The biggest challenge to the banks in this country for the next decade is to capture the banking business of 50 percent population of this country of over 120 billion. Financial exclusion is a critical concern for low earning household and small businesses located in semi-urban or rural India. It is the lack of banking services for the people under poverty line.
Approximately 240 million adults in rural area do not have bank account today. Recent study of census has shown that rural households that use banking services have increased from 30% to 54% from 2001 to 2011. But still nearly 46% of the rural households are excluded from banking services.
2001
2011
Household
Total no. of household
Household availing banking services
percent
Total no. of household
Household availing banking services
percent
Rural
138,271,559
41,639,949
30.1
167,826,730
91,369,805
54.4
Urban
53,692,376
26,590,693
49.5
78,865,937
53,444,983
67.8
Total
191,963,935
68,230,642
35.5
246,692,667
144,814,788
58.7
The above data shows that the RRBs have performed well in rural credit and rural development. In order to expand further and to achieve the target of financial inclusion they will have to face many challenges. Some of the challenges are mentioned below:
· Lack of banking facility in the locality – Expansion of the Banks:
The committee for setting up regional rural banks suggested setting up of five pilot banks in the first year at selected places on experimental basis which could be extended based on their performance. Setting up of new regional rural banks so rapidly in a relatively very short period of time will create problems for concerned regional rural banks and their sponsored banks. The time line for setting up the regional rural banks has been forced by the higher authorities, which without choice needs to be accepted by the sponsoring commercial Banks, State Governments and even the Co-operatives.
At first, the location for these branches in various districts were not selected in a co-ordinated manner at the State level, demarcating the areas of operations of the existing institutional credit agencies was suggested by Working Group on Rural Banks. The other important test in rural banking expansion process is the proportion of number of branches opened in relation to the number which was expected to be opened in the given time at unbanked centers. There was no directive from the government in this regard but the expectation was that each regional rural bank will open 20 to 30 branches in first year of its operation and another 20-30 in second year of operation to reach the target of 50-60 branches in ‘underbank’ centers of its operation. This branch expansion target seemed un-achievable by Regional Rural Banks.
Identification of Small Borrowers
RRB’s are not able to meet the expected level of loans. The reasons for not achieving the expected level of loans are mentioned below:
· Most of the RRBs are lending directly to the economically weaker section of the rural society. RRBs used borrowed funds for lending purpose. The staff of regional rural banks has to make special efforts to identify potential small borrowers who can be able to pay the loan at relatively higher rate of interest by farming, small business and small trading.
· Secondly at the time of considering the application of borrower is to verify the genuineness of the borrower as the person of small means. The farmer which the staff considers to be ‘small’ or ‘marginal’ farmer may have substantial amount of income from non-farming activities. Similarly, a small artisan or person owning a small business may not be really poor. Such persons should not deprive the genuine small borrower.
