labor, infrastructure, cost of living, and so on make Rural India an attractive market.

Problems in functioning of RRBs:

1. On account of the many restrictions place on the business they can undertake,

RRBs have low earning capacity. 2. 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. 3. 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 anomalies and to avoidable expenditure on controls and administration.

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4. Formal sector credit needs specially to reach backward areas, income-poor

households, people of the oppressed castes and tribes, and women. 5. inadequate. The supply of formal sector credit to the countryside as a whole has been

Dos of rural banking:

The focus of the service quality should be customer driven and hence need to be customized as per the rural requirements of customers having low income group as major target group. Hence more of benefits driven by the customer from savings schemes should be included in the Services provided through accounts maintenance with the banks. The service providers should be clearly aware of the local languages, culture and behavior of the rural customers. Thus the inclusion of local employees would be beneficial for the banks to deal effectively with the customers. The banks should be able to provide these banking services such as loan and microfinance services at lowest and most profitable interest rates with flexible and customized repayment options to the customers. The Bank need to clearly understand the best possible location for its setup and operations as the location and facility layout of the service provider plays a very significant role in rural banking because the rural areas do not have sufficient transport facilities like urban markets. The customers should be made aware clearly about the services provided by the bank through effective physical evidence and promotions that should be made as simple as possible to the rural customers to understand properly. The assistance should be provided regularly to the customers to educate them about the current as well as prospective facilities and benefits derived from the banking services provided.

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Donts of rural banking:

Do not put much focus on providing any complex and unessential services like corporate loans and credit card facilities as still the market demand for such services are much lesser as compared to other banking services. Do not use any illegal or unethical means for repayment of loans and other services as this would result in more of customer dissatisfaction and grievance which would harm the brand equity and image of the banking company Do not provide services to the customer before properly educating the customer about the details product and process of the service so as to avoid confusion and discrepancy. Do not focus on the short term profitability but the bank needs to focus on the building long term relationship with the customer by putting more concentration on: o Service quality o Service recovery o Reach to the customer and building prospective future customers o Improving market share o Building Brand loyalty o Providing new facilities as per the customer needs and requirements.

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Approach to Rural Banking:

The Reserve Bank of India has a mandate to be closely involved in matters relating to rural credit and banking by virtue of the provisions of Section 54 of the RBI Act. The major initiative in pursuance of this mandate was taken with sponsoring of AllIndia Rural Credit Survey in 1951-52. This study made agency-wise estimates of rural indebtedness and observed that cooperation has failed but it must succeed. The Report of the Committee on Directions is still considered a classic on the subject, and two of the four members were, incidentally, from Andhra Pradesh. This is the origin of the policy of extending formal credit through institutions while viewing local, traditional and informal agencies as usurious. In the first stage, therefore, efforts were concentrated on developing and strengthening cooperative credit structures. The Reserve Bank of India has also been making financial contributions to the cooperative institutions through evolving institutional arrangements, especially for refinancing of credit to agriculture.

While enacting the State Bank of India Act in 1955, the objective was stated to be the extension of banking facilities on a large scale, more particularly, in rural and semi-urban areas. SBI, therefore, became an important instrument of extending rural credit to supplement the efforts of cooperative institutions. In 1969, 14 major commercial banks were nationalised and the objective, inter alia, was "to control the heights of economy". The nationalised banks thus became important instruments for advancement of rural banking in addition to cooperatives and State Bank of India. The next step to supplement the efforts of cooperatives and commercial banks was the establishment of Regional Rural Banks in 1975 in different states with equity participation from commercial banks, Central and State Governments.
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By 1982, to consolidate the various arrangements made by the RBI to promote/ supervise institutions and channel credit to rural areas, NABARD was established. Though several efforts were made to increase the flow of institutional credit for agricultural and rural lending, there were mismatches in credit and production. Field studies conducted to determine the reason, revealed that it was due to absence of effective local level planning. It was felt that with the establishment of large network of branches, a system could be adopted to assign specific areas to each bank branch in which it can concentrate on focussed lending and contribute to the development of the area. With a view to implementing this approach, RBI introduced a scheme of "Service Area Approach" for commercial banks. To further supplement the institutional mechanism, the concept of Local Area Banks was taken up in 1996-97 and in-principle approval has been given for 8 Local Area Banks.

