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Banking in Rural- RRBs

L. J. Institute of Engineering & Technology

Banking in Rural Regional Rural Banks A COMPREHENSIVE PROJECT REPORT

SUBMITTED TO GUJARAT TECHNOLOGICAL UNIVERSITY As a partial fulfillment of the curricular requirement of the MBA programme

BY Ajay Shrimali Minang Soni MBA Semester IV (BATCH: 2009-2011) Enrollment No: 097280592026 097280592002 College Code No: 728 PROJECT GUIDE: Dr. Neha Shah
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TENTATIVE CHAPTER PLAN

1. Title cover page 2. Preface 3. Acknowledgement 4. Submission authorisation statement 5. Table of content 6. Executive summary and recommendation 7. Introduction - Background - Problem statement - Literature review - Research objective 8. Approach & methodology - Research design - Sampling design - Data collecting - Data processing 9. Limitations of study 10. Notes & references

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Preface

Knowledge Is Life While Ignorance Is Death There are different ways for practical study. While as a part of a student of M.B.A. is required to prepare a Grand Project every two year. Practice makes a man perfect, by merely sitting in classroom one can not get the knowledge of management. So it makes M.B.A. students necessary to learn about a particular industry & its activities. A manager can be said to be a successful manager, only if he has the knowledge of practical aspects of business. Only theoretical knowledge acquired during classroom discussion leads a person nowhere. Management means at of getting the things done through others. Today we find management in each and every field. Its a developing field. This frequent change in its principles due to increasing complexities that we find around the world finance banking industry is one of the most affecting lives everywhere sector in Todays world.. & it has been proven by the latest economic slowdown all over the world led by Banks. The objective of the Grand Project is to develop awareness among the students about Banking organization atmosphere in rural India & how they are trying to change the scene of rural India & working for financial inclusion of each & every Indian.. Though the objective of Regional Rural Banks is very Sacred they are suffering from financial instability & problems. It is also a part of study under the Grand Project.

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ACKNOWLEDGEMENT

Our grand project has helped us to broaden our horizons of knowledge. It has helped us a lot to learn about application of theoretical Aspect in practical. We hereby admit the truth that during grand project period many known and unknown persons had helped us directly or indirectly by giving us maximum information in the preparation of this report. We have finished our Grand project. We would like to express our feeling of gratitude for getting kind help and cooperation . We are very much thankful to our Prof. Neha Shah who helped and guided us in making this report. We are also thanking Mr. A.C. Parikh, Branch Manager, Baroda Gujarat Gramin Bank, Morva, Panchmahal for his cooperation & time & all the 50 customers of bank who were questioned under the project for their views on RRBs.

Yours Faithfully (Ajay Shrimali & Minang Soni)

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Declaration Certificate

It is hereby certified that the work incorporated in the thesis submitted entitled Topic submitted by (Students name) comprises the result of independent and original investigation carried out me. The material which obtained (and used) from other sources has been duly acknowledged in the thesis.

Date: Place: Signature of the students

It is certified that the work mentioned above is carried out under my guidance.

Date:
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Place:

Signature of the faculty guide

Table of Content 1. 2. Executive Summary Introduction Background Problem Statement Literature review Research objective 3. Approach & Methodology Research design Sampling design Data Collecting Data Processing 4. 5. Limitations of Study Notes & References

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1. Executive Summary:

Background As per the Gujarat technological university MBA Programme, it is requirement of curriculum to make a Grand project. So this is a report of our deep study and analysis of Regional Rural Banks (RRBs) in Gujarat.

Data analysis We have collected primary data from a survey of samples of 50 customers of Baroda Gujarat Gramin bank & a Branch Manager of Baroda Gujarat Gramin Banks branch in Morva, Panchmahal, Gujarat. The secondary data from Gramin Banks official web site and other websites of RBI and NABARD & We have also collected data from articles on RRBs & reports of Chakrabarty Committee who was given task to study the RRBs condition, their performance, their viability & steps to improve RRBs performance & achieve the original objective of RRBs for which they were established by the government.

Conclusion From this study of RRBs & our survey of 50 customers & an interview with a Branch Manager of a RRB, Baroda Gujarat Gramin Bank, we cannot give a certain conclusion but one thing is clear that RRBs are transforming themselves in to profit making banks and rural people do not still understand the benefits of being a customer of a bank. So there is very much lack of knowledge & awareness among rural people about banking & RRBs are trying to sort out this problem with the help of the same people.

