EXECUTIVE SUMMARY

Since India is agriculture oriented country, the importance of rural banks in

India is more than any other countries. The development of rural co-
operative banks in India is on the process but still it is not fully developed.

The Co-operative banks in India was started in 1904.Co-operative

movement in India is the result of a deliberate policy of the state and is
vigorously pursued through formation of an elaborate governing
infrastructure. The successive Five-year plans looked upon the co-
operation movement as the balancing sector between public sector and the
private sector.
In India we find that the states of Maharashtra and Gujarat are well
developed. Whereas the states of Andhra Pradesh, Rajasthan and
Karnataka have shown remarkable progress in the co-operative movement
and there is a vast potential for the development of co-operative in the
remaining states.
This project is mainly focusing on the importance of co-operative bank in
the regional rural areas of our country. Because of that reason The
Government has introduced several schemes for promoting the spirit of co-
operation. Both the Indian Government as well as the Government of the
State of Maharashtra has introduced several schemes for the co-operative
bank. The NABARD role in the building of the co-operative credit
structure was that of an active collaborator in drawing up schemes of
development with the government of India and the State Governments, and
the provider of finance, first to the State Governments for contribution to
the share capital of co-operative credit institutions at various levels.
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 CO-OPERATIVE MOVEMENT IN THE WORLD
The earliest co-operatives were set-up among the weavers, in other words
workers in cottage industries, who were the first and the hardest hit by the
development of the mercantile economy and the industrial revolution.
So the weavers, in order to gain access to the market in the tools of their
trade or to the market in foodstuffs set up the first co-operative in Scotland
(Fenwick, 1761; Govan, 1777 ; Darvel, 1840 ), in France (Lyons, 1835 ), in
England (Rochdale, 1844 ) and in Germany ( Chemnitz, 1845 ).
Though co-operation and mutual enterprise has been an essence of human-
society ever since it evolved, the real co-operative movement can be
credited to the Rochdale Pioneers who established a co-operative consumer
store in North England. This store can be called as the first in the co-
operative consumer movement.
The "Rochdale Pioneers", made their first aim to establish co-operatives
where the members would not only be their own merchants but also their
own producers and their own employers.
Around this time the co-operative movement was more at an utilitarian
level. The concept though old, was just being implemented and was
growing slowly. Many great thinkers, far-sighted men and visionaries were
applying their minds to find practical solutions to the new problems and to
work out better systems of social organization.
In Great Britain Robert Owen (1771-1858) conceived and set up self-
contained semi-agricultural, semi-industrial communities.
Dr. William King (1758-1865) helped to spread Owen’s doctrine; his ideas
were more reasonable than Owen’s and achieved more results.
In France Charles Fourier (1722-1837), a commercial clerk, published in
1822 his main work, a Treatise on Domestic Agricultural Association. This
could be one of the first works on co-operation.
Though all these visionaries had articulated the philosophy of co-operation
it was not until the World-War II that an Authoritative Commission was
appointed by the International Co-operative Alliance.
This Commission formulated or rather formalized the principles of co-
operation. They are
➢ Voluntary and open membership
➢ Democratic Management
➢ Limited interest on capital
➢ Patronage dividend in proportion of members’ transactions
➢ Education and Training and
➢ Co-operation among co-operatives
 CO-OPERATIVE MOVEMENT IN INDIA

Co-operation occupies an important place in the Indian economy.