As regards cost of credit, for most of the period, the administered interest rate regime was applicable for bank lending and this included concessional terms for priority sector. Currently, all interest rates on bank advances including in rural areas are deregulated and there is no link between priority sector and interest rate, though there are some regulations on interest rates by size of advance i.e. below Rs. 2 lakh in respect of commercial banks.

As regards policy measures to enhance flow of credit to rural areas, apart from availability of credit lines from the Reserve Bank of India, the concept of priority sector was evolved to ensure directed credit. Currently, the stipulation is that domestic commercial banks should extend credit to the extent of 40 per cent of the total net bank credit to priority sector as a whole, of which 18 per cent should be
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specifically for agriculture. Out of the target of 18 per cent for agriculture, at least 13.5 per cent should be by way of direct loans to agriculture and remaining could be in the form of indirect loans.

Where a bank fails to fulfil its commitment towards priority sector lending, it is currently required to contribute to Rural Infrastructure Development Fund set up by NABARD. NABARD in turn provides these funds to State Governments and state owned corporations to enable them to complete various types of rural infrastructure projects.

It is pertinent to recognise that there are a large number of credit linked programmes sponsored by the Government for direct assault on poverty. In programmes relating to self-employment and women welfare, the multiplicity of programmes has been reduced by having a comprehensive and consolidated programme named Swaranjayanti Gram Swarojgar Yojna.

The financial sector reforms, which were introduced from 1991 onwards were aimed at transforming the credit institutions into organisationally strong, financially viable and operationally efficient units. The measures introduced include reduction in budgetary support and concessionality of resources, preparation of Development Action Plans and signing of Memoranda of Understanding with the major controllers, and introduction of prudential norms relating to income recognition and asset classification for RRBs and cooperative banks. The lending rates for these institutions have also been deregulated. Other measures of liberalisation include allowing non-target group financing for RRBs, direct financing for SCBs and CCBs, and liberalisation in investment policies and non-fund business.

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These measures have contributed to many RRBs turning around and becoming more vibrant institutions. In the case of cooperative banks, there is greater awareness of the problems of officialisation and politicisation and initiatives in this regard include legislative actions on cooperative banks in Andhra Pradesh.

Recently, several policy initiatives have been taken to advance rural banking. These include additional capital contribution to NABARD by the RBI and the Government of India, recapitalisation and restructuring of RRBs, simplification of lending procedures as per the Gupta Committee recommendations, preparation of a special credit plans by public sector banks and launching of Kisan Credit Cards. Finally, a scheme linking self-help groups with banks has been launched under the aegis of NABARD to augment the resources of micro credit institutions. A Committee has gone into various measures for developing micro credit, and has submitted its report, which is under the consideration of the RBI. In respect of cooperatives, a Task Force under the chairmanship of my esteemed and affectionate colleague Shri Jagdish Capoor, Deputy Governor has been constituted to review the status and make recommendations for improvement.

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Technology and Rural Banking:

We should recognise that the role of banks, which is central to formal credit in rural areas, is fast changing. Many non-banks are providing avenues for savers and funds for investment purposes. Banks themselves are undertaking non-traditional activities. Banks are also becoming what are called universal banks and are already providing a range of financial services such as investments, merchant banking and even insurance products. Similarly, non banks are also undertaking bank like activities. At present in India, these are mostly confined to urban areas, but they will sooner than later spread to rural areas.

Another development relates to the gradual undermining of the importance of branches of banks. The emergence of new technology allows access to banking and banking services without physical direct recourse to the bank premise by the customer. The concept of Automated Teller Machines (ATMs) is the best example. At present, ATMs are city oriented in our country. It is inevitable that ATMs will be widely used, in semi-urban and rural areas.

