Rural Banking | Short Notes for CAIIB

Subjects Covered in CAIIB Rural Banking 

Rural India: Demographic features, Economic Features, Rural infrastructure, Agriculture Economy, Rural Development Policy, Rural Issues

Financing Rural Development: Regulation of Rural Financial Services, Rural Credit Institutions, Financing agriculture / allied activities, Financing Rural Non-Farm Sector (RNFS), SME Finance

Priority Sector Financing and Govt initiatives: Components of priority sector, Government initiatives

Problems and prospects in Rural Banking: Role of Rural Banking, Problems of Rural branches of Commercial banks, Technology-based Financial Inclusion, Emerging trends in rural banking – financing poor as a bankable opportunity

By Rural Banking, we mean reaching the banking services to individuals residing in rural areas of the country. Rural banking is an essential part of the Indian financial markets since a bigger part of the Indian population is still living and working in the rural or semi-urban areas of the country. The Indian Government with the Central bank (Reserve Bank of India) has been striving continuously to move towards complete financial inclusion. It is the endeavour of the Government to provide every citizen access to financial services and to provide credit at an affordable cost while safeguarding their interests. Rural banking in India began in earnest with the formation of the regional rural banks on 2nd October 1975. 

Role of Regional Rural Banking for Rural Development: 

Regional Rural Banks were established keeping in mind the following goals:

•  Providing banking services to the rural masses at their doorsteps.
•  Identifying the financial requirements of the population of rural India. 
•  Making institutional credit available to the weaker section of the society who had no access to safe and affordable loan schemes and who till now were being fleeced by the local money lenders.
•  To enhance banking and financing facilities in backward and interior areas. 
•  Mobilising rural savings and utilising them for supporting productive activities in the area.
•  Providing financial aid to small farmers, rural artisans, small producers, rural labourers’ etc. 
•  Creating a supplementary channel for the flow of the central money market to the rural areas through refinances. 
•  Providing finance to cooperative societies, Primary Credit Societies, Agricultural marketing societies. 
•  Generating employment opportunities in rural areas.
•  Reducing the cost of providing credit to rural areas. 
•  To improve banking facilities in rural, semi-urban, and other unreached markets. 

Functions of RRB: 

• Accept Deposits

RRBs accept deposits from the accountholders. Deposits can be made in savings or current accounts. Recurring deposits and fixed deposits too can be made.

• Providing Loans and advances

Providing loans to artisans, small entrepreneurs, small tradesmen, small framers, and rural labourers. Loans are provided with both individually or in groups like cooperative societies, marketing societies, agricultural processing societies, and others.

• Loan extension

The Regional Rural Bank Act 1975 states that the RRB can extend the credit and loan services to the Priority Sector. The loans to this sector will be classified under PSL. Seventy-five per cent of the total Bank Credit is provided to the Priority Lending Sector. Out of this total credit, banks must give 10 per cent to the economically weaker sections.

• Wage disbursement

The Regional Rural Banks in India perform the important function of distributing wages under the MGNREGA and PMGSY. The pensions provided under the poverty alleviation schemes and pension schemes of India are also distributed through these banks.

Regional Rural Banks in India: 

SBI (State Bank of India) has emerged as one of the major commercial banks having regional rural branches. There are more than 2000 SBI regional rural banks spread across the country.

Problems faced by Regional Rural Banks in India: 

The major problems faced by regional rural banks are mentioned below:

• Haste and Lack of Co-ordination in the Branch Expansions
• Difficulties in Deposit Mobilisation
• Constraints in Deposit Mobilisation 
• Slow Progress in the  Lending Activity 
• Urban-Orientation of Staff 
• Procedural Rigidities.

Ownership of Regional Rural Banks

Regional Rural Banks are owned by three entities:

• Central Government with a share of 50 per cent
• State Government with a share of 15 per cent
• Sponsor Bank with a share of 35 per cent

(Any commercial bank can sponsor the regional rural banks)

Organisational Structure of Regional Rural Banks

The hierarchy of officials in a Regional Rural Bank is given below:

• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

Conclusion: 

We hope this article has been helpful in providing information about the Rural Banking system in India, its major role in strengthening the economy of the rural sector and mobilising the finances, functions, and other details.

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