Rural Banking in India

The banking sector is a vital component of the economy. Its functions and services have a considerable impact on modern economic activities. The Indian economy is based on agriculture, and true India is found in villages. The Indian economy is built on the backbone of village economies. Even after 60 years of independence, India's rural economy continues to be hampered by infrastructure and other long-standing farmer issues. It is the rural sector, in fact, which determines economic advancement and industrial development. More than 70% of Indians rely on agriculture; 60% of industries are agro-based; the rural sector contributes 50% of national income; and the agricultural sector is India's greatest foreign exchange earner.?

Small and marginal farmers, landless agricultural labourers, craftsmen, and socially and economically poor castes and groups in India have been exploited by informal sectors in the name of lending. The rural credit market in India is made up of both conventional and informal financial organisations and agencies that provide loans to India's rural population. The informal sector lends money at exorbitant interest rates, and the terms and circumstances of such loans have resulted in an elaborate system of intimidation of both economic and non-economic situations in India's rural population. Total formal credit supply is insufficient, and rural credit markets are weak and fragmented. Furthermore, formal sector loans have been distributed unequally.

What is Rural Banking?

Rural banking is the practice of providing banking services to those who live in rural locations. With the chunk of the Indian population still residing in rural or semi-urban areas, rural banking has become an important part of the Indian financial markets.

Rural banking has had a favourable impact on farm and non-farm output, income, and employment in rural areas. It assists farmers in obtaining services, financing, and a variety of loans to satisfy their production demands.

The objectives of Regional Rural Banks can be summarized herewith:

·????????To provide inexpensive and liberal finance to small and marginal farmers, laborers, craftsmen, small business owners, and other marginalised groups

·????????To protect the impoverished in rural areas from moneylenders.

·????????To act as a catalyst, accelerating economic growth in a specific region.

·????????To promote banking habits among rural residents and to mobilise savings for rural economic development.

·????????Encourage trade and commerce in rural regions to enhance employment prospects in order to foster rural business.

·????????Provide for the requirements of underserved communities that aren't being met by the government's other efforts.

·????????To develop impoverished regions and, as a result, to reduce regional economic disparities.

Progress of Regional Rural Banks in India:

Initially, there were 196 regional rural banks operating in 28 states with nearly 14,700 branches. Till June 1996, these RRBs have been?lending annually nearly Rs 1500 crore to the rural people?and more than 90 per cent of the loan has been advanced to weaker sections.

Concluding Thoughts

The real growth of Indian economy lies on the emancipation of rural masses from poverty, unemployment and other socio-economic backwardness. Keeping this end in view, Regional Rural Banks were established by the Government of India to develop the rural economy. With the passage of three decades, the RRBs are now looked upon with hope for rejuvenating the rural India. In the present study, the role of RRBs in the rural credits structure has been deeply analyzed. The rural credit structure consists of priority sector and the non-priority sector. There has been tremendous achievement in disbursing loans to both the sectors. The priority sector loans constituted higher in percentage throughout the study. RRBs have lent money to the agricultural sector through the short-term and term-loans for the development of the agriculture sectors in the economy. During the study period, short-term loans for crops were disbursed at a higher rate than term loans, which is positive. In addition, the number of loans provided by RRBs to diverse groups in the priority sector is on the rise.

Higher growth was recorded in the years 2007-08 and 2008-09. When compared to the loans to non-agricultural activities, the highest share is recorded in agriculture. However, it is the responsibility of the banks and the management to look into the matter of providing sufficient amount of loans to non-priority sector as well. The gap between short-term loans for crop and the term-loans for agricultural and allied activities need to be minimized. Banks must support the agriculture industry by increasing the number of term loans available. In general, the non-agricultural sector benefits the rural economy in a variety of ways. With this in mind, RRBs may increase the share of loans given to this sector. Because RRBs are an important part of India's rural credit structure, this discovery could be very useful to rural banking institutions and policymakers in building and moulding a proper credit structure for the future.