The technology-led process is leading us to what has been described as virtual banking. The benefits of such virtual banking services are manifold. Firstly, it confers the advantage of lower cost of handling a transaction. Secondly, the increased speed of response to customer requirements under virtual banking vis-vis branch banking can enhance customer satisfaction. Thirdly, the lower cost of operating branch network along with reduced staff costs leads to cost efficiency. Fourthly, it allows the possibility of improved quality and an enlarged range of services being available to the customer more rapidly and accurately at his convenience. It may not be possible to deny these facilities to rural areas in our
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country since, if banks do not provide them, some non-banks will do it.

Another development relates to the increasing popularity of credit cards, which are bound to reach rural areas. Many Public Sector Banks are already in credit card business. In fact, multi-purpose cards could be a facility that IT could usher in for rural population. The potential can be illustrated with SMART cards. SMART cards which are basically cards using computer circuits in them thereby making them intelligent' would serve as multipurpose cards. SMART cards are essentially a technologically improved version of credit and debit cards and could be used also as ATM cards. They could be used for credit facilities at different locations by the holders. SMART cards could also be used for personal identification and incidentally for monitoring credit usage.

For the spread of virtual-banking and SMART cards to rural areas, it is essential that electric power and telecom connectivity are continuous and supplies do not drop especially during the hours when a bank's transactional activity is at relatively high levels. The banks could, under such assured supply conditions acquire the required banking software and also put in place the necessary networking for providing anywhere banking facilities in rural and semi-urban areas also.

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Natural Resources in Rural India:

To achieve the development in national output, it is essential to combine natural resources, human resources & capital. The existence or the absence of favorable natural resources can facilitate or retard the process of economic development. Natural resources include land, water resources, fisheries, mineral resources, forests, marine resources, climate, rainfall and topography. 1.

Land Resources: The total geographical area of India is about 329 million

hectares, but statistical information regarding land classification is available for only about 305 million hectares; this information is based partly on village papers and partly on estimates. We can explain land utilization pattern from the following table:-

Land utilization pattern, 2007-2008 (million hectares)

Particulars 1. Total geographical area Area 329 Percent --

2. Total reporting area 3. Barren land not available for cultivation

305 41

100 13

4. Area under forests 5. Permanent pastures and grazing land 6. Cultural waste lands, etc. 7. Fallow lands

67 12 19 26

22 4 6 9

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8. Net area sown 9. Area sown more than once 140 37 46 12

10. Total cropped area (8+9)




Forest Resources:

Forest is an important natural resource of India. They have a

moderating influence against floods and thus they protect the soil against erosion. They provide raw materials to a number of important industries, namely, furniture, matches, paper, rayon, construction, tanning, etc. The total area under forests was 67 million hectares in 1986-87 which was about 22 percent of the total geographical area; a recent estimate has put it at 75 million hectares or 23 percent of the total geographical area. Forests in India are mostly owned by states (95%); a small portion is under the ownership of corporate bodies and private individuals.

3. Water


India is one of the wettest countries in the world, with

average annual rainfall of 1100 m.m. Indias water policy, since Independence, has mainly concentrated on highly visible large dams, reservoirs and canal systems, but has ignored minor water works such as tanks, dug wells and tube wells.



Broadly speaking, fishery resources of India are either

inland or marine. The principal rivers and their tributaries, canals, ponds, lakes, reservoirs comprise the inland fisheries. The rivers extend over about 17,000 miles, and other subsidiary water channels comprise 70,000 miles. The marine resources comprise the two wide arms of the Indian Ocean and a large number of gulf and bays
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along the coast. About 1.8 million fishermen draw their livelihood from fisheries, though they generally live on the verge of extreme poverty. Out of a total catch of 3 million tons of fish in 1988-89, over 1 million tones came from inland fisheries and nearly 2 million tones from marine sources. India is the seventh largest producer of fish in the world and is second in inland fish production, which contributes 45 per cent of total production in the country. Fish production reached the level of 5.4 million tons in 1997-98, comprising 3.0 million tones of marine fishery and 2.4 million tones of inland fishery and is expected to reach 5.6 million tons in 1998-99 with 3.0 million tones of marine fishery and 2.6 million tones of inland fishery, respectively. During 1998-99, the export of marine products came down to US$ 1,038 million from US$ 1,208 million during 1997-98.