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INTRODUCTION

1. Background:
THE REGIONAL RURAL BANKS ACT, 1976 ACT NO. 21 OF 1976 [9th February, 1976.] An Act to provide for the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto The institution of Regional Rural Banks (RRBs) was created to meet the excess demand for institutional credit in the rural areas, particularly among the economically and socially marginalized sections. Although the cooperative banks and the commercial banks had reasonable records in terms of geographical coverage and disbursement of credit, in terms of population groups the cooperative banks were dominated by the rural rich, while the commercial banks had a clear urban bias. In order to provide access to low-cost banking facilities to the poor, the Narasimham Working Group (1975) proposed the establishment of a new set of banks, as institutions which "combine the local feel and the familiarity with rural problems which the cooperatives possess and the degree of business organization, ability to mobilize deposits, access to central money markets and modernized outlook which the commercial banks have". The multi-agency approach to rural credit was also to subserve the needs of the inputintensive agricultural strategy (Green Revolution) which had initially focused on `betting on the strong but by the midseventies was ready to spread more widely through the Indian countryside. In addition, the potential and the need for diversification of economic activities in the rural areas had begun to be recognized, and this was a sector where the RRBs could play a meaningful role. The RRBs Act, 1976 succinctly sums up this overall vision to sub-serve both the developmental and the redistributive objectives.

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Regional Rural Banks have been in existence for around three decades in the Indian financial scene. Inception of regional rural banks (RRBs) can be seen as a unique experiment as well as experience in improving the efficacy of rural credit delivery mechanism in India. With joint share holding by Central Government, the concerned State Government and the sponsoring bank, an effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities. The genesis of the RRBs can be traced to the need for a stronger institutional arrangement for providing rural credit. The Narsimham committee conceptualized the creation of RRBs in 1975 as a new set of regionally oriented rural banks, which would combine the local feel and familiarity of rural problems characteristic of cooperatives with the professionalism and large resource base of commercial banks. Subsequently, the RRBs were set up through the promulgation of RRB Act1 of 1976. Their equity is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35. RRBs were supposed to evolve as specialised rural financial institutions for developing the rural economy by providing credit to small and marginal farmers, agricultural laborers, artisans and small Entrepreneurs. Over the years, the RRBs, which are often viewed as the small mans bank, have taken deep roots and have become a sort of inseparable part of the rural credit structure2. They have played a key role in rural institutional financing in terms of geographical coverage, clientele outreach and business volume as also contribution to development of the rural economy3. A remarkable feature of their performance over the past three decades has been the massive expansion of their retail network in rural areas. From a modest beginning of 6 RRBs with 17 branches covering 12 districts in December 1975, the numbers have grown into 196 RRBs with 14,446 branches working in 518 districts across the country in March 2004. RRBs have a large branch network in the rural area forming around 43 per cent of the total rural branches of commercial banks. The rural orientation of RRBs is formidable with rural and semi urban branches constituting over 97 per cent of their branch network. The growth in the branch network has enabled the RRBs to expand banking activities in the unbanked areas and mobilize rural savings. The mandate of promoting banking with a rural focus, however, would be an enduring phenomenon only when the financial health of the RRBs is sound. With built-in restrictions on their operations, it is common to expect that the financial health of the RRBs itself would be a matter of concern. As regards their financial status, during the year 2003-04, 163 RRBs earned profits amounting to Rs.953 crore while 33 RRBs incurred losses to the tune of Rs.184 crore. Ninety RRBs had accumulated losses as on March 31, 2004. Aggregate accumulated loss of RRBs amounted to Rs. 2,725 crore during the year 2003-04. Of the 90 RRBs having accumulated loss, 53 RRBs had eroded their entire owned funds as also a part of their deposits. Furthermore, non-performing assets (NPAs) of the RRBs in absolute terms stood at Rs.3, 299 crore as on March 31, 2004. The percentage of gross NPAs was 12.6 during the year ending March 31, 2004. While 103 RRBs had gross NPAs less than the national average, 93 had NPAs more than it. Given the multi agency share holding, this study makes an attempt to enquire into such factors that influence the performance of the RRBs and the role played by sponsor bank in a broader scenario. The problem has been approached in a deductive pattern. First, an attempt is made to identify the extent of the problem of loss making RRBs and see if they are confined to some particular sponsor banks or States. If the problem banks and States could be identified that would help in focusing the attention for an enduring solution. Subsequently, a model-based approach has been pursued to identify the factors that are responsible for
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the problems faced by the RRBs. This study contributes to the literature on RRBs primarily in two ways. First, the issues concerning RRBs are an area that is less visited empirically (econometrically) compared to the vast literature on commercial banks. Whatever studies have emerged on the topic, they have primarily relied on exploratory analysis done for a particular year or on a group of RRBs to draw inferences. This kind of an approach has a serious limitation in that the findings are guided by the choice of the year of analysis or the particular RRB(s) in question. To overcome this problem, one needs to consider, as attempted in this paper, a reasonably long period for analysis where extreme observations would be evened out so that one gets results that are more dependable. This study is an attempt rather than a few RRBs and a ten-year period for empirical analysis so that results are broad based and robust. Second, given the attention at the policy level to restructure the RRBs, it is necessary that the behavior of RRBs be analyzed separately for the profit and loss making ones, than all RRBs bunched together so that it helps in policy formulation. Such an approach has been followed in this study. The rest of the paper is organised in six segments. Section I provides a brief review of the course for restructuring and financial viability of RRBs suggested by different committees over the years. Section II reviews briefly the different factors identified in the literature that affects the financial performance of commercial banks and also the extant literature on factors affecting performance of RRBs.

