Rural Banking Problems

MODERN economy may be called "bank economy". The banking system spares the individuals and tile communities the trouble of stockpiling bulky chattels and enables them to attain domestic security and transact business by means of ever negotiable bank accounts. The importance of the rural banking in the economic development of a country cannot be overlooked. As Gandhiji said “real India lies in villages,” and village economy is the backbone of Indian economy. Without the development of the rural economy, the objectives of economic planning cannot be achieved. Hence, banks and other financial institutions are considered to be a vital role for the development of the rural economy in India. Regional Rural Banks (RRBs) were established in October

This study is based on secondary data of journals, articles, newspapers, magazines, Government Reports and RBI bulletins.

Problems faced by the RRBs

Some of the major problems faced by the RRBs as under:

1. Haste and Lack of Co-ordination in Branch Expansion: Haste in branch expansion programme in many cases has resulted in lop-sidedness due to lack of co-ordination. In several cases, it could not be ensured that the branches of the RRBs are opened at centres where no commercial or co-operative banking facilities were provided.

2. Difficulties in Deposit Mobilisation: The RRBs encountered a number of practical difficulties in deposit mobilisation. On account of their restrictive lending policy which excludes richer sections of the village society, these potential depositors show least interest in depositing their money with these banks.

3. Delay in Decision Making: The RRBs are controlled directly and indirectly by various agencies, i.e., the sponsoring bank, NABARD, RBI, besides Central Government. Thus, it takes long time to take decisions on some important issues. This, in turn affects the progress of RRBs. However, since end 1997, the operational responsibility of RRBs has been passed on to sponsor

Capital Inadequacy: The capital adequacy is the very basis to financial soundness. There is capital inadequacy in RRBs as most of the RRBs have huge losses in their 3alance Sheet eating away all the Capital of RRBs.

Suggestions for Solving the Problems faced by RRBs in India

1. Revamping the Legal System: The high level of NPA is assuming frightening proportions. The RRBs are advised to be guided only by commercial motives in granting and recovering the loans made by them to their customers. The legal system should be amended so as to reduce the long drawn legal battle for making recoveries. Enabling legislation is required to be enacted and allow the banks to foreclose the loans.

2. Restructuring of the Capital Base: Local participation in the share capital of Regional Rural Banks should also be permitted. A guaranteed dividend equivalent to the interest paid by the commercial banks on one year's fixed deposit as suggested by the working Group will be desirable to encourage such local participation.

3. Simplification & Standardisation of Loan Application: Regional Rural Banks should simplify and standardize their loan applications and documentation formalities with a view to reducing the number of required documents as also to make the 'life' of the documents