Rural India is faced with the burning problem of poor credit and banking services. The rural banking sector is also not in a good position. Farmers and people of other occupations in rural areas often fail to pay the credit to the banks and commit suicide. With such a situation increasing rapidly, it is high time we divert our attention towards credit and banking in rural areas. In the following, we will be talking about the credit system in rural areas and the role of rural banks in the economic development of the country.
The importance of rural banking was felt right after independence and from there NABARD came into operation. It started giving credit to the farmers and other rural people at lower interest rates. That there is a difference between the monetary activities of the rural people and the urban people gave rise to the conception of National Bank for Agricultural and Rural Development or NABARD. As days passed, various self-help groups also started performing and brought forth microcredit generation. Post green revolution, agriculture improved and so did the income of the farmers. Thus, the role of rural banks also went through a change.
After independence, rural people, poor people in need of money, were exploited a lot. Traders and local moneylenders took their advantage and granted them loans at interest rates incredibly high. Thus, deb was unavoidable. NABARD came to the rescue of these people and offered loans and credits at an easy interest rate.
Presently, India has 45 regional rural banks all across the country. Haryana Kshetriya Gramin Bank Bhiwani, Gorakhpur Kshetriya Gramin Bank etc are a few examples of a rural bank.
Rural development is a lot dependent on the credit system. Modifying the banking and credit system is quite the need of the hour to improve productivity in both agricultural and no-agricultural activities. Farmers are most in the need of credit in between the time of sowing and harvesting. This is the time they are short in cash and need it for general purposes, buying cattle, investing in more land and to carry on with life.
Reserve Bank of India or RBI is the apex body of national banking. But with regard to banking facilities in rural areas, NABARD is given all the power and referred o as the apex banking body. All the activities associated with banking and credit in rural India are managed and regulated by NABARD only.
Growth of the Indian economy is largely dependent on the rural emancipation from socio-economic hindrances such as unemployment, poverty etc. This is where rural banks come in and the role of banking in rural development becomes undeniable. The rural credit structure is gradually getting rejuvenated with the help of rural baking and credit system.
With the increased activity of rural banks, both the priority as well as non-priority sectors have been able to get loans sanctioned. Development of agriculture-based economy is what the rural banking sector targets at and for that gives out short and long term loans.
The involvement of formal banking system has its problems also. To continue with formal banking, it is a must that there is some collateral involved. But for rural people in urgent need of credit, it is difficult to have collateral ready or sometimes they do not even possess any. As a result, the formal banking system rules them out. Here lies the importance of self-help groups or the SHGs.
The SHGs give out small credit to those in need without any collateral. Instead, the members of the group, the needy ones, commit to keeping a certain sum of money in the pool. Loans are sanctioned at an interest rate which is a lot cheaper than the formal banking system. This is why a huge number of SHGs re found to be operational throughout the country. Thus, microcredit concept is run.
NABARD was set up with the primary goal of elevating agriculture and other non-farm areas in rural areas of the country by increasing the credit flow and thus further strengthening rural India.
Initially, NABARD had the capital of Rs. 100 crores.
No other institution in India is as important as NABARD when it comes to taking care of the small industry, cottage industry, village industry and other rural local industries.
SHG Bank Linkage Programme is another name for NABARD. It encourages the banks to lend to the self-help groups so that the poor rural people in need without the capability of producing collateral can have the loans.
The pioneer of the rural banking system NABARD boasts of supporting 100% corporate social responsibility.
1. What are the functions of NABARD?
The main function of NABARD is to meet the credit and banking demands of the people living in rural areas. The rural banks in India perform under the control of this. Apart from this, NABARD has some unique functions to perform. These are:
Coordinating the financial activities of the rural areas, or to be more specific, the government institutions of the rural areas.
Closely monitoring the credit and banking system.
Refining the organisations involved in investment and credit to the farmers or other people associated with the agriculture sector.
Developing credit plans directed towards the rural districts after analysing the needs.
Supporting the SHGs, providing financial assistance to them and also giving managerial support to ensure their smooth functioning.
2. What are Regional Rural Banks?
Regional Rural Bank or RRBs are the Indian Scheduled Commercial Banks which operate at the rural levels of the country. The main focus is on providing people of rural area with basic banking services and providing financial assistance to them. But this does not necessarily mean that RRBs do not have branches in urban areas. These banks are responsible for pension distribution, wage disbursement for those working under MGNREGA etc. The account holders of these banks can also enjoy other facilities provided such as issuing debit and credit card, enjoying locker facilities, UPI, mobile banking and also, internet banking.