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Establishment and incorporation of Regional Rural Banks. (1) The Central Government may, if requested so to do by a Sponsor Bank, by notification in the Official Gazette, establish in a State or Union territory, one or more Regional Rural Banks with such name as may be specified in the notification and may, by the said or subsequent notification, specify the local limits within which each Regional Rural Bank shall operate.

(2) Every Regional Rural Bank shall be a body corporate with perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to contract and may sue and be sued in its name

.1*[(3) It shall be the duty of the Sponsor Bank to aid and assist the Regional Rural Bank, sponsored by it, by-(a) Subscribing to the share capital of such Regional Rural Bank; (b) Training personnel of such Regional Rural Bank; and (c) providing such managerial and financial assistance to such Regional Rural Bank during the first five years of its functioning, as may be mutually agreed upon between the Sponsor Bank and the Regional Rural Bank: Provided that the Central Government may, either on its own motion or on the recommendation of the National Bank, extend the said period of five years by such further period, not exceeding five years at a time, subject to such conditions as it may deem fit to impose.

Subs. by Act 1 of 1988, s. 3, for sub-section (3) (w.e.f. 28-9-1988). 265

Offices and agencies.

4. Offices and agencies.11

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(1) A Regional Rural Bank shall have its head office at such place in the notified area as the Central Government may, after consultation with the 1*[National Bank] and the Sponsor Bank, specify by notification in the Official Gazette

. (2) A Regional Rural Bank may, if it is of opinion that it is necessary so to do, establish its branches or agencies at any place in the notified area. 5. Authorized capital.-

The authorized capital of each Regional Rural Bank shall be 2*[five crores of rupees dividend into five lakhs] of fully paid-up shares of one hundred rupees each: Provided that the Central Government may, after consultation with the [National Bank] 2* and the Sponsor Bank, increase or reduce such authorized capital; so, however, that the authorized capital shall not be reduced below twenty-five lakhs of rupees, and the shares shall be, in all cases, fully paid-up shares of one hundred rupees each. 6. Issued capital.-

4*[(1) The issued capital of each Regional Rural Bank shall, in the first instance, be such as may be fixed by the Central Government in this behalf, but it shall in no case be less than twenty-five lakhs of rupees or exceed one crore of rupees.]

(2) Of the capital issued by a Regional Rural Bank under sub- section (1), fifty per cent. shall be subscribed by the Central Government; fifteen per cent. by the concerned State Government and thirtyfive per cent. by the Sponsor Bank.

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Schemes
Following are schemes being run by the RRBs:

Rural Housing Finance Scheme Solar Home Lighting System General Credit Cards Vermi Compost Hatchery Unit Scheme Farm Mechanization Financial Assistance To Farmers For Purchase Of Two Wheelers Financial Assistance To Farmers For Purchase Of Land For Agriculture Purpose Education Loan Scheme For Solar Water Heater System Kisan Credit Card Advance Against Insurance Policies Financial Assistance For Mediclinics For Qualified Medical Practitioners Housing Loan Scheme Of Agriculture Graduates For Establishing Agri Clinics And Agri Business Amra Krishak Card Capital Investment Subsidy Scheme Of Rural Godowns / Cold Storage Financial Assistance Against Storage Receipt Kisan Credit Card For Tenant Farmers / Oral Lessees / Joint Liability Groups (Jlgs) Small Road Transport Operator Scheme Swarojgar Credit Card Scheme Annapurna Scheme - A Consumer Loan Scheme For Salaried A/C Holders Acharyhit Yojna - Scheme For Retired Teachers Mahila Udyami Credit Card Grah Laxmi Yojna For Women Kisan Samadhan Card

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There are several concessions enjoyed by the RRBs by Reserve Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks, managerial and staff assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABARD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend their problems.

Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focused upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas.