Perhaps no other country in the world is the co-operative movement as
large and as diverse as it is India. There is almost no sector left untouched
by the co-operative movement.
The main areas of operation of co-operatives in India are as under.
➢ Agricultural Credit
➢ Agricultural Marketing
➢ Agricultural Processing
➢ Industrial co-operatives
➢ Urban credit Co-operatives
Co-operative movement in India is the result of a deliberate policy of the
state and is vigorously pursued through formation of an elaborate
governing infrastructure. The successive Five-year plans looked upon the
co-operation movement as the balancing sector between public sector and
the private sector.
And the success is evident. Almost 50 percent of the total sugar production
in India is contributed by sugar co-operatives and over 60 percent of the
total fertilizer distribution in the country is handled by the co-operatives.
The consumer co-operatives are slowly becoming the backbone of the
public distribution system and the marketing co-operatives are handling
agricultural produce with an astounding growth rate.
Further there is the Indian Farmers Fertilizer Co-operative LTD (IFFCO),
which has been successful in setting up an effective marketing network in
most of the states for selling modern farming technology instead of
fertilizers alone. The operations of IFFCO are handled through its more
than 30,000 member co-operatives.
The National Agricultural Co-operative Marketing Federation (NAFED)
has over 5000 marketing societies. These societies operate at the local
wholesale market level and handle agricultural produce. Thus the farmers
have a market for their produce right at their door-step
In India we find that the states of Maharashtra and Gujarat are well
developed. Whereas the states of Andhra Pradesh, Rajasthan and
Karnataka have shown remarkable progress in the co-operative movement
and there is a vast potential for the development of co-operative in the
remaining states.
INTRODUCTION OF RURAL CO-OPERATIVE BANKS

Co-operative banks, another component of Indian banking system,

originated with the enactment of the co-operative credit societies Act of
1904, which provided for the formation of co-operative credit societies.
Under the Act of 1904, a number of co-operative credit societies were
started.

Co-operative banks were established in India to facilities rural credit, and

to cater to the needs of small farmers and businessmen. They were popular
with middle and lower income groups because of the high interest rates
they offered as compared to commercial banks.

However, with the passage of time, most co-operative banks lost their
purpose. Excessive state control and politicization further led to their
deterioration. By the 1990’s, none of the privet or public sector banks were
willing to deal with co-operative banks and thus even otherwise healthy
co-operative banks were facing a tough time. In 2001-2002, many co-
operative banks were rocked by scams that exposed the malpractices in
these banks. Many of these banks did not adhere to the prudential norms
prescribed by the Reserve Bank of India.

The distinct point between the co-operative banking sector and commercial
banking sector is the focus. First, co-operative banks focus on the local
population and micro banking among middle and low income state of the
society. As compare to nearly 300scheduled commercial banks, inclusive
of regional banks, there were more than 90000 primary agricultural credit
societies in rural sector as at the end of 2002.

Co-operative banks are an important segment of the organized sector of the

Indian banking system. They have been organized under the provision of
the co-operative society’s law of the states. They have grown with the
specific purpose of financing agriculture and other economic units in the
unorganized sector of the economy.

Both commercial banks and co-operative bank perform the main banking
functions of deposit mobilization, supply of credit, and provision of
remittance facilities. The major beneficiary, in the case of commercial
bank, is industry, trade and commerce whereas co-operative bank have
been concern with agricultural finance.

PRINCIPLES FOLLOWED BY CO-OP BANKS

There have been also other principles like the principles of political
neutrality, correct weight and measures, purity of goods and thrift which
were also taken into consideration.
These principles have been reformulated recently by the Manchester
Congress in 1995 and now the principles of co-operation are as follows:
I Principle: Voluntary and Open Membership:
Co-operatives are voluntary organizations; open to all persons who use
their services and willing to accept the responsibilities of membership,
without gender, social, racial, political or religious discrimination.
II Principle: Democratic Member Control:
Co-operatives are democratic organizations controlled by their members,
who actively participate in setting their policies and making decisions.
Men and women serving as elected representatives are accountable to the
membership. In
Primary co-operatives members have equal voting rights (one member, one
vote) and co-operatives at other levels are also organized in a democratic
manner.
III Principle: Autonomy and Independence:
Co-operatives are autonomous, self-help organizations controlled by their
members. If they enter into agreements with other organizations, including
governments or raise capital from external sources they do so on terms that
ensure democratic control by their members and maintain their co-
operative autonomy.
IV Principle: Education, Training and Information:
Co-operatives provide education and training for their members, elected
representatives, managers and employees so that they can contribute
effectively to the development of their co-operatives. They inform the
general public particularly young people and opinion leaders about the
nature and benefits of co-operation.
V Principle: Co-operation among Co-operatives:
Co-operatives serve their members most effectively and strengthen the co-
operative movement by working together through local, regional, national
and international structures.
VI Principle: Concern for Community.
Co-operatives work for the sustainable development of their communities
through policies approved by their members. The seventh Principle was
added at the Manchester Congress of 1995.

