With the opening of Indian economy in early nineties, a sharp fall in growth of agriculture credit has been established over the years, which remained relentless untill2004, when UPAI came out with some concrete measures to change the impression. All India Debt and Investment Survey {AIDIS} reveals many striking realities; from formal financial sources, the share of total debt of cultivator households declined from 64% in 1992 to 57% in 2003, consequently moneylenders stake grown from 10.5% to 19.6% during same time line. Such state of affairs given smooth passages to exploitative indebtedness and hold the persistence of agrarian distress.
Though after year2000, things have started changing albeit its resultant were yet far from being effective; in next half decade, the growth of agriculture credit from Commercial banks and Regional Rural Banks{RRBs},jumped from abysmal 1.8% through the whole nineties to 19.1%. The share of credit supplied by same both in total agriculture credit increased from 30% in year 2000 to 52% in year2007, although such impressive mark of agriculture credit under the Priority Sector Lending{PSL}hardly left any positive impacts for the shake of crisis ridden farming sector.
Since year2004, conception of PSL underwent a radical shift with greater focus over the export oriented and capital intensive agriculture financing. Now under PSL, an individual can be financed up to Rs1 Crore and joint venture up to Rs.25 Crore; broadening of credit limit further emphatically embarrass the agriculture credit, but the centre of attraction now is the urban-metropolitan areas unlike the erstwhile rural hinterlands of the country. This change could be easily noted by the expansion of urban and metropolitan bank branches during 1995-2005; their footprints amazingly gone up from 16.3% to 30.7%. Between the same timeframe, proportion of rural-semi urban branches plummeted from 83.7% to 69.3% and even further deep to 66% in 2008.
Consistent marginalization of agriculture credit in rural areas for the leeway of urban counterparts introducing an unhealthy trend within the Indian banking system that infact leaves innumerable adversities for farming growth. In present circumstances, except RRBs, not even a single Commercial bank is close to follow properly the RBI guidelines on PSL. Its mandate instructs that Commercial banks have to earmark the 40% of their bank credit towards Priority Sector, which include agriculture, Small Scale Industries {SSIs}, education and advances towards weaker sections; within this limit, banks have to allocate 18% for agriculture and set aside 10% for weaker sections. Albeit in actuality, statistical numbers are unfortunately swapped for big favour of SSIs, on the cost of rest two vulnerable peers…nowhere, I am citing anything against the SSIs finance but my contention is to retrieve the due attention for feeble farming sector on which the real growth of nation depends.
Until recently, Commercial banks are targeting indirect finance to met with RBI’s directives of 40% spending on Priority Sector…either they have been buying the debt of RRBs or participate with investment in Rural Infrastructure Development Fund {RIDF}, that itself mark the lack of seriousness among them for rural business. Such practices were alarming for the sake of RRBs relentless progress, so eventually finance ministry has issued some directives to curtail the hide& seek game of Commercial banks in rural segment. Today, 79 RRBs out of total 82 are profitable; the losses of other three dropped to merely 6 Crore from 36 Crore in 2008-09. Defying all adverse predictions, RRBs are emerged as ineluctable component within the Indian banking…among mainspring, with 15,475 branches, the profits of RRBs have increased to1970 Crore in 2009-10 from 1371 Crore in 2008-09.
Accumulated losses down to 1808 Crore at the end of March2010 from 2300 Crore a year back. Moreover, average net NPA’s of RRBs gone down 1.62%in 2009-10 from 1.81% in previous year and 53RRBs had a Capital Adequacy Rotation of more than 9%. Besides RRBs are an alone entity that reached so close to the mark at 34,456 Crore as against of target set at 35,000 Crore…the RRBs are only ray of hope in the rural financing and indeed its business model needs all round attention and replication by the other institution in the fray. The other financial institution’s feeble doing is not inexplicable as they are running short of responsibility in their rural business…robustness of Indian banking at large is hard to see in these hinterlands, where life still proceeding with severe operational frills, though an exception here still exists!
Atul Kumar Thakur
August 29th2010, Sunday, New Delhi
atul_mdb@rediffmail.com
Showing posts with label Rural Finance. Show all posts
Showing posts with label Rural Finance. Show all posts
Monday, August 30, 2010
Tuesday, April 27, 2010
Self Help Groups: Catalyst of Microfinance Movement
Self Help Groups {SHGs} programme is the flagship microfinance intervention of NABARD which was launched as a pilot project on February 26th 1992 and deserve to be considered as a landmark development in the banking with the poor. In its part, RBI accepted most of the major recommendations and extended the SHG-Bank Linkage Programme beyond the pilot stage to as a normal business activity of the banking sector.
