ROLE OF FINANCIAL INSTITUTIONS IN RURAL MARKETING

ROLE OF FINANCIAL INSTITUTIONS IN RURAL MARKETING

JESTIN JITHINJOYJOYAL(AIMIT)

IntroductionIn India, over 65% of the population resides in villages. And approx, 70% of the villagers do not have bank accounts.

But Finance is not completely absent. Just the sources of supply are informal like moneylendersMoneylenders are said to control one third of all rural loans

Agricultural productivity and need for credit..

The basic reason for the financial assistance in rural areas.Indian agriculture is characterized by low productivity, which leads to low income.Due to low income and high level of consumption the investment made in agriculture is also low.

Agricultural Credit situations..

At present there are many financial institutions in rural area like commercial banks, cooperatives and regional rural banks.Traditionally, private money lenders, traders and commission agents dominated the rural areas.But in the recent years a very significant efforts have been made by central and state Govt to provide institutional credit to rural areas to free them from the clutches of traditional money lenders.

Nearly 50 to 60% of the credit requirements of rural areas are being fulfilled by the organized financial institutions.The co-operatives were the only institutional agency providing credit in rural areas prior to the nationalisation of commercial banks in 1969.But for some extend the co-operatives failed to address the financial problems in the rural area. Hence the commercial banks were brought into picture.

From then on the nationalised banks started to extend their services to rural area.According all India Rural Credit Survey by Reserve Bank of India today there are 28 nationalized banks and they claim that about 50% of their branch work in rural area.In addition, the commercial banks also sponsored Regional Rural banks (RRB) which pays attention to weaker section of the population. There are 196 such RRBs operating in the country today.

Types of Credit Short- term Loan:- Its also called as production loan or crop loan. It is available for the duration of a crop harvest and its sale. The loan is available for a maximum period of 18 months and it has to be returned in one lump sum after harvesting and marketing the crop.The amount is fixed for each crop for each district and it covers the cost of seed, fertilizers, pesticides and wages to be paid.

Medium- Term Loan:- He can avail this type of loan for investing on a small scale. These include purchase and installation of a pump set in existing well, purchasing a cow are buffalo, purchasing of a pair of work bullocks and other similar investments. These loans have to be repaid in installments spread over a period of 5 to 8 years depending upon the status of the farmer.

Long-Term Loans:- These kind of loans are provided for high investment purposes like: purchase of Tractor and implements, land improvements, digging a well and installing a pump set for irrigation. The amount has to be paid back over a period of 20 years.

Budget highlights

Sources of finance to rural areas

NABARDNABFINSCOMMERCIAL BANKS (Nationalised & Private Banks)National Cooperative Agriculture & Rural Development Banks Federation LtdState Cooperative BanksState Cooperative Agricultural And Rural Development Banks(SCARDBS) RRBsLocal Area Banks

NABARD (National Bank for Agriculture and Rural Development )NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement theNational Bank for Agriculture and Rural Development Act 1981.It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) ofReserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). NABARD is India's specialised bank for Agriculture and Rural Development in India

MISSION of NABARD

"Promote sustainable and equitable agriculture and rural prosperity through effective credit support, related services, institution development and other innovative initiatives."initial capital Rs.100 crore in 1982 paid up capital stood at Rs. 5,000 crore as on 31 March 2016.Government of India today holds Rs. 4,980 crore (99.60%) while Reserve Bank of India holds Rs. 20.00 crore (0.40%).Reserve Bank of India (RBI) had relaxed rules on loans to farmers, allowing NABARD to disburse up to Rs 23,000 crore to district cooperative banks for crop loans.

Functions of NABARD

It acts as an apex body for meeting the credit needs of all types of agricultural and rural development.It provides refinancing facilities to State Co-operative Banks (SCBs), Land Development Bank (LDBs), Regional Rural Banks (RRBs) and other approved financial institutions for financing rural economic activities.It co-ordinates all agricultural and rural development activities with the objective of tying them up with planned development activities in the rural sector.It provides short-term, medium-term and long-term credit to SCBs, LDBs, RRBs and approved financial institutions.It provides long-term assistance (not exceeding 20 years) to State Governments.It has the responsibility of inspecting co-operative banks and RRBs.It maintains a research and development fund to promote research in agriculture and rural development.

NABFINS

NABARD Financial Services Limited, [NABFINS]is a subsidiary of National Bank for Agriculture and Rural Development (NABARD) with equity participation from NABARD, Government , Canara Bank, Union Bank of India,Bank of Baroda, Dhanalakshmi Bank and Federal BankThe main objectives of the Company are to provide financial services in two broad areas of agriculture and microfinance. NABFINS provides credit and other facilities for promotion, expansion, commercialization and modernization of agriculture and allied activities.