STRUCTURE OF CO-OPERATIVE BANKS

In India co-operative banks have different institutions at various levels
coming under the category of co-operative banks. They are categorized
under two main heads: agriculture and non agriculture. In the field of
agriculture credit there is separate institution to meet the need for short and
medium-term credit and for long term credit. The co-operative credit
structure for short and medium-term credit is a three tire federal one, with
state co-operative banks at apex in each state, the central co-operative
bank, at the district level, and the primary credit societies in the village.
Long-term agriculture credit is provided by the land development banks.
The structure is a two tire one, with central land development banks at the
state level and primary land development banks or district level. In some
states the structure is unitary,

In order to adhere to the discipline of the three-tier structure and also

possibly RBI can not lend directly to primary credit societies because of its
large number, funds flow down wards from a SCBs to the DCBs under its
jurisdiction and from the latter to the primary credit societies, which then
lend to their borrowing members. The need for higher financing agencies
arises, because the PACs are not able to raise enough funds by way of
deposits from the public. The SCBs them selves, apart from raising funds
by way of owned funds(share capital and reserve) and deposits from co-
operative societies and individual and others, borrow large amount from
mainly the RBI. This is one direct in which the RBI as the country’s central
bank makes its credit available to the co-operative banking system.
Further, the RBI also extends credit to state Government (in the form of
long-term loans for contribution to the share capital of co-operative credit
institutions) and through NABARD.
There are also reserve flow o funds from the primary credit societies to
CCBs and from them to SCBs. This is affected by way of contribution to
the share capital of the higher financing agencies and by way of deposits.
The loan extended by the higher financing agencies to their affiliates is
linked with the share capital holdings by this affiliate of the lending
agencies. Thus, normally a primary credit society can borrow from a CCB
at most upto 10 times its contribution to the share capital of the CCB. A
similar condition governs the borrowing limits of CCBs from their SCBs.

CREDIT STRUCTURE OF CO-OPERATIVE BANKS

The PACSs
The Primary Agricultural Credit Societies (PACS) constitute the `hub’ of
the Indian co-op movement. Every fourth co-operative in India is a primary
credit society. The main objectives of a PACS are:
• To raise capital for the purpose of giving loans and supporting the
essential activities of the members.
• To collect deposits from members with the objective of improving
their savings habit.
• To supply agricultural inputs and services to members at remunerative
prices.
The Primary Agricultural Co-operative Societies

Indicators Value

Village covered by PACS 99.5%

Total Number of PACS 100000

Membership per PACS 10,00,00,000

(Average)

The DCCBs
The PACS are affiliated to the District Central Co-operative Banks
(DCCBs) who perform the following functions.
○ Serve as balancing centre in the district central financing agencies
○ Organize credit to primaries
○ Carry out banking business
District Central Co-operative Banks

Indicators Value

No. of Banks 361

Total membership 1.579

(Million)

Total loans advanced Rs.326,995Million

The SCBs
The DCCBs in turn are affiliated to State Co-operative Banks (SCBs),
which perform the following functions.
○ Serve as balancing centre in the States
○ Organize provision of credit for credit worthy farmers
○ Carry out banking business
○ Leader of the Co-operatives in the States