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Apart from SBI, there are many other banks which function for the development of the rural areas in India. These banks are listed below:
Andhra Pradesh

Bihar

Andhra Pradesh Grameena Vikas Bank Andhra Pragathi Grameena Bank Deccan Grameena Bank Chaitanya Godavari Grameena Bank Saptagiri Grameena Bank

Madhya Bihar Gramin Bank Bihar Kshetriya Gramin Bank Uttar Bihar Kshetriya Gramin Bank Kosi Kshetriya Gramin Bank Samastipur Kshetriya Gramin Bank

Gujarat Chhattisgarh

Chhattisgarh Gramin Bank Surguja Kshetriya Gramin Bank Durg-Rajnandgaon Gramin Bank

Dena Gujarat Gramin Bank Baroda Gujarat Gramin Bank Saurashtra Gramin Bank

Himachal Pradesh Haryana

Haryana Gramin Bank Gurgaon Gramin Bank

Himachal Gramin Bank Parvatiya Gramin Bank

Punjab Jammu & Kashmir

Jammu Rural Bank Ellaquai Dehati Bank Kamraz Rural Bank

Punjab Gramin Bank Faridkot-Bhatinda Kshetriya Gramin Bank Malwa Gramin Bank

Assam

Kerala Assam Gramin Vikash Bank Langpi Dehangi Rural Bank

Narmada Malwa Gramin Bank North Malabar Gramin Bank

Jharkhand

TamilNadu

Jharkhand Gramin Bank Vananchal Gramin Bank

Pandyan Grama Bank Pallavan Grama Bank

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Madhya Pradesh

Maharashtra

Narmada Malwa Gramin Bank Satpura Kshetriya Gramin Bank Madhya Bharath Gramin Bank Chambal-Gwalior Kshetriya Gramin Bank Rewa-Sidhi Gramin Bank Sharda Gramin Bank Ratlam- Mandsaur Kshetriya Gramin Bank Vidisha Bhopal Kshetriya Gramin Bank Mahakaushal Kshetriya Gramin Bank

Marathwada Gramin Bank Aurangabad -Jalna Gramin Bank Wainganga Kshetriya Gramin Bank Vidharbha Kshetriya Gramin Bank Solapur Gramin Bank Thane Gramin Bank
Ratnagiri-Sindhudurg Gramin Bank

Jhabua Dhar Kshetriya Gramin Bank Karnataka

Rajasthan

Karnataka Vikas Grameena Bank Pragathi Gramin Bank Cauvery Kalpatharu Grameena Bank Krishna Grameena Bank Chikmagalur-Kodagu Grameena Bank Visveshvaraya Gramin Bank Kalinga Gramya Bank Utkal Gramya Bank Baitarani Gramya Bank Neelachal Gramya Bank

Baroda Rajasthan Gramin Bank Marwar Ganganagar Bikaner Gramin Bank Rajasthan Gramin Bank Jaipur Thar Gramin Bank Hodoti Kshetriya Gramin Bank
Mewar Anchalik Gramin Bank

Orissa

West Bengal

Bangiya Gramin Vikash Bank Paschim Banga Gramin Bank

Uttar Banga Kshetriya Gramin Bank

Rushikulya Gramya Bank Meghalaya Ka Bank Nogkyndong Ri KhasiJaintia Nagaland

Arunachal Pradesh

Arunachal Pradesh Rural Bank

Manipur

Manipur Rural Bank

Nagaland Rural Bank Tripura

Mizoram

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Tripura Gramin Bank

Mizoram Rural Bank Uttaranchal

Uttar Pradesh

Purvanchal Gramin Bank Kashi Gomti Samyut Gramin Bank Uttar Pradesh Gramin Bank Shreyas Gramin Bank Lucknow Kshetriya Gramin Bank Ballia Kshetriya Gramin Bank Triveni Kshetriya Gramin Bank Aryavart Gramin Bank Kisan Gramin Bank Kshetriya Kisan Gramin Bank Etawah Kshetriya Gramin Bank Rani Laxmi Bai Kshetriya Gramin Bank Baroda Western Uttar Pradesh Gramin Bank Devipatan Kshetriya Gramin Bank Prathama Bank Baroda Eastern Uttar Pradesh Gramin Bank

Uttaranchal Gramin Bank Nainital Almora Kshetriya Gramin Bank

2.

Important issues for the better functioning of RRBs.

(1) Financial viability of RRBs has become a matter of concern for government since 1980s. (2) Financial restructuring of RRBs is also a problem for government.
(3) Central Governments dealing with sponsor bank & state. 17

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(4) Factors that play key role in performance of RRBs. (5) Improving the efficacy of rural credit mechanism in India. (6) Development of restructuring strategies for RRBs.

