By Abhishek Acharya ReemaPasari Subhajit SarASIAN SCHOOL OF BUSINESS MANAGEMENT Bhubaneswar

India’s Rural Banking - ” The Fortune Lies At The Bottom Of The Pyramid.”

BySubhajit sar

What Is Rural Banking?

• It is the form of services that provide solution to the financial needs of the customer in rural areas.

• Government of India promoted Regional Rural Banks (RRBs) through the RRBs Act of 1976 to bridge the gap in the flow of credit to the rural poor.

Objectives Of Banking Services In Rural Areas

• To save the rural poor from the money lenders.• To act as a catalyst element and thereby accelerate the

economic growth in the particular region.• To cultivate the banking habits among the rural people and

mobilize savings for the economic development of rural areas.

• To encourage entrepreneurship in rural areas.• To develop underdeveloped regions and thereby strive to

remove economic dispar ity between regions.

Rural Banking “current Status”• Rural population of about 780 million with limited access to financial

services. • A high of rural lending in form of informal sources. • 500-600 million people in India do not have bank accounts.• Rural economy ( Agriculture non- agriculture) constitutes about 50%

of the India’s GDP. • SBI and NABARD

• Commercial bank branches cover only 7 % of rural sector

and large market is still untapped.

SWOT ANALYSIS

Strength •Competitive Environment, •Mobile banking or E banking.

Weaknesses• Monetary & Credit Policy, •Lack of customer Care Services, •Recovery of loans.

Opportunities

•Undeveloped rural Area.• More people are getting familiarize with the banking, •Potentiality of Market .

Threats•Traditional Mentality of employees,• Macro Economic Policy. Non Performing Assets,• Foreign investment Policy

Problem faced by RRB’S

• Running into losses.• Slow progress.• Limited scope of investment.• Delay in decision making.• Lack of co-ordination.• Lack of training facilities.• Poor recovery rate.

Way forward……How to win Customer

Expand reach: Tie up with India post, Partner with NGO/ MFI.

Kiosk banking:Offer convenience: Banking services at mini branch, making kiosk, The bio metric authentication Improved business.

Educate customers

Be cost effective: Low cost ATM, Costs just 1/ 10th that of the traditional ATM, Transfer of funds from NREGA.

Innovate and adopt technology: Smart cards, biometrics scanning, improve the service delivery.

Focus on microfinance: 40% in priority sector lending, MFI lending provides 10-14% return as against 6-7 % in government instruments.

RESPONSIBLITIES FROM BANK &GOVT

WHAT IS NEEDED FROM THE BANKS?

WHAT IS NEEDED FROM THE GOVERNMENT?

• More financial inclusion • Micro credit / SHG’s • Use of technology • Alternate Distribution channels• Improvement in service levels in rural area.

• An authority for Rural Banking. • Establish open standard for technology to be used Financial literacy and credit counselling.• Strategic action plan for remittance facility for both inter banking/ intra bank and post office.

Welcome to Micro Finance

CONCEPT OF MICRO-FINANCE

“Microfinance is an economic development approach that involves providing financial services through institutions to low income clients”.-International Labour Organization (ILO), 2000

Need of micro-finance in India

• In India around 27 per cent population living below the poverty line.

• About 60 percent of the poorest households do not have access to credit.

• Only 20% access loan from the formal sources

• Annual credit demand by the poor is estimated to be about Rs. 60,000/- crores and only Rs.12,000/- crores are disbursed.

Microfinance Models in India

• Self Help Group- Bank linkage model

• Micro-finance Institution Model (MFI)

• Grameen Model

• Individual Lending

> 97 per

cent of Microfinance

business

• 1) Regional Imbalance :-• 2) Poor Management :-• 3) Problem Of Micro Enterprises :-• 4) Dropouts :-• 5) Lack Of Business Attitude :-• 6) Regulations :-• 7) Lack of Political Support :-• 8) Sustainability :-

PROBLEMS IN MICROFINANCE

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CURRENT STATUS

• The Indian rural market generates about 50% GDP.

• Growing income levels and greater ambitions are progressively driving demand there.

• 19 % Increase in rural consumption per person.

(NSSO).

Road ahead

• Honda Motorcycle and Scooter India Pvt Ltd is focusing on rural India with plans to sell more of its entry-level motorcycle.

• The logistics sector is planning to invest at least Rs 500 crore USD.

• Havells India Ltd forecasts the housing sector to experience a boom in rural areas.

• Rural customers were the primary targets for two-thirds of social venture funds and impact investments in India in the last 13 years, according to the fifth Annual Report on Indian Venture Capital and Private Equity released by IIT-Madras.

DATA COLLECTION

Loans disbursed to MFIs by banks

Year No of MFIs Amount(crore)

2008-09 581 3732.33

2009-10 779 10728.50

2010-11 471 8448.96

2011-12 465 5206.29

Source: Status of Micro-finance in India- 2012, NABARD

State-wise position of MFIs (2010)

S No State No of MFIs Share %

1 Andhra Pradesh 484 62

2 Bihar 44 6

3 Gujarat 8 1

4 Jharkhand 1 0

5 Karnataka 20 3

6 Kerala 18 2

7 Madhya Pradesh 14 2

8 Maharashtra 15 2

9 Orissa 28 4

10 Rajasthan 18 2

11 Tamil Nadu 101 13

12 Uttar Pradesh 5 1

13 West Bengal 30 4

Total 786 100

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ConclusionConclusionMicrofinance provides a good avenue for extending financial services to India’spoor. Despite the recent success in scaling up microfinance, a number of issues needto be addressed to ensure that the poor receive high-quality services at a reasonablecost and that microfinance extends its reach to the poorest. Given the amount ofIndian demand for microfinance, the private sector will have to play a much largerrole in providing services, and drawing in private-sector players will require thecommercial viability of microfinance. Microfinance providers must provide a wide range of financial services including savings and insurance.Capacity-building efforts are needed to develop a steady stream of skilledworkers and managers for this industry. Periodic impact evaluations are requiredto provide insights into the ability of microfinance to alleviate poverty. Finally,measures must be taken to complement poor people’s access to finance with accessto markets, which would help them build their businesses.

Reference

• Ian Smith. (2008).Meeting needs , New Delhi: Elsevier Nogd

• ShrivastavaM P, Singh S R, “Indian Banking in the New Millennium”

• Handbook of Statistics on the Indian Economy, RBI 2011-12 • Sultan Singh, “Banking Sector Reforms”, Kanishka

Publications, Delhi• C Gomez(2008)–

Financial Markets Institutions And Financial Services Prentice-Hall Retrieved 2012-07-11 http://en.wikipedia.org/