What's rural banking in India? - Study24x7
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22 Jul 2022 10:31 AM study24x7 study24x7

What's rural banking in India?

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  • Dev kumar

    • Regional Rural Banks (RRBs) are scheduled commercial banks in India that are controlled by the government and do regional business in several Indian states. The Indian government's Ministry of Finance is the owner of these banks. They were established to provide fundamental banking and financial services to rural communities.
    Agricultural banking "the act of using a bank in a country where there is no nearby bank branches to make transactions. Farmers who live far from densely populated areas and are unable to travel there whenever they require banking services find that rural banks are very popular in relatively small towns." A bank representative will frequently travel to these rural locations and offer to do a formal transaction.
    The rural bank is a type of investment vehicle that is exclusively accessible to those in the Indian subcontinent who have survived farming and farming. In a social sense, a neighborhood bank becomes involved in the day-to-day activities of its clients and shares in their happiness and misery. In India, the terms "financial inclusion" and "rural banking" are sometimes used synonymously to refer to the availability of financial services from sizable, non-banking entities. The development of debt and financial services are prerequisites for equitable and sustainable economic growth. Therefore, by generating equal possibilities, access to a more productive financial system enables citizens who are economically and socially marginalized to fully integrate the economy, participate in growth, and protect themselves from economic hazards.
    In remote rural locations across the nation, they offer small or marginalized farmers easy-term loans and banking services. They were founded so that farmers, tilers, agricultural laborers, and small artisans would have access to banks right at their doorsteps. The RRBs anticipated that by extending credit to them, they would improve the lives of these peasants and boost local economies. They also aimed to stop farmers from being taken advantage of by conventional lenders. In the early 1990s, RRBs underwent reform and reorganization to better serve the requirements of the farming sector. The goal was to eliminate the obstacles and bottlenecks in the loan and other service pay-out process.
    They were somewhat successful in their endeavors and helped farmers by raising their living standards. But they were not a resounding success. Let’s take a look at some of the problems they faced that led to their unpopularity.
    The government of India views the connection of every Indian to a bank as its top objective. Thus, the Pradhan Mantri Jan Dhan Yojana initiative was introduced by the Indian government in 2014, and more than 44 crore Jan Dhan accounts were opened as a result. Numerous banks in rural and semi-urban areas created these zero-balance savings accounts. This program's primary goal was to make it simple for consumers to access financial services like remittance, credit, loans, and pensions. Cash transactions have a lot of inconsistencies, thus the government of India wanted to remove them and increase transaction transparency via this initiative.
    Additionally, as part of the Digital India initiative, the government promoted online payment as a convenient option for both buyers and sellers while also restoring system transparency. In India, there are more than 43 regional rural banks, and the government of India (GOI) intends to enhance this number in the coming year by fusing these banks with the sponsor banks.
    Impact of Regional Rural Banks on the Economy:
    There is a huge and critical impact of regional rural banks on the economy of India as these banks mainly finance the agricultural sector. The agricultural sectors contribute around 20% of the total GDP of India, thus these banks have a direct impact on the economy. Moreover, banks are equally profitable as compared to other private banks and thus people invest their money in these banks to get a decent interest. Also, these banks allow people to shift towards secured payment options discarding the middleman from between and thus reducing corruption.
    Objective
    The objective of this chapter is to impart to its readers a sense of the importance of the rural economy for the development of the country and the factors which need to be prioritized to improve the rural economy. After reading this chapter the students will learn to appreciate the following:
    1. Characteristics of rural economy and its importance
    2. Why finance is needed in rural economy
    3. Importance of Agriculture as the backbone of Rural Economy
    4. Salient features of Indian Agriculture
    5. Obstacles faced by Indian Agriculture
    Agriculture
    Agriculture is the main occupation of 70% of the rural population. In India agriculture is largely monsoon dependent. About 90 percent of rainfall in the country is received during June to September and for the rest of the year there is a dry spell. The distribution of rainfall is much skewed, with the North East Region getting more than 100 cm of annual rainfall and Rajasthan getting only 15 cm. There have been many years when the North West monsoon has failed pushing the farmer into poverty and distress. Such uncertainty of rainfall and its uneven distribution has adversely affected the stability of farmer’s income. In most places with scanty rainfall only one crop is grown in a year so there is employment only for 3-4 months in a year. Those who have access to alternate sources of irrigation are able to raise two or three crops but they have to incur additional expenditure which raises the cost of production.

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    Reply 26 Jul 2022 11:51 AM
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