Now it’s a proven reality that the Bank Linkage Programme is one of the most cost effective components of microfinance movement-major change that it bestowed upon the Indian financial sector that banking with the poor is no longer remain an impractical and unachievable idea,it's a real accomplishment in the rural segment of banking.
This pragmatic initiative has immense growth potential for disadvantaged section that hitherto remained secluded from earlier poverty alleviation programmes. Despite many impediments, the programme has made remarkable socio-economic impact on empowerment of women in rural areas which considerably changing the institutional landscapes with better entitlement of enterprising poors. In last two decades, it impacted the lives of eight crore rural people across the country besides this, the creation of SHG has enabled the banking system to expand their footprint and to build a quality credit portfolio with those segments of the unbanked rural population.
Infact broadening of SHG is highly process specific and possess lot of room for innovative practices-beyond micro-savings and micro-credit, other financial services like micro-savings and micro-credit, other financial services like micro insurance, micro-remittances and micro-pension etc are presently placed in nascent stage but surely they would appeared more resonant in future ahead to cater the diversified needs of rural poors.
Unprecedented response of the SHG-Bank Linkage Programme facilitated by NABARD is truly acting as movement with a huge back-up of excellent micro finance clients. Complete attainment of universal financial access is most urgent thing as next course of action,as its proved now enterprises can only effectively thrive on institutional finance-here it’s also equally imperative to rationalize the private MFIs exorbitant interest regime.
Studies shows that microfinance services helps in poverty alleviation through its broad canvass of insuring equitable growth and spreading the programme in rest India to match its strength in southern states. In last two decades, SHGs have emerged as pivotal route of micro financial activities-as on March 31st 2009, banks credit outstanding against 42.4 lakh SHG stood at Rs 22,679.85 crore-on an average, this accounts to about Rs76, 000 per SHG and average loan per member stood at Rs5, 400 which is still very low in perspective of huge challenges.
The institutional achievements of the SHG-Bank Linkage Programme are most remarkable in terms of participatory and sustainable poverty alleviation and reaching to the developmental goals. On the social indices front; non-financial activities of SHGs are very crucial in attainment of actual socio-economic inclusion and empowerment. As government is contemplating some new regulatory changes to boost the microfinancial scenario, it would be naturally in priority to see more attention on SHGs increasing role in developmental framework. Presently few financial institutions except Regional Rural Banks {RRBs} and to some extant Co-operative banks, is taking optimum interest in empowerment of SHGs-this is a haunting concern as the marginalization of SHGs would dampen the entire euphoria of microfinance.
For banking sector, role of SHGs can be modeled as potential vehicle of financial inclusion in different capacity-from a potential client to a Banking Correspondent {BC}albeit sincerity must be ensured, so merely treating them as buzzword wouldn’t be suffice. Only genuine action and stout determination for socio-economic turnaround can lead this initiative to the crest of activities in rural financing. At any policy maneuverings, it must be clear in the mind of its architect that many unique challenges have to reckon with at next level of its execution-which can be addressed only through the innovation and constructive enterprise.
Atul Kumar Thakur
April 24th 2010, Saturday, New Delhi
atul_mdb@rediffmail.com
Now it’s a proven reality that the Bank Linkage Programme is one of the most cost effective components of microfinance movement-major change that it bestowed upon the Indian financial sector that banking with the poor is no longer remain an impractical and unachievable idea,it's a real accomplishment in the rural segment of banking.
This pragmatic initiative has immense growth potential for disadvantaged section that hitherto remained secluded from earlier poverty alleviation programmes. Despite many impediments, the programme has made remarkable socio-economic impact on empowerment of women in rural areas which considerably changing the institutional landscapes with better entitlement of enterprising poors. In last two decades, it impacted the lives of eight crore rural people across the country besides this, the creation of SHG has enabled the banking system to expand their footprint and to build a quality credit portfolio with those segments of the unbanked rural population.
Infact broadening of SHG is highly process specific and possess lot of room for innovative practices-beyond micro-savings and micro-credit, other financial services like micro-savings and micro-credit, other financial services like micro insurance, micro-remittances and micro-pension etc are presently placed in nascent stage but surely they would appeared more resonant in future ahead to cater the diversified needs of rural poors.
Unprecedented response of the SHG-Bank Linkage Programme facilitated by NABARD is truly acting as movement with a huge back-up of excellent micro finance clients. Complete attainment of universal financial access is most urgent thing as next course of action,as its proved now enterprises can only effectively thrive on institutional finance-here it’s also equally imperative to rationalize the private MFIs exorbitant interest regime.