About 75% of the Indian population lives in rural areas and about 80% of this population is dependent on agriculture for its livelihood. Agriculture accounts for about 37% of the national income. The development of the rural areas and of agriculture and its allied activities thus becomes vital for the rapid development of the economy as a whole. In this regard, India has succeeded in developing one of the largest rural banking systems in the world. Various regulatory measures have been taken enabling the banking system to play an important role in the economic development of the rural areas. The two most prominent measures are rural commercial bank branch expansion, thus moving from class banking to mass banking and secondly, priority sector lending and the formulation of specific development programmes and action plans to facilitate credit flow to the rural sectors. Despite these measures, as per the Debt and Investment Survey, Govt. of India (1992) about 36% of the rural households are found to be outside the fold of institutional credit. Agricultural Productivity Even though India occupies the first or second position in the world in several crops in terms of area and production, its rank in terms of productivity per hectare in the world is 52 for rice, 38 for wheat and much low in several other crops. The productivity of some crops is not only low but also remained stagnant over the years. The yield gap needs to be bridged through an integrated package of technology and agricultural policies to reap the untapped production potential, particularly, in rain-fed and other low productivity areas.

Causes for Backwardness in Villages

1. Zamindari System, the legacy of the British Rule India was under British rule for 200 years. British policies were aimed in revenue collection and not rural development. They introduced the Zamindari system. The zamindars were deemed the owners of
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all land and they collected as much revenue as they could from the peasants. The system left the peasants very poor and the zamindars did very little to improve the conditions of the villages. After the country attained independence this system was abolished, but the conditions of the peasants is yet to transform completely. 2. The Bonded Labour System It is equivalent to near slavery. Bonded labour is an indebted agricultural worker, who had borrowed from the money lender at usurious rate of interest and had to work in his farm for low wages. The system was used to permanently enslave the worker, as the worker was only able to repay a part of interest and the loan with compounded residual interest went on swelling. The agricultural labour can free himself eventually only by giving his son in bondage as a substitute. Under the 20-point economic programme, the Government India under Prime Minister Mrs.Indira Gandhi abolished bonded labour system and brought legislation to this effect in 1975. Despite the legislation the system is known to persist here and there in select areas. 3. Other contributory reasons are the total lack of agricultural development under foreign rule, poor communication, roads and other infrastructure development in villages, lack of education and health facilities, and the destruction of the thriving Indian cottage industries on account of competition from the cheap machine made goods imported under British rule Progress made after the Country attained Independence 1. After Independence the Country adopted planned development. The very first five year plan laid stress on agricultural development. It took a number of measures to bring more land under irrigation. Major irrigation Dams like Bakra Nangal, Hirakud, Nagarjunasagar, Tungabhadra were constructed which generated power for industrialisation of the country and water for irrigation. A number canals were build to distribute stored water over an extensive area. The Indian farmer, as a result, is now not exclusive depending on the monsoon. 2. Intensive cultivation of land is made possible through farm mechanisation. Tractors are being produced in the country and these are available to the farmers everywhere. Farmers are also using threshing machines, deep boring and irrigation pumps. They get supplies of high yielding improved seeds, fertilisers and other inputs. To enable them to purchase such inputs the rural credit system has been invigorated with Cooperatives, Regional Rural Banks, and Rural Branches of Commercial Banks. The recent boon to the poor Indian peasant is the micro finance system and Self Help Groups that have rendered financial support within the easy reach of all. 3. Land Reform legislation introduced in the country after independence include the abolition of the zamindari system, the abolition of bonded labour system, land ceiling legislation etc.. Legislation was also introduced to relieve rural indebtedness and the money lender could no longer legally collect more than reasonable interest. Untouchability was abolished and special legislation for the upliftment of scheduled cases and scheduled tribes were enacted. 4. Community Development Programmes, Integrated Rural Development Programme, bringing local self-government to the roots of the village through introduction of panchayat raj system ushered a new era of rural development. Development of public health care system, schemes undertaken for promoting
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literacy and adult education in the country, programmes for development of rural industries are other development programmes that have received the thrust of the Government's development approach.

Future Perspectives
Agriculture, with its large dependent population has to thrive and flourish, in order to secure rural prosperity. To ensure orderly and vigorous growth of agriculture policy and structural issues need to be addressed quickly. Some of the important issues that need to be addressed are 20

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1. Improving profitability of agriculture, through yield improvements, diversification and reform of agricultural marketing. 2. Strengthening backward linkages and expanding irrigation coverage. 3. Providing forward linkages especially for post harvest management, processing, transport, storage and market infrastructure. 4. Securing a stable long term policy on agricultural commodities trade, including the role of private sector. 5. Encouraging emergence of a market mechanism for agricultural commodities such as a commodities exchange. 6. Streamlining the cooperative credit structure for facilitating hassle free flow of credit. 7. Implementing watershed development projects in the rain-fed and dry-land areas.