Commercial Banks

Before nationalisation of top 14 commercial banks in June 1969, they had an urban bias. They were mainly accepting deposits from the urban people and making loans to trade and industry. Agriculture and rural industries were neglected by them. Since agriculture by its very nature was a risky venture, private commercial banks turned away from rural areas.Narasimham Committee on Banking Sector Reforms (1991 & 1998)recommended to open branches in rural areas and to give credit facilities to Farmers.

National Cooperative Agriculture & Rural Development Banks Federation LtdIt is the apex level organization of Agriculture & Rural Development Banks of the sector. The Federation was set up in 1960 and is administered under the Multi-State Cooperative Societies Act, 2002.The long term cooperative credit structure consists of the State Cooperative Agriculture & Rural Development Banks (SCARDBs) and Primary Cooperative Agriculture & Rural Development Banks (PCARDBs) which are affiliated to the SCARDBs.

SrnoParticularsAs on 31-March-20161No. of SCARDBs- Fully Functional13- Others42Network of outlets- Branches of SCARDBs596- PCARDBs and its branches1,0383Membership of individuals- Borrowing Members64,97,870- Non-borrowing Members44,45,3464Loans OutstandingRs. 19,53,190.21 Lakh5Loans DisbursedRs. 5,23,661.35 Lakh6Borrowings OutstandingRs. 14,71,676.82 Lakh7Deposit OutstandingRs. 2,18,260.88 Lakh

State cooperative banksState cooperative banks through their District Central cooperative bans (DCCBs) and Primary Agricultural Credit Cooperative Societies (PACS)

STATE COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS(SCARDBs)

State Cooperative Agricultural And Rural Development Banks(SCARDBs) through their district branches and Primary Cooperative Agricultural and Rural Developmental Banks (PCARDBs)

Factors obstructing flow of bank credit to agriculture

Inability of farmers to provide security,Difficulties in recovering loans,Lack of clear-cut and up-to-date accounting of agricultural transactions,The small amount of loan and high transaction cost.

ROLE OF BANKING SECTOR IN RURAL INDIA:In this current scenario there are many rural areas where the people does not know about the schemes launched by the government of India. Banking sector is the best deliver channel to make the awareness of schemes to the educated and uneducated people in the rural area. In rural area 41% of the people having the normal saving account, who does not evenknow the technology developed in the banking sector throughmobile banking, ATM, credit card loan facilities, net bankingetc. Only 20% of the people in India have the knowledge about the technology development in banks.The greatest impact made by the banking sector in rural India are as follows.Wealth to farmers.Wealth to education system.Wealth to business people.Retail banking.

WEALTH TO FARMERS:Bank announces various schemes to farmers to develop their financial status and economic growth of India in rural area. Bank provides the loan amount with low interest to develop the agriculture sector through farmers. In each and every bank they have the agricultural officers to guide the farmers regarding loan facilities and schemes provided by the bank.WEALTH TO EDUCATION:Educational loan provided by the bank make the fantastic impactonlow level and middle level peoples children education. By this loan rural area people can give the good education level to their children. Education is one of the main development of the rural area made by the banking sector.

WEALTH TO THE BUSINESS:Mundra Bankis one of the crucial steps taken towards the developmentin the banking sector. Mundra bank isspecially devoted for the micro units/small level business people. It gives loan to start and develop the business level for low and medium level people.PRADHAN MATRI MUNDRA YOJANAscheme is used to develop all micro units business development.The schemes provided by Mundra Bank areShishu covers loan amount upto 50000.Kishor covers loan amount upto 50000-5lakhs.Tarun covers loan amount upto 5lajh-10lakh.Mundra bank makes the milestone to the small level enterprises to enlarge their business activities.RETAIL BANKING:Retail banking which is known as consumer banking provides the services to individual consumers rather than companies. Through retail banking ATM, Saving Account, Debit and Credit card, Personal Loan, Home Loan etc are rural area people have access to the banking sector.

RURAL BANKING

JESTIN JOSEPH1616067

IntroductionRural banking in India started since the establishment of banking sector in India.As the name suggests, it includes banking organizations operating in rural or sub-urban background.

IntroductionThe area of operation is limited to few districts or a region of a state.

Started with the main focus on Agricultural sector.

Gradually raise its participation in trade, commerce, industry and other productive activities in the rural areas.

Current StatusRural population of about 780 million with limited access to financial services.A high proportion of rural lending is from informal sources.About 500-600 million people in India still do not have bank accounts.Rural economy(Agriculture + on-agriculture) constitute about 50% of GDP.Current demand for credit in Rural India is around Rs.1,33,000 Crs.Commercial bank branches cover only 7% of rural sector and large market is still untapped.