Studies shows that microfinance services helps in poverty alleviation through its broad canvass of insuring equitable growth and spreading the programme in rest India to match its strength in southern states. In last two decades, SHGs have emerged as pivotal route of micro financial activities-as on March 31st 2009, banks credit outstanding against 42.4 lakh SHG stood at Rs 22,679.85 crore-on an average, this accounts to about Rs76, 000 per SHG and average loan per member stood at Rs5, 400 which is still very low in perspective of huge challenges.
The institutional achievements of the SHG-Bank Linkage Programme are most remarkable in terms of participatory and sustainable poverty alleviation and reaching to the developmental goals. On the social indices front; non-financial activities of SHGs are very crucial in attainment of actual socio-economic inclusion and empowerment. As government is contemplating some new regulatory changes to boost the microfinancial scenario, it would be naturally in priority to see more attention on SHGs increasing role in developmental framework. Presently few financial institutions except Regional Rural Banks {RRBs} and to some extant Co-operative banks, is taking optimum interest in empowerment of SHGs-this is a haunting concern as the marginalization of SHGs would dampen the entire euphoria of microfinance.
For banking sector, role of SHGs can be modeled as potential vehicle of financial inclusion in different capacity-from a potential client to a Banking Correspondent {BC}albeit sincerity must be ensured, so merely treating them as buzzword wouldn’t be suffice. Only genuine action and stout determination for socio-economic turnaround can lead this initiative to the crest of activities in rural financing. At any policy maneuverings, it must be clear in the mind of its architect that many unique challenges have to reckon with at next level of its execution-which can be addressed only through the innovation and constructive enterprise.
Atul Kumar Thakur
April 24th 2010, Saturday, New Delhi
atul_mdb@rediffmail.com
Wednesday, February 24, 2010
Expanding Roles of Regional Rural Banks
Regional Rural Banks{RRBs} were first set up in the year 1975, under the RRB Ordinance Act {1975}; the ordinance was later replaced by the RRB Act {1976}. Formation of these banks was the result of the growing realization that the ethos and attitude of the existing Public Sector banks were not entirely conducive to meet the credit needs of the rural peoples.
RRBs or Gramin Banks existential quest originated through the broad financial vision of then the Prime Minister Mrs. Indira Gandhi, who could foresee these banks strong role in future consolidation of Indian banking businesses, particularly in rural hinterlands. –remarkably this was the culmination earlier revolutionary move of large scale nationalization of banking industry i8n 1969.
To cope with the contemporary existing challenges, nationalization of fourteen banks along with the creation of a strong pool of regionally focused RRBs were the well timed initiative of the government which constructively moulded the further Indian growth stories for next two decades before foraying into liberalization of the Indian economy in 1991. Indeed government ownership led banks to expand their network dramatically, which in turn helped them in procuring low-cost deposits, boosting profits besides fueling country’ rate of savings and growth.
RRBs infact played very vital role in meeting with the goal of “social control” of Indian banks to reach with idealistic dream to the social hierarchy-RRBs have very high stake in forwarding Indian GDP growth rate to the 5.5-6% in the eighties and further improvement of banking performances in the nineties and thereafter besides broadening the saving rate from 12%in 1969 to 20% in 1980-branches from 8,000 in 1969 to 32,000 in 1980 and further to 60,000 in 1990.
Partial success of rural banking model could be best attributed to the no-frills operational methodology with low-cost and very less cumbersome services delivery in unbanked rural areas which was out rightly an unprecedented phenomenon before these two very important changes in Indian banking landscape.
Although post economic reform era witnessed a drastic shift in earlier compulsions of PSU banks to widen their rural footprints; in recent years these banks have shown stark differences from their rural responsibility albeit RRBs have alone displayed the proper resolution in this regard.With RBI’s new flexible branch opening rulings, their ongoing amalgamation and restructuring in their businesses-today RRBs are swiftly emerging as a lead player in rural banking business.
As on March 31,2009, RRBs had total business of Rs1,80,000 crore, of this deposits were of Rs 1,20,000 crore and total lending was at Rs 20,000 crore-besides statistics, the significant contribution of RRBs in rural financing is suffice to place it in high end Indian banking.
In recent annual international ranking by the UK based Brand PLC-this year SBI breaks into top 50 with a brand value of $4,5551 million; Indian banks have explicitly improved their brand value during the recent recession phase as big daddies of global banking were struggling to germ their previous standings, there are twenty Indian banks have placed in the recent Brand Finance@Global Banking-very soon as a single entity, Indian Regional Rural Banks would be next among them with unique rural dimensions.