Changing Scenario Of Rural Credit:

Indian rural credit structure is regarded all over the world as quite unique and innovative. It required a careful feasibility study to understand rural structure. Evolved over a period of last eight decades, it can perhaps claim the honor of being a very important constituent of the most complex rural economy in the third world countries. In India there is different caste, religion of people living together, the language of every state, caste is different than each other. The land, weather, water availability is different in different area, which give lots of problem in applying various policies. One of the distinguishing features has been its ability to adapt itself, without much turmoil and stress, to the socio-economic dynamics of the rural scenario. Over the years it has developed into a multi faceted structure to service almost the entire cross-section of rural population spread thought-out the length and breadth of our country. In rural areas the indigenous moneylenders continued to be the banker in need. Since these money-lenders had virtual monopoly in supplying credit in rural areas, the poor were often subjected to exploitation. With the overriding monopoly the money-lenders often
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resorted to usurious practices--- levying the exorbitant rate of interest, demanding gift/contribution to the temple funds out of the amount of credit, demanding advance interest, etc. Besides, often the money-lenders resorted to unethical practices like taking thumb impression on a blank paper for inserting some arbitrary amount, manipulation of account to inflate the balance due. The poor villager could not escape the clutches of these indigenous bankers as they had to keep on borrowing from them under distress since they were the only source of credit for all type of requirements--- production and consumption. The conditions of the poor peasantry were perpetually so pathetic that an adagethey are born in debt, they live in debt & die in debt was the usual description of their plight. To mitigate the sufferings of the poor farmers the infrastructure of co-operative credit was brought into being in the matter of agricultural finance. The Co-operatives Societies Act of 1904 provided the formation of primary agricultural co-operatives credit societies. Later in 1912, the co-operative movement was extended to formation of non-agricultural cooperative credit societies also. The commercial banks on the other hand were participating in rural banking only as an alien since they were programmed for meeting the financial requirements of trade and commerce. In a view of the huge gap in rural credit from institutional sources and in a bid to meet the growing needs of financial assistance to modernizing farming, the government adopted the multi-agency approach. This was intended to increase the farm productivity and thus raise the living standards of the poor farmers. The formation of State Bank Of India which was formed my taking over the Imperial Bank of India by the Government was with a objective of extension of banking facilities on a large scale more particularly in the rural and semi-urban areas and for other diverse purposes. This was an important milestone in the banking of rural India. Momentum was gained more prominently after the concept of Social control over commercial banks was propagated in 1967. With the setting up of National Credit Council in 1968 to asses the demand for bank credit for various sectors of economy and to determine priorities for the grant of loans, etc. it came to be felt increasingly that banks should become instruments of economic and social development.
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N A B A R D: an Overview NABARD is an apex institution accredited with all matters concerning

policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas. NABARD operates throughout the country through its Head Office at

Mumbai, 25 Regional Offices and on Sub-Office, located in the capitals of all the states/union territories. It also has 4 training establishments. It is an apex refinancing agency for the institutions providing investment and

production credit for promoting the various developmental activities in rural areas. It takes measures towards institution building for improving absorptive

capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institution, training of personnel, etc. It co-ordinates the rural financing activities of all the institutions engaged in

developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation. It prepares, on annual basis, rural credit plans for all districts in the country;

these plans form the base for annual credit plans of all rural financial institutions o It undertakes monitoring and evaluation of projects refinanced by it. o development. It promotes research in the fields of rural banking, agriculture and rural

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Schemes & Facilities from the various banks


Rural Non Farm Sector (RNFS) holds the key to faster economic development of the country. It has potential and promise for generating employment and increased income in the rural areas. Hence, NABARD has identified financing, development and promotion of RNFS as one of its thrust areas. Schemes from NABARD for non-farming sector:

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1. COMPOSITE LOAN SCHEME (CLS) - under ARF Borrowers: Rural artisans, handicraftsmen, small entrepreneurs, groups of individuals, partnership firms, co-operative societies, NGOs, etc. Refinance ceiling -Maximum of Rs. 10 lakh per borrower. Repayment period -3 to 10 years with suitable need based moratorium not exceeding 18 months. Eligible activities -All manufacturing, processing, and approved service activities. 2. INTEGRATED LOAN SCHEME (ILS) - under ARF Borrowers: Individuals, artisans, groups of individuals, associations (formal and informal), proprietary/ partnership firms/ co-operative societies, registered institutions/ trusts, voluntary agencies, private and public limited companies, etc. Refinance Repayment period 3 to 10 years with suitable need based moratorium not exceeding 18 months. Eligible activities Manufacturing, processing and approved service activities in the cottage, village and tiny industry sector and modernization/ renovation/ expansion/ diversification of existing units.