Indicators Value

No. of Banks 28

No. of branches 742

Total membership 139,676

OBJECTIVES OF CO-OPERATIVE BANKS

1) To understand the structural features of the credit delivery system in a
village,
2) To assess the operational dynamics of financial services rendered by
formal credit institutions especially the co-operative,
3) To analyze the profile of borrowers of Service C6operative Bank, their
economic empowerment and perception level regarding loan repayment,
and
4) To identify reasons for non-viability of rural credit institutions and
suggest measures.
5) The rural financial system in the country calls for a strong and efficient
credit delivery system, capable of taking care of the expanding and diverse
credit needs of agriculture and rural development. More than 50% of the
rural credit is disbursed by the Co-operative Banks and Regional Rural
Banks. In this direction NABARD has been taking various initiatives in
association with Government of India and RBI to improve the health of
Co-operative banks
6) To provide cheap and liberal credit facilities to small and marginal
farmers, agriculture laborers, artisans, small entrepreneurs and other
weaker section.
7) To save the rural poor from the money lenders.
8) To act as a catalyst element and thereby accelerate the economic growth
in the particular region.
9) To cultivate the banking habits among the rural people and mobilized
savings for the economic development of rural areas.
CO-OPERATIVE BANKS-A PROFILE
In the early 20th century, the availability of credit in India, more
particularly in rural areas was non existent. There was no organized
institutional credit for agricultural and related activities. People in the rural
areas largely depended on money lenders who lent money at very high
rates of interest. Thus, there was need to create an institution which would
cater to the needs of ordinary people and was based on the principles of co-
operative organization and management. In 1904, the first legislation on
cooperatives was passed. In 1914, the Maclagen committee suggested a
three tire structure for cooperative banking i.e. Primary agricultural credit
societies at the grass root level, Central cooperative banks at the district
level and State cooperative banks at the state level. Cooperative banks
were expected to serve as substitutes for money lenders, and provide both
short term and long term institutional credit at reasonable rates of interest.

Features of cooperative banks

1) Cooperative banks are organized and managed on the principal of co-

operation, self help, and mutual help. They function with the rule of “one
member, one vote”. Function on “no profit, no loss” basis. Co-operative
banks, as a principle, do not pursue the goal o profit maximization.
2) Co-operative banks perform all the main banking functions of deposit
mobilization, supply of credit and provision of remittance facilities.
3) Co-operative banks provide limited banking products and are
functionally specialist in agriculture related products. However, co-
operative banks now provide housing loans also.
4) Primary Agricultural credit societies provide short term and medium
term loans
5) Co-operative banks do banking business mainly in the agriculture
rural sector. However, UCBs, SCBs, CCBs operate in semi urban, urban
and metropolitan areas also.
6) The SCBs, CCBs and UCBs can normally extend housing loans upto
Rs. 1 lakh to an individual.

CATEGORIES:
There are two categories of the co-operative banks.
a. Short term lending oriented co-operative banks – within this category
there are three sub categories of banks viz. State co-operative Banks,
DCBs, PACs.
b. Long term lending oriented co-operative banks – within the second
category there are land development banks at three levels state level,
district level and village level.

The co-operative banking structure in India is divided into following main

5 categories
1) Primary Urban Co-operative banks
2) Primary Agricultural Credit Societies
3) District Central Co-operative banks
4) State Co-operative Banks
5) Land Development Banks

DIFFERENCE BETWEEN RURAL CO-OPERATIVE

BANKS & RRBs
RRBs are by nature co-operative banks but are different from the co-
operative banks
1) Aim: RRBs have been established to supplement the resources of the
co-operative banks and not to complete with them. The principle of co-
operation is “all for each and each for all”. Its aim is to provide an
institutional framework to organized ‘self help’ among persons of small
means. Its basis is self-help through mutual help. It combines economic,
social and political objectives. It aims at bringing about socio-economic
changes in the country. The RRBs aim at ‘providing credit and other
facilities especially to the small and marginal farmers, agricultural
laborers, artisans and small entrepreneurs in the rural areas.

2) Act applicable: The RRBs are governed by the regional rural banks
Act 1976, RBI Act, NABARD Act, whereas the co-operative banks are
governed by co-operative societies Act 1965.

3) Status: The co-operative banks do not become scheduled banks

automatically, whereas RRBs are scheduled commercial banks. The
scheduled status given automatically.

4) Area of operation: Area of operation of the co-operative banks is

restricted to only one district only. But the area of operation of a RRBs is
extending upto one or more districts of a state.

5) Coverage of population: the co-operative banks are voluntary

organization for masses. But the beneficiaries of the RRBs are specially
class of rural area. It includes small and marginal farmers, agricultural
laborers, artisans and small entrepreneurs in the rural areas.
6) Organization: the organizational set up of the co-operative banks is
pyramidal. At the apex level, state co-operative banks functions as apex
body, at district level Central co-operative banks and village level Primary
agricultural credit societies. It has federal set up and each unit is partially
autonomous managed by depositors and borrowers on the basis of one men
one vote. The RRBs are bureaucratic institutions whereas co-operatives are
democratic institutions

7) Beneficiaries: the Beneficiaries of the co-operative banks are mainly

rural masses. Whereas the Beneficiaries of the RRBs includes special
class of people i.e., the weaker section of societies

8) Resources: The RRBs have owned funds which include share capital
and reserve funds as well as procured funds which include deposits and
borrowings/ refinance. But the co-operative banks depend on the RBI and
deposits from members.