But steps taken by the government and RBI in the last few years were not reached to the level of satisfaction; as per RBI records-of the six lakh habitations in the country , only about 30,000 have access to commercial banks-just 40% of the population have bank accounts and this ratio is hugely variable in different geographical region. RRBs with more than 15,000 branches have massive reach in the country’s deep rural areas, its mandate is to provide a business roadmap for these banks to strengthen them and extend banking facilities to the unbanked areas.
The RBI’s recent recommendation of 9% CRAR{Capital to Risk Weighted Asset Ratio}for RRBs to make sure of their capitalization is good omen since most of them are way behind this , a lot of RRBs are not well capitalized and their CRAR varies between 5-7%. It’s a welcome move from government to constitute a committee under the RBI Deputy Governor K.C.Chakravarty to capitalize the RRBs in the country; accompanying this with Raghuram Rajan Committee on Financial Sector Reform recommendations-such as minimizing the undue emphasis on credit delivery and shift of focus to improving access to financial services would surely back RRBs to focus on the crest of Indian banking.
Atul Kumar Thakur
February 21st 2010, New Delhi
atul_mdb@rediffmail.com
RRBs or Gramin Banks existential quest originated through the broad financial vision of then the Prime Minister Mrs. Indira Gandhi, who could foresee these banks strong role in future consolidation of Indian banking businesses, particularly in rural hinterlands. –remarkably this was the culmination earlier revolutionary move of large scale nationalization of banking industry i8n 1969.
To cope with the contemporary existing challenges, nationalization of fourteen banks along with the creation of a strong pool of regionally focused RRBs were the well timed initiative of the government which constructively moulded the further Indian growth stories for next two decades before foraying into liberalization of the Indian economy in 1991. Indeed government ownership led banks to expand their network dramatically, which in turn helped them in procuring low-cost deposits, boosting profits besides fueling country’ rate of savings and growth.
RRBs infact played very vital role in meeting with the goal of “social control” of Indian banks to reach with idealistic dream to the social hierarchy-RRBs have very high stake in forwarding Indian GDP growth rate to the 5.5-6% in the eighties and further improvement of banking performances in the nineties and thereafter besides broadening the saving rate from 12%in 1969 to 20% in 1980-branches from 8,000 in 1969 to 32,000 in 1980 and further to 60,000 in 1990.
Partial success of rural banking model could be best attributed to the no-frills operational methodology with low-cost and very less cumbersome services delivery in unbanked rural areas which was out rightly an unprecedented phenomenon before these two very important changes in Indian banking landscape.
Although post economic reform era witnessed a drastic shift in earlier compulsions of PSU banks to widen their rural footprints; in recent years these banks have shown stark differences from their rural responsibility albeit RRBs have alone displayed the proper resolution in this regard.With RBI’s new flexible branch opening rulings, their ongoing amalgamation and restructuring in their businesses-today RRBs are swiftly emerging as a lead player in rural banking business.
As on March 31,2009, RRBs had total business of Rs1,80,000 crore, of this deposits were of Rs 1,20,000 crore and total lending was at Rs 20,000 crore-besides statistics, the significant contribution of RRBs in rural financing is suffice to place it in high end Indian banking.
In recent annual international ranking by the UK based Brand PLC-this year SBI breaks into top 50 with a brand value of $4,5551 million; Indian banks have explicitly improved their brand value during the recent recession phase as big daddies of global banking were struggling to germ their previous standings, there are twenty Indian banks have placed in the recent Brand Finance@Global Banking-very soon as a single entity, Indian Regional Rural Banks would be next among them with unique rural dimensions.
But steps taken by the government and RBI in the last few years were not reached to the level of satisfaction; as per RBI records-of the six lakh habitations in the country , only about 30,000 have access to commercial banks-just 40% of the population have bank accounts and this ratio is hugely variable in different geographical region. RRBs with more than 15,000 branches have massive reach in the country’s deep rural areas, its mandate is to provide a business roadmap for these banks to strengthen them and extend banking facilities to the unbanked areas.
The RBI’s recent recommendation of 9% CRAR{Capital to Risk Weighted Asset Ratio}for RRBs to make sure of their capitalization is good omen since most of them are way behind this , a lot of RRBs are not well capitalized and their CRAR varies between 5-7%. It’s a welcome move from government to constitute a committee under the RBI Deputy Governor K.C.Chakravarty to capitalize the RRBs in the country; accompanying this with Raghuram Rajan Committee on Financial Sector Reform recommendations-such as minimizing the undue emphasis on credit delivery and shift of focus to improving access to financial services would surely back RRBs to focus on the crest of Indian banking.
Atul Kumar Thakur
February 21st 2010, New Delhi
atul_mdb@rediffmail.com
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