Rural banking faces twin challenges Banking in rural India is faced with the twin challenges of regulation and distribution. Regulation with respect to banking has been designed for delivery in urban India and distribution required more manpower to be deployed in rural areas. Initiatives like cheque transaction where the electronic image and not the actual cheque is sent have in mind the urban customer, he said. "About 500-600 million people in India still do not have bank accounts. For the rural segment, one needs to design nofrills products and deliver hard core value. The other handicap was that while Rs 1-crore business in microfinance required 30 people in terms of manpower, the same volume of business in other portfolios required only one person. Also, contract farming and supply chain integration has not gone the way they should have. Power, telecommunications, banking and transportation had reduced the urban-rural divide, he said. Besides traditional banking services, people in the rural and semi-urban areas are expressing interest in liability and investment products. He said, "Rural India is fast transforming a nation of savers into a nation of investors".

Regional Rural banks revamp in line with Chakrabarty report Recapitalisation to be combined with new monitoring structure, with performance time lines Almost half of the 82 regional rural banks (RRBs) in the country would be recapitalised, with the infusion of Rs 2,200 crore in two stages by the end of 2011-12, and the authorised capital of all 82 banks would be increased to Rs 500 crore from the present level of Rs 5 crore.
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Besides, the performance of RRBs would be monitored by state level committees headed by finance secretaries of state governments with officers from the National Bank for Agriculture & Rural Development (Nabard), sponsor banks and the Reserve Bank of India. This is to be done half-yearly, instead of the yearly one by the Union finance ministry. This follows acceptance by the central government of a slew of recommendations from a committee headed by K C Chakrabarty, Deputy Governor of the RBI, for RRBs to achieve a capital to riskweighted assets ratio (CRAR) for RRBs of at least nine per cent by March 31, 2012. The report was given a year before. A Nabard official, who did not want to be named, told Business Standard: Chairmen of all RRBs have been asked to initiate necessary action in respect of action points pertaining to their bank. The committee had assessed the capital requirement for all the 82 RRBs to enable these to have a CRAR of at least seven per cent as on March 31, 2011, and at least nine per cent from March 31, 2012, onwards. Adding: The committee had included provisions required for arrears of wages due to revision of pay scales, gratuity and leave encashment, and had recommended that depreciation on SLR (statutory liquidity ratio) investments by marking to market (writing down assets to reflect current value) as applicable to commercial banks may be made effective by RBI from April 1, 2013, onwards. Accordingly, the recapitalisation requirement would be Rs 2,200 crore for 40 of the 82 RRBs. This amount will be released in two installments, comprising Rs 1,337.50 crore in 2010-11 and Rs 862.50 crore in 2011-12. Further, a memorandum of understanding would be signed with Nabard by each RRB, as also with the state government concerned and the sponsor bank, on the roles of various stakeholders and the performance benchmarks to be achieved, with schedule. On an increase in the authorised capital to Rs 500 crore, the committee had observed that the accumulated losses of RRBs as on March 31, 2009, were about Rs 2,300 crore. The RRBs carry, at the same time, share capital deposits aggregating Rs 3,900 crore. As a one-time measure, therefore, the committee had recommended that RRBs be permitted to write off the accumulated losses as on March 31, 2010, against the share capital deposits. Any balance left as share capital deposit may then be appropriated as paid-up share capital. However, as the RRBs would continue to need higher capital in view of their expanding business, the committee had recommended that their authorised share capital be increased to at least Rs 500 crore. Necessary amendments will be made to the RRBs Act to facilitate it.

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3. Literature Survey

The Narsimhan working group was established by the central government in 1975 to study the possibilities of profitable banking in rural India. The abstract of report of this committee is stated in the introduction part of this project. The result of this report is the establishment of RRB act 1976 & establishment of RRBs, specialized banking for Rural India. This was the base of RRBs in India. In our this project report we have taken abstract from the report of Narsimhan committee.

The part which contains information about definitions of RRBs and its various functions, authorities, capital structure, stake of government, stake of sponsor banks, stake of state, definitions about office holding are all taken from the Regional rural Banks Act, 1976.

Some information about the performance of RRBs up to 1990 has been taken from the report of Sukanya Bose. The topic which talks about the revamp of RRBs has been taken from an article on sify finance which is based on Chakrabarty committee report. This committee was set to design various restructuring strategies for RRBs better functioning. Besides this we have studied many articles on RRBs.