9) Lending operations: the Co-operative banks lend mainly to the

farmers.

10) Monitoring and control: the RRBs are controlled by the Central
Government, RBI, State Government and Sponsor Banks, whereas the co-
operative banks are controlled by RBI and Registrar of co- operatives.

11) Staff: the co-operative banks get talented staff. Whereas RRBs attract
less talented staff
 FUNCTION OF CO-OPERATIVE BANK
NABARD being an Apex Development Bank promotes agriculture and
rural development through refinance support to all banks for investment
credit and to Co-operative and RRBs for production credit. The objective
of providing refinance to eligible institutions is to supplement their
resources for delivering credit for agriculture, cottage and village
industries, SSIs, rural artisans, etc. thus influencing the quantum of lending
in consonance with the policy of the government of India. It directs the
policy, planning and operational aspects in the field of credit for agriculture
and integrated rural development.
Besides the refinancing activity it discharges the developmental functions
which are as under:
1) It co-ordinates the operation of rural credit institutions
2) It ensures institution building to improve absorptive capacity of credit
delivery system.
3) It develops expertise to deal with agriculture and rural problems
4) It assists Govt., RBI and other institutions in rural development.
5) It provides facilities for training, research and dissemination of
information in rural banking.
6) It assists the State Government to enable them to contribute to the
share capital of eligible institutions
7) Under Rural Infrastructure Development Fund, NABARD extends
financial assistance to State Govt. for completion of various incomplete
rural projects such as Irrigation, Rural Bridges, and Roads and new
projects also.
8) It undertakes inspection of Co-operative Banks and RRBs as a part of
Regulatory function.
The function of District Development office
The basic function of district development office is planning, monitoring
and co-ordination.
1) The Potential Linked Credit Plan (PLP) prepared by district
development office has been used as reference by the credit planning
agency.
2) The monitoring of service area approach was assigned o NABARD by
RBI as it was considered advantageous to have a single rural agency to
plan, co-ordinate and monitor the credit programme of banks. They also
monitoring RIDF projects sanctioned to various NGOs, SHF formation and
linkages.
3) The district office of NABARD will be the principal agency for
coordinating agriculture and rural development activities of various credit
agencies as also liaisoning with the development departments of State
Govt.
4) Member of various district level standing committees and other
committees related to agriculture and rural development
5) Associated with the inspections of Co-operative banks and RRBs in
the districts
 THE SCHEMES OF RURAL CO-OPERATIVE BANK &
IT’s PROGRESS
The Government while understanding the importance of co-operatives has
introduced several schemes for promoting the spirit of co-operation. Both
the Indian Government as well as the Government of the State of
Maharashtra has introduced several schemes for the co-operatives. A few
of them are listed here. Take benefit of them.
Scheme 1: Share Capital Contribution to Credit Institutions under LTO
Fund (State Level Scheme)
The Government sanctions share capital contribution to District Central
Co-operative Banks. This contribution is given out of the LTO Fund of the
NABARD. The provision is made every year to repay this loan.
Scheme 2: Loans to Co-operative Credit Institutions for conversion of
short term loans into medium term loans
Scheme 3: National Agricultural Credit Stabilization Fund (Centrally
Sponsored Scheme)
In drought conditions the members of Agricultural Credit Societies may
not be able to repay the crop loans. This scheme helps to convert their
short-term loans into medium term loans and fresh crop loans are made
available to the members.
Scheme 4: Crop Production Incentive to Agriculturists (Dr.Punjabrao
Deshmukh Crop Production Incentive Scheme)
this scheme is applicable for Kharif and Rabbi Crops taken from 1.4.90
onwards. The farmers borrowing loans of RS.25, 000 or less and who
repay their loans fully before the due date are eligible for 4 % of the
principal amount as an incentive.
Scheme 5: In the industrial co-operative societies of weaker sections of the
societies, the Government has several schemes.
1. The Government sanctions share capital in the ratio 1:3, to enable the
societies to borrow funds from the financial institutions.
2. Financial Assistance for Tools and Equipment's
3. Interest Subsidy for Working capital:
The government gives an interest subsidy up to 3.5% to 4.5% on the
amount borrowed by the co-operative. This scheme helps to reduce the
burden of interest on the co-operative society which is to be paid to
financial agencies.
Scheme 6: Central Sector Scheme for Development of Women Co-
operatives Under this scheme financial assistance would be provided by
the Central Government on 100 % basis to the newly formed co-operative
societies by the women as well as existing women’s co-operatives. The
financial assistance is as under