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RURAL BANKING 3. Small Road and water Transport Operators SCHEME

(SRWTO) - Under


Borrowers Individuals, groups of individuals, including partnership/ proprietary firms and co-operative enterprises. The borrowers should be from the rural areas and should utilize the vehicle mainly for transportation of Rural Farm and Non-Farm Products and inputs and passengers to/ from marketing centers. The borrower or his employee should possess a valid driving license and the vehicle should be duly registered with the Regional Transport Authority as public transport vehicle. Refinance ceiling Maximum of Rs.15 lakh per borrower Repayment period 5 years with moratorium of 6 months. Eligible vehicles Transport vehicles including Light Motor vehicles, Jeeps, Auto rickshaws, Water transport units (boats, launches etc.)

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A) Refinance Assistance for financing farm mechanization
i) Tractors: (a) The quantum of refinance in respect of financing for acquisition of second tractor

has been enhanced from existing level of 40% to 90% ( 95% in case of SCARDBs) of the loan amount as in the case of first tractor. (b) Though the minimum land holding required for financing tractors is 8 acre perennially irrigated land, necessary discretion has been given to banks to evolve their own area specific norms, if need be, and report such norms evolved by them to the concerned RO of NABARD. (c) Refinance facility for financing purchase of second hand tractors has been extended to Gujarat in addition to Punjab, Haryana and Rajasthan.
ii) Power Tillers: (a) Though the minimum land holding required for financing power tillers is 6 acres of

perennially irrigated land, necessary discretion has been given to banks to evolve their own area specific norms, if need be, and report such norms evolved by them to the concerned RO of NABARD. (b) Banks have also been advised to give focused attention on financing power tillers by preparing a three year banking plan for a compact area for the benefit of the small farmers.

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b) Swarnajayanti Gram Swarozgar Yojana (SGSY) SGSY, formed by restructuring ongoing self employment programmers, viz. IRDP, TRYSEM, DWCRA, etc., is under implementation from 01 April 1999. The programmer envisages formation of SGSY Groups and their linkage with the banks. Individuals as also SGSY group members, below poverty line are assisted under the programmed.

c) Scheme for setting up of Agriclinic and Agribusiness centers In pursuance of the announcement made by the Union Finance Minister in the budget speech for the year 2001-02, National Bank in consultation with the Ministry of Agriculture, GOI and select banks formulated a scheme for financing Agriculture Graduates for setting up Agriclinics and Agribusiness Centers The scheme aims at supplementing the existing Extension Network to accelerate the process of technology transfer to agriculture and supplement the efforts of State Agencies in providing inputs and other services to the farmers.

d) Scheme for financing farmers for purchase of land for Agricultural

In response to the Hon'ble Union Finance Minister's emphasis on the need to step up priority sector lending and to examine financing farmers for purchase of land for agricultural purposes, the Working Group constituted by Indian Banks Association formulated an above scheme in consultation with the Government of India, RBI and NABARD. e) Central Sector Capital Subsidy scheme for Investment Promotion (IPS) A Central Sector Capital Subsidy scheme (Investment Promotion Scheme) launched by the Government of India in collaboration with NABARD for development of privately
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owned non-forest wastelands in the country is under implementation since 1998. Of the 40 schemes covering about 1500 ha sanctioned till date, the coverage is mostly confined to the States of Tamil Nadu, Andhra Pradesh and Maharashtra, with Tamil Nadu accounting for more than 20 schemes. The scheme provides for subsidy upto 25% of bank loan with a ceiling of Rs. 25 lakh for taking up plantation and other on-farm developments in private wastelands. In view of the availability of substantial area under non-forest wasteland in all States and the need to develop them, a nationwide awareness and publicity campaign was launched by the Government of India in association with NABARD for popularizing the Investment Promotion Scheme (IPS). As a part of this effort, workshops are being organized by NABARD in different States/ regions.