4. Research objectives
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The main objective of this grand project is to study the functioning of RRBs in rural India where more than 70% of population of Indian population lives & contributes towards Indian economy. Though it is quite a big part of Indian population their contribution in Indian GDP is less compared to about 30% of urban population of India. It is just due to their exclusion in financial sector of India led by state banks. To study the functioning RRBs, We chose one Branch of Baroda Gujarat Gramin Bank (BGGB), Sponsored by Bank of Baroda. Our objective of this research is to study the awareness among villagers about Banking and their views about banking. We surveyed about 50 customers of BGGBs Morva taluka branch, the result of which is shown graphically in later part of this report. It is also about the study of Regional Rural Banks , why they emerged, how they developed, what are their contribution in financial inclusion of rural & poor people, what are their problems, how they can be solved, how they can be restructured & can be made work more efficiently & effectively for financial inclusion of rural & poor people of India.

5. Approach & methodology

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Introduction
Research is a process of collecting and analyzing and ultimately to arrive at a certain conclusion. This research is done for the purpose of arriving at a conclusion about the RRBs & how they can be improved to achieve 100% financial inclusion.

Data source: The various sources of Information Broadly divided in two categories
(a) Primary source: Source from where first hand information are gathered

directly are called primary data in this study collected is called primary data.

We have gathered primary data from two ways. 1. We had an interview with Mr. A.C. Parikh, the Branch manager of BGGB, Morva. 2. We had surveyed 50 customers of BGGB, Morva.

Morva is a Taluka in Panchmahal district of Gujarat. There are many moneylenders in Panchmahal district who are charging interest which ranges from 3-20% per month which depends on need and condition of the borrower. The dominance of such moneylenders make it very hard for banks to function in such villages. RRBs are set up mainly to provide an alternate non-exploitative financial service to rural people. So we chose BGGB Branch of Morva to study the RRBs. The dependence on the local money lender in this region has continued, despite the fact that this branch is working for more than 20 years in the region. So, we wanted to enquire the level of awareness among people of the surrounding area about the existence of such financial service.

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(b) Secondary source: The data that collected for other purpose already exists somewhere is called secondary data. With regard to my study the secondary sources where records of the companys data base, websites, previous research on relevant topic.

Research type:
Exploratory research: Exploratory research provides insight into and

comprehension of an issue or situation. It should draw definitive conclusions only with extreme caution Exploratory research is a type of research conducted because a problem has not been clearly defined.

Data collection technique:

(1) Primary data:- Personal communication, Questionnaire method (2) Secondary data: - Website, company Data base and previous studies.

Sample Description:
(1) Sampling technique Non-probability sampling (Judgmental) (2) Sample size:50 Customers of Baroda Gujarat Gramin bank in Panchmahal. (3) Sample profile: Customers who had Loan Account or Saving Accounts in bank.

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Problem Statement:
The awareness of banking among rural people is very less. The private moneylenders are getting benefits of such lack of awareness. This survey of 50 customers of BGGB includes people who live within 3 kms range of Morva Taluka As we assume that this being the only branch in that area should have outreach up to 5 kms of radius of its branch.

Survey of 50 customers of BGGB, Morva. From the survey of the 50 customers of bank, we have come to knowledge that most of the people were not aware about the special structure of gramin banks & they did also not know the rate structure in other banks. So it is lack of education in villages.

People were using the facilities like Saving a/c, fixed a/c & loans for agriculture purpose. Out of 50 almost 15 people said they were using loan facilities. So this is not a good ratio for a bank.

Out of 50 almost 30 people said there has been a good change in their financial condition & lifestyle due to association with banks. While 20 said there has been no change.

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6.

Limitations of Study.

There are certain limitations of studies which are as follows: Inadequate response from Customers in rural areas & employees of Gramin banks at first interaction.

Time was one of the biggest constrain as there are three big Gramin Banks in Gujarat & we could study about only one that is Baroda Gujarat Gramin bank..

Inability of some of the rural people to understand the importance of our study.

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7. Conclusion
No doubt, villages are in a state of neglect and under-development, with impoverished people, as result of past legacies and defects in our planning process and investment pattern. But the potential in rural India is immense. What if every village in the country is provided with basic amenities, like drinking water, electricity, health care, educational transport, communication and other facilities, with only a smaller population of the village engaged in agriculture and the remaining in other gainful occupations? When this happens India will turn into mighty country. The purchasing power of the rural population throwing enormous demand for goods and services will boost the national economy tremendously. The day will see the reverse migration of people from the urban slums back to the villages. Rural Development is the subject to come to the forefront after the economic reforms and rural banking will serve the backbone of this development.

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Primary data Collection. An Interview with Mr. A.C. Parikh.

1. Who are the target customers of your bank? Ans: Every service village & people living in it are our target market. We want each & every villagian to have a bank account in BGGB. We want them to get rid of greedy moneylenders.