No. Item Share Capital Working Capital Subsidy

Total
1. New Societies 40,000 40,000 20,000 1,
00,000
2. District Federation 80,000 80,000 40,000 2,
00,000
3. State Federation 2, 00,000 2, 00,000 1, 00,000 5,
00,000
Scheme 8: Co-operative Godowns: The Warehousing Corporation 90%
assistance for the construction of Godown out of which 50% is loan and
40% is Government share capital.
IMPLEMENTATION OF DEVELOPMENT ACTION PLAN
(DAP)/MEMORANDUM OF UNDERSTANDING (MOU)
In order to strengthen Cooperative Credit Institutions both in Short-Term
and Long-Term Structures as viable units on a sustainable basis, NABARD
had introduced a mechanism of DAP/MoU aiming at institution specific
measures in 1994-95. The cooperative banks, throughout the country had
prepared the base DAPs and executed the base level MoUs for 5 years
terminating March 2000. The second round of DAPs, and MoUs covered
the period 2000-01 to 2002-03 which was extended by one more year
i.e.upto March 2004. Since then the base-level DAP/MoU covered a larger
period of 3 to 5 years. The first phase of DAP/MoU (1994-2000)
concluded in March 2000 and thereafter second phase was started to cover
3 years (i.e. 2001-03) Annual MoU for 2002-03 and was entered for the
year 2003-04. The third phase of DAP/MoU started from the year 2004-05
for a period of 3 years. During the third phase of DAP/MoU covering the
period 2004-05 - 2006-07 for the first time PACS have been introduced to
planning process. They are required to prepare DAP and enter into an
understanding with the branch of DCCB.
The mechanism of DAP/MoU has helped in building appreciation and
awareness for strategic planning facilitating, in turn, sustainable viability at
all levels. The feedback received indicates that there was positive impact
on the performance of banks as a result of introduction of DAP/MoU
through reduction of CoM and cost of resources. The DAP planning
process, as an internal strategy for corporate planning, had facilitated in
creating an awareness in the cooperative banking structure and RRBs
about the need for strategic planning for corporate success.
The process of preparation of Bank-specific Development Action Plans
(DAPs) introduced for RRBs during the year 1994-95 has been continued
during the year 2004-05 for improving the performance of RRBs in a
specified time frame.
RBI’S POLICIES IN RELATION TO CO-OPERATIVE
CREDIT

The RBI since its inception has been concerned with the problems of
agriculture credit. It has been conducting studies to identify the problems
of agricultural credit. It was found in the studies conducted in 1930’s that
almost entire finance required by agriculturists in Indiawas supplied by
money lenders the part played by co-operative and other agencies being
negligible. In 1951, the RBI appointed an All-India Rural credit survey
committee to conduct a comprehensive rural credit survey. It was found
that only 3.1 per cent (of Rs.750 crores worth of borrowings of the
cultivators) was owed to co- operative societies.

It was found that co-operative credit fell short of the right quantity was not
of the right type ,did not serve the right purpose and often Failed to go to
the right people . The committee concluded that thought co-operation has
failed but it must succeed. It was realized that only the co-operative credit
system can play the prime role in the provision of rural finance. This was
rightly thought so since there is the existence of vast network of village
level primary credit societies through- out the country. further , these
societies have intimate knowledge of local problems .A require structure
was already available for an effective credit delivery system for rural areas,
therefore, RBI has made all possible efforts to strengthen and improve the
co-operative credit structure.

The RBI was assigned a crucial role on three main items:

➢ The development of co-operative credit,
➢ Expansion of co-operative economic activity and
➢ Training of co-operative personnel.