Rural BankingRegional Rural BanksCooperative BanksNational Bank For Agricultural and Rural Development(NABARD)

Regional Rural Banks(RRBs)Established under the provisions of an Ordinance passed on 26 September 1975 and the RRB Act. 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors.These were set up on the recommendations of The Narasimham Working Groupduring the tenure of Indira Gandhi's government with a view to include rural areas into economic mainstream.These are the Banks which mainly operate over a small region sometimes limited to rural regions of few districts.

RRBs are mainly owned by central government, state governments and sponsor Banks.

Initially the upper ceiling over interest rate charged but from august 1996 RRBs were given full freedom to their own rates of interest.The interest rates mainly revolves around 14-18% for advances.Due to their low their low capital to risk weighted Assets Ratio(CRAR) They subsequently gets helps from Governments and their sponsor banks to maintain a CRAR ratio of 7-9%.

Organizational Structure

Board of DirectorsChairman & Managing DirectorGeneral ManagerChief Manager/Regional ManagersSenior ManagerManagerOfficer / Assistant ManagerOffice Assistant (Multipurpose)

Current ScenarioMostly running into losses.Currently, RRB's are going through a process of amalgamation and consolidation to prevent losses.At Present there are 56 RRBs in India.Some of the Most famous RRBs are:-Allahabad UP Gramin BankPunjab Gramin BankDena Gujarat Gramin BankUttarakhand Gramin BankPrathama BankEtc.

Cooperative BanksCooperative bankingis retail and commercial banking organized on acooperativebasis.Co-operative Banks in India are registered under the Co-operative Societies Act.They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. In urban areas, they mainly serve small industry and self-employed workers.Anyonya sahkari mandali established in 1889 in the province ofBaroda, is the earliest known cooperative credit union in India.

These Institutions mainly accepts Deposits and Lend Money to the members only.Follows all Prudential Rules and Regulations.Provides Financial means to the People to prevent them from debt trap of money lenders.

Two of the major success of cooperatives are:-Gujarat Dairy Cooperatives(Amul).Maharashtras sugar co-operative.

Organizational StructureUrban Cooperative Bank : monitored by RBIRural Cooperative Bank :Short Term Cooperatives:-State Cooperative BanksDistrict Central Cooperative Banks Primary Agricultural Credit Societies Long Term Cooperatives:- State Cooperative Agriculture and Rural Development Banks (SCARDS). Primary Cooperative Agriculture and Rural Development Banks (PCARDBS).

FacilitiesThey Mainly finance rural activities such as:- Farming Cattle Milk Hatchery Personal Loans

Self Help Groups(SHGs)Local cooperative village groups mainly for woman's intended to provide economic support and to promote savings in rural areas. It can be registered or unregistered.Borrowings are made with or without any collateral.

National Bank for Agriculture and Rural DevelopmentNABARD is an apex development bank in India.A committee setup by RBI under the chairmanship of Shri B.Sivaraman conceived and recommended the establishment of NABARD.It was established on 12 July 1982 by a special act by the parliament and its main focus was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.GOI holds 99% stake in this bank.Started with capital of 100 crs and on 31st march 2014,it stood upto 4700 crs.

RolesFacilitates credit flow for promotion and development of agriculture, cottage and village industries.It regulates the cooperative banks and the RRBs.NABARD refinances the financial institutions which finances the rural sector.Acts as Fatherly figure for other developmental activities going over in region.SHG Bank Linkage Programme.

Lending FacilitiesShort Term Landings:- Refinance at concessional rate of interest to State Cooperative Banks (SCBs) and Regional Rural Banks (RRBs) by way of sanction of credit limits. Each withdrawal against the sanctioned credit limit is repayable within 12 months.Medium Term landings:- It provides medium-term loans to SCBs for periods of 3 to 5 years. Mainly for agricultural purposes.Long Term Agricultural Credits:- Long-term credit for agriculture is provided mainly through investment in the debentures of SLDBs.

Non-Agricultural FinanceThe NABARD provides short- term finance for:

The production and marketing activities of selected cottage and small-scale industries (mostly handloom weavers co-operative societies) The purchase and distribution of fertilizers.

Kisan credit cardAKisan Credit Cardis acredit cardfacility to provide affordablecreditfor farmers in India.It was started by the Government of India, Reserve Bank of India (RBI), and National Bank for Agriculture and Rural Development (NABARD) in 1998-99 to help farmers access timely and adequatecredit.Various private banks can also offer such cards to farmers.

Importance of Rural BankingNearly about 70% Indians resides in Villages.

Farmers are often need of banking facilities such as loans, insurances etc., if banking facilities lacks in rural areas farmers will have to suffer which makes economy to suffer.

To widen the economic base the time has come to deepen its root since no space is left over the surface to expand.

In conditions of Droughts or some other calamities such services are life saving.

In Absence of such services Farming will be worse affected which in turn will be affecting you as the prices of vegetables and other agricultural products will rise.It also saves farmers from the hands of money lenders and zamindars, and prevents them from falling into the cycle of borrowing and repaying.