2. What are strategies of your bank to achieve the objective of financial inclusion? Ans: To make village people our customers, we take help of the leaders in the village like Sarpanch, Educated people, Rich rurals. We do also take help from Self Helped Groups.

3. What is the financial condition of your bank?

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Ans: The BGGB is a profitable bank. It has earned profit of Rs.15 crores in this fiscal & our branch has achieved profit of Rs. 50 lacks. So yes we are profitable in rural banking.

4. Your views on viability of RRBs. Ans: As we are profitable and Indian economy is also growing, yes it is a viable organization structure. But the concern is migration of rural people. If the rate of their migration will be such a high, why should they go in Gramin bank, they live in urban areas.

5. What is the level of govt. intervention in functioning of RRBs? Ans: There is no state government or central governments interventions in functioning of RRBs. RRBs are working as per rules & regulation of RBI. So they are autonomous organization.

6. Is there any difference in financial condition of rural people due to your bank? Ans: The people of this village who are anyway associated with bank are definitely getting benefits of their association. Their standard of living has been improved, their income level increased & the most important advantage is that they are getting better agricultural infrastructure due to institutionalization of finance. I think it is biggest change in their life due to banking.

7. Are RRBs better than other State level banks? Ans: Yes. RRBs are for more than 3 decades in India. Our branch is here for 20 years while SBIs branch is just 3 years old here. We have established our roots & getting benefits of the same. We have a huge list of loyal customers.

8. How your gramin bank is different from other gramin banks? Ans: No, there is no difference in the Functioning of Gramin Banks. The only difference comes from the difference of cultures of sponsor banks & the area of operation. We cant operate in area where we dont have license to operate.

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9. Your views on competition from money lenders, micro finance & other NBFC Ans: Micro Finance & NBFC are not our competition, instead they are playing supportive role in growth of banking in such villages. Our only competitors are the moneylenders who are providing money without any securities & dispatching immediately. We cant do that. But we are a better option for the villagian as the rates are low here.

Frequency Analysis Survey result and analysis of 50 customers of BGGB, Morva.

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Q.1 What are the Banking facilities you use?

This question was about the banking facilities rural people use. As the bar chart shows that out of 50, 30 people use Saving a/c, 25 use fixed a/c and 16 people use loan facilities. So here people are not much interested in credit from banks.

Q.2 What are the finance options available in your village?

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This question was about the financial options available in Morva. Almost all people were aware about banking but they are still interested in local moneylenders. While awareness about microfinance is very less.

Q.3. Are you aware that yours is a bank especially for rural bank?

Out of 50 customers of BGGB, 31 were not awre that their bank is a specially designed bank for villages of India.

Q.4. Quality of service of your Gramin bank?

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About service quality of RRB, Out of 50 38 said they are satisfied while 12 were not. So rural people are happy with the services of RRB.

Q.5 What do you prefer RRB or Other options?

This question was about the preference of rural people for bank over other alternatives of RRBs. Out of 50 46 said that they wiil prefer RRB over others.

Q.6. Has your bank improved your financial condition?

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This is about the change in the life of rural people due to their association with bank. Out of 50, 30 customers of bank said that their financial condition has been improved due to bank. While 20 customers said there has been no change in their financial condition due to association with Bank.

8. Future Developments
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Infosys' product division, which markets Finacle banking solutions, has received orders from 20 Regional Rural Banks (RRBs) for implementation of Core Banking Solution (CBS). "We have signed 20 deals for implementation of CBS in RRBs and we are in talks with other such banks," Infosys Technologies (Finacle) Head Haragopal M told media. Asked about names of banks it is in discussion with, he said, it is premature to talk about clients. More orders, he said, are likely to come as all the RRBs have to migrate to CBS by September 2011, the deadline set by RBI. Currently, there are 86 RRBs in the country of which 3 banks have become 100 per cent CBS. Two of Union Bank of India's sponsored Rewa Siddhi Gramin Bank and Kashi Gomti Samyut Gramin Bank and Punjab National Bank sponsored Haryana Gramin Bank is fully CBS. Finacle core banking solution for RRBs is a comprehensive, integrated yet modular business solution that effectively addresses their strategic and operational challenges.

RRBs follow RBI instructions, prepare guidelines for core banking The Regional Rural Banks (RRBs) across the country has been directed by the Reserve Bank of India (RBI) to make their branches fully Core Banking Solutions (CBS) complaint by September 2011.

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8. Notes & References. 1. www.rbi.com 2. www.google.com 3. www.economictimes.com 4. www.bggb.com 5. Research Methodologies by Cooper & Schiendler. 6. www.nabard.com

Sify finance.

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(Prof. S. M. Bhatt)

( ***********) Project Guide

Director

Date:

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