The RBIs role in the building of the co-operative credit structure was that
of an active collaborator in drawing up schemes of development with the
government of India and the State Governments, and the provider of
finance, first to the State Governments for contribution to the share capital
of co-operative credit institutions at various levels, and secondly, to the co-
operative credit structure it self to meet its requirements of short- term, and
long-term, finance. The details are given as below:

PROVISION OF FINANCE
The RBI extends finance under two
a) Agriculture finance: the RBI extends finance to agriculturists indirectly
through co-operative sector. The credit extended is of three types i.e. short
term, medium term and long term.

To meet its aforementioned financial obligation, the RBI had established in

1956 two national funds
1) The national a Agriculture credit fund (long term operations)
2) The national Agriculture credit (Stabilization) fund, the first und is used
for:
a. Advancing to state co-operative banks- medium term loans for
agriculture and allied purposes,
b. Making loans to state land development banks etc,
c. Purchasing the debentures of state land development banks, and
d. Making loans and advances to NABARD, started with an initial
contribution of Rs. 10 crores in 1956, the total outstanding under this fund
had grown to Rs. 3,315 crores by the and of June 1990 through annual
subscription from the profits of the RBI. The second fund, viz. NAC
(stabilization) fund, is used for converting the RBI’s short term loans and
advances to state co-operative banks into medium term loans whenever
they are enable to pay their dues in time owing to drought. Famine or other
natural calamities. This fund was set up in 1956 with an initial contribution
o Rs. 1 crore. The total outstanding under this fund stood at Rs. 660 crore
at June end 1990.

b) Non Agricultural finance: the RBI also provides short- term finance for
a. The production marketing activity of cottage and small-scale industries,
and
b. The purchase and distribution of fertilizers, these loans are generally
provided through state co-operative bank against guarantees of the state
governments. However, all such finances have constituted a small property
(less than %) of the total RBI short-term finance to co-operatives. The bulk
of it goes to agricultural co-operatives
 RURAL BANKING - Present Scenario
Households availing banking Services
• Rural penetration of banking and Insurance is very low
• Excess Dependence on Private Financiers at very high interest rate
Rural People
➢ Distancing themselves due to lack of awareness
➢ Difficulty in fulfilling Bank ’ formalities
• Number of Rural Branches was maximum in 1993
• Thereafter number of Rural Branches has been declining
• Reason for Reduction of Rural Branches
➢ Closure
➢ Reclassification of the Area due to population growth
• Rural Sector Reforms started in 1991
• As the focus on the profitability has been increasing the rural Branches are
being closed.
• In earlier decades, In spite of re-classification, number of Rural Branches
increased
• Rural Branches Growth and Decline

Population and Bank Branch Coverage

• Level of Urbanization has increased during the decade
• The share of urban and Metro population increased due to
➢ Up gradation of certain Semi Urban areas into Urban areas
➢ Migration from Rural / Semi Urban to Urban / Metros
 • In Urban and Metros Population per Branch has decreased whereas in
Rural and Semi Urban population per branch has increased during the
last decade
• The shift will be more towards Urban / Metro if we consider the ATMs
and other delivery channels available in Metros which are equivalent to
part of a branch but not added to the number of branched
Strategies for successful Rural Banking
• Co-operative bank are Rural oriented and their operating expenses are
less
➢They have to play a lead role in Rural financing and expanding the Rural
customer base
• Commercial Bank can select the route of financing through agencies
➢ Micro Credit Institutions
➢ NBFCs
• Encourage linkage of more Self help Groups
Solutions of problem of co-op bank in rural area
Training Needs
• Bank to take up entrepreneurial skill development programmes
• Training to develop Business Skills
• Training on Leadership Skills
• Training on Proper Accounting practices
• Training to create Quality awareness
• Training and Knowledge dissemination on Industrial and Tertiary Sector
Opportunities
• Provision of Know How Technologies
• Activities and Success Stories of other SHGs should be shown under video
coverage
 Technology implementation for Prosperity of Rural Poor
Technology Implementation in Bank in Rural
• To bring down the transaction cost
• Packaging and delivering Rural Credit
• Technology can handle large number of transactions at less cost
• Can facilitate
➢ Document management
➢ People identification

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