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The objective of the Scheme is to finance the farmers to purchase, develop and
cultivate agricultural as well as fallow and waste lands as also consider financing purchase of land for establishing or diversifying into other allied activities.

Eligibility (i) Small and marginal farmers i.e... Those who would own maximum of
5 acres of non- irrigated land or 2.5 acres of irrigated land including purchase of land under the scheme and (ii) Share croppers / Tenant farmers are eligible.

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Table: PERIOD ENDING DEC 2000 6 17 1.0 2.0 50

Expansion of RRB System, 2000-2009:


DEC 2001 DEC 2002 MAR 2003

85 188 196

3279 12606 14443

2433.8 14076.7 35540.4

1998.3 12868.2 41505.2

122 109 86

MAR 2005 MAR 2006 MAR 2008 MAR 2009

196 196 196 196

14508 14508 14508 14508

62909.7 78526.6 84866.2 93672.1

111500.1 154234.2 193256.5 235976.1

56 51 44 40

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With a view to expanding the scope of business of RRBs and considering that marketing of Mutual Fund (MF) units provides a profitable avenue for banks, it has been decided by RBI on 17th May 2006 to allow Regional Rural Banks (RRBs) to undertake marketing of units of Mutual Funds, as agents. Accordingly, RRBs may, with approval of their Board of Directors, enter into agreements with Mutual Funds for marketing their units subject to the following terms and conditions:

* The bank should only act as an agent of the customers, forwarding applications of the investors for purchase / sale of MF units to the Mutual Fund / Registrar Transfer Agents.

* The purchase of MF units should be at the risk of customers and without the bank guaranteeing any assured return.

* The bank should not acquire such units of Mutual Fund from the secondary market.

* The bank should not buy back units of Mutual Funds from their customers.

* The bank holding custody of MF units on behalf of their customers should ensure that its own investment and investments belonging to their customers are kept distinct from each other.

* Retailing of units of Mutual Funds may be confined to some select branches of the bank to
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ensure better control.

* The bank should comply with the extant KYC/ AML guidelines in respect of the applicants.

* The RRBs should put in place adequate and effective control mechanisms in consultation with their sponsor banks.

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Research Methodology of the study:

The collection of data refers to a planned gathering of information relevant to the subject matter of the study from the units under investigation the method of collection of data depends mainly upon the nature, objective and scope of the inquiry on one hand and available of resources and time on the other hand. Data may be classified into primary and secondary data, depending upon the nature and mode of collection. Mainly the data is collected from: 1. Primary data 2. Secondary data 1) Primary data: Primary data is collected from the prospective banks, villagers and the staff of IDBI bank. 2) Secondary data: Secondary data collected from the published magazines and websites to collect the data. The secondary data is collected from the following sources. Journals Rural banks broachers and books Published books Website

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Following Service areas have great potential in rural markets:

1. Agricultural consultancy: Rural customers require proper consultancy services about the best methods, timings and seasons, technology, tools, prices and best markets for selling their farming products. 2. Banking, microfinance and loan facilities: The rural market has huge potential for banking services for providing following facilities at affordable prices: Agricultural loans Educational loans Housing loans Savings accounts and safe deposits Automobile loans Personal loans 3. Healthcare: There is a huge demand for medical and health facilities in rural markets as there is large population in India that resides in Rural areas and lack proper facilities for proper health care. The availability and location of these services is of great concern as most of the areas either do not have any or many rural and remote areas needs to be dependent on very few and distantly located Hospitals. 4. Telecomm services: Due to increased awareness and improved telecomm infrastructure across India, the
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demand for telecomm (Fixed and wireless) and internet services have increased drastically. Even the governments policies for reduced tariffs, call rates, lesser mobile handset prices and private participation involvement has helped in increasing the level of competition, continuous improvement in technology and thus has resulted in the growth of the rural telecomm market. Hence the rural market has now become attractive and lucrative for many National and Global telecomm companies, who now are focusing more on this huge untapped market. 5. Automobiles Services: There has been a huge increase in the number of two wheeler, four wheeler and Agricultural tools and vehicles in past few decades because of reduction in prices and government support to the rural population. This has give rise to a new business for providing maintenance and repair services to these vehicles with more attractive service quality, location and availability. This segment has huge potential in the upcoming trends of services to the rural markets. 6. T.V. Channels Services: Due to the increased awareness, arenas of interest, leisure requirements, and number of entertainment options like televisions and computers due to reduced & affordable prices, the demand for entertainment services like T.V. entertainment channels have increased. This provides a huge potential for cable and Direct to Home services providers to tap the rural markets to meet their demands. Many companies have already gained profits by targeting rural markets which include Airtel (DISH TV), Reliance (BIG TV), and Tata (SKY). 7. Travel and reservation Services: The travel and reservation booking and organizing services for booking train, busses, taxies and tour consultancy has also been observed to create a huge demand in last few decades as more and more rural population need to mobilize for business and personal needs. Hence these services hold a huge potential for service providers.
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8. Low Cost Hotels: Due to increased mobilization because of business and personal needs, there is also increased demand for hotel and lodging services to the travelers but majorly driven by the pricing of such services and facilities. Hence provide a great platform for the service providers to focus on these demands to capture a big untapped market. 9. Event Managements: The rural population are majorly involved in celebrating and organizing festivals, which require lightning arrangements, venue decoration, food, lodging, transportation, catering and event planning etc. for: i. Family gatherings, Marriages, engagements, birthday parties,etc. ii. Festivals like Diwali, Onam,Christmas, lorhi, Eid, Dushera, Kannada Rajamahotsava, Navratri, Garba and Dandia mahotsava etc. iii. Religious/Caste based events like poojas, various ceremonies, etc. Hence these services also have great potential to meet the rural customers demand for even management. 10. Beauty Parlors: As there has been major improvement in the quality of life style and increased awareness among the rural customers (especially females), there has been great demand observed for beauty products and services. A huge increase in the demand for FMCG products like shampoos, beauty soaps, beauty creams, cosmetics, etc. has also been observed lately in rural India. This market is still dominated by unorganized and local players who lack adequate tools, methods, skills, and process, technology and beauty products to meet the demand of rural population. Hence focusing on this segment would be a profitable business for any company. 11. Educational and Career consultancy: The rural markets lack adequate and quality educational services which are majorly catered by government agencies and bodies. But due to lack of proper infrastructure,
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expertise, knowledge, talent, funds and participation of the service provider, this sector is unable to meet the desired level of service expectation of the rural customer for career building. Hence there a great business opportunity for any company if it is able to fill this gap effectively and would also is imparting its social responsibility to the growth of the society and country.

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1. What different projects you undertake on priority basis?


What facilities and products are available for rural population?


What criteria do you offer loans?


How do you solve problems of your rural clients?


How do you create awareness regarding your projects to rural people?


How important according to you is rural banking?


Do you design your products as per your customer require?

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Agri business group:


Agriculture is still the largest economic sector and plays a significant role in the overall socio economic development of India. I. Largest product: milk, cashew, nuts, coconuts, tea, ginger, turmeric, and

black paper. II. III. IV. Second largest: wheat, rice, sugar, groundnut, and Inland fish. Third largest: producer of tobacco. India accounts for 10% of the world fruit production with first rank in the Worlds largest cattle population [193 million].

production of bananas and mangoes. V.

Characteristics of Indian agriculture of IDBI bank:

Significant dependence on monsoon.

Low level of farm productivity.

Inadequate irrigation facilities.

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RURAL BANKING Fragmented land holdings.

Inadequate storage and supply chain infrastructure.

More than 60% populations depend on agriculture.

Contribution in GDP is 17%.

Endowed with 11.2% of the worlds arable land and 20.5% of worlds Economically active population.

Total geographical area is 328.7 million.

