Role Of Commercial Banking In Rural Banking

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Commercial Banks and Rural banking
Commercial banking in India had its beginning in early 19th century with the establishment of three Presidency Banks in Calcutta, Bombay and Madras. The next important step was establishment of Imperial Bank of India in 1921 by amalgamating these three banks.
All India Rural Credit Survey Committee (1954) for the first time envisaged a wider role for the commercial banking system in rural credit. The Committee’s recommendation resulted in converting Imperial Bank of India to State Bank of India in 1955. In 1967, National Credit Council observed that the commercial banks had only 1% share in the agricultural credit. The All India Rural Credit Review Committee (1969) recommended enhancement of the role of commercial …show more content…

They have been performing satisfactorily on most banking parameters, and have achieved deeper penetration without posing systemic risk. Two LABs failed in their early days but that instance was handled effectively. RBI would greatly benefit by reviewing its handling of LABs. Three major aspects need attention: ownership, capital and stability; systemic issues and concentration risks; operational issues of business model, freedom and autonomy.

Role of Information and Communication Technologies in Rural Banking Models
• ATMs in mobile banking units or ‘Branch on Wheels’ – these new breed of ATMs also have biometric authentication mechanisms and voice guided animated screens.
• Technology companies are coming up with tools that allow bankers to complete activities like loan application capture and systemic verification at customer premises, thereby reducing cost of transactions.
• Investment in ATMs for rural banking is a big challenge in India as banking penetration is less. ‘Gramtellers’ (rural ATMs developed at IIT Madras), are cheaper to deploy and simpler to use. This kind of ATM dispenses with the complex PIN access requirements through the use of biometric sensors.

Rural …show more content…

Crop Loans
• The crop loan covers all expenses right from preparatory stage to marketing of crops including the credit required for ploughing, sowing, weeding, purchasing of fertilizer and pesticides, labour etc.
• The crop loan is required for 3-4 months in most of the regions of the country and the maximum period under crop loan is up to 18 months.
• The recovery performance of crop loans is generally better than many other activities and therefore NPA level in crop loan is lower, which results in better interest income from such advances.
• Crop loan is financed through a network of institutions in which RBI, NABARD and Primary Lending Institutions are involved. It is an integral part of agricultural advances and is within the fold of priority sector.
• RBI provides financial accommodation in the form of short-term limit to NABARD, which, in turn, provides refinance limits to cooperative banks to RRBs.
• Scale of finance is fixed crop wise per acre to minimize the chances of under financing or over financing for a crop

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