Net shown area is 140.30 million.

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RURAL BANKING Annual production [Million tones] : Crop

1. food grains




a. Wheat b. Pulses c. rice

69.09 13.57 83.40

69.80 12.72 84.36

77.02 14.30 94.03

2. Oilseeds




a. Soybean b. mustards.

6.23 5.76

6.12 5.41

9.61 7.00

3. cotton




4. sugarcane




5. potato




6. onion




7. milk




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Priority sector:
Agriculture :

Direct finance Indirect finance Small enterprises:

Direct finance Indirect finance Micro credit Education loans Housing loans

Agriculture direct finance:


Finance to individual farmers, self help groups.


Raising crops.


Against pledge of agri produce.


Purchase of agri land.

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v. Pre and post harvest activities.


Finance to corporate, partnership firms, & institutions.


Loans up to 1 crore rupees.

Agriculture indirect finance:


Loans for construction and running of storage facilities.


Units who undertake work for farmers on contract basis.


Finance to dealers in irrigation system/agri machinery.


Loans to national co-operative development corporation for on-lending to the co-

operative sector.

Manufacturing enterprises
(investment and plant and machinery) MICRO ENTERPRISES < = Rs 25 lakh

Service enterprises

(investment and plant and machinery) < = Rs 10 lakh


>Rs 25 lakh and <=Rs 5 crore

> Rs 10 lakh and <= Rs 2 crore

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MEDIUM ENTERPRISES > Rs 5 crore and <= Rs 10 crore > Rs 2 crore and <= Rs 5 crore


Loans to NBFCs, NGOs, MFIs for an lending to individual farmers.

Small enterprise [SE]:

Micro credit:

Loans of very small amount not exceeding rs 50000 per borrower provided by banks either directly or indirectly through a SHG/ joint liability group (JLB) mechanism or NBFC/ MFI for on lending up to rs 50000 per borrower. Loans to poor indebted to informal sector (other than farmers) to prepay their debt to Non institutional lenders.

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Housing loan:

Loans up to rs 25 lakh to individuals for purchase/ construction of a dwelling unit. Loans given for repairs to the damage dwelling units up to rs 1 lakh in rural and semi urban areas and up to rs 2 lakh in urban and metro Politian areas. Assistance given to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum dwellers, subject to a ceiling of rs 5 lakh of Loan amount per dwelling unit.

Education loan:

Educational loan granted to individuals for educational purposes up to rs 10 lakh for studies in India and rs 20 lakh for studies abroad. Loans granted to NBFCs for on lending to individuals for educational purposes up to rs 10 lakh for studies in India and rs 20 lakh for studies abroad.

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RURAL BANKING Products agri: Corporate linked Individual based Corporate and individual
Loan against Crop receivables Farm mechanization Crop loan Gold loan Contract farming Agri clinics Land development Basal dose loan biogas Minor irrigation H & t advance loan Lift irrigation Land purchase Sheep and goat rearing WHR finance Storage facilities Dairy loan fisheries Hi-tech agri Horticulture and forestry poultry piggery sericulture

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RBI Agri targets:

2009 2010 2011 2012















% Indirect 2.5 4.25 3.5 5.33 4.5 5.5 4.5

% Total 10.0 10.06 14.0 12.27 12.23 11.2 13.5

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RRBs' performance in respect of some important indicators was certainly better than that of commercial banks or even cooperatives. RRBs have also performed better in terms of providing loans to small and retail traders and petty non-farm rural activities.

RRBs should really be strengthened and provided with more resources with which they can undertake more of these important activities. And most certainly they should be kept apart from a profit-oriented corporate motivation that would reduce their capacity to provide much needed financial services to the rural areas, including to agriculture. Ideally, the best use of the resources raised by RRBs through deposits would be through extensive cross-subsidization. This, in turn, really requires an apex body that would cover and oversee all the RRBs, something like a National Rural Bank of India (NRBI).

The number of rural branches should be increased rather than reduced; they should be encouraged to develop more sophisticated methods of credit delivery to meet the changing needs of farming. Only then will the RRBs fulfill the promise that is so essential for rural development.

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