Financial
Institutions
for
Rural
Development
R K Srivastava
Indian Banking sector
Indian banking sector consists of :





Scheduled Commercial banks
Regional Rural Banks
Local Area Banks
Urban Cooperative banks
State Cooperative Banks- DCCBs,
PACS
 State Cooperative Agriculture and
Rural Development banks
What is banking ?
Section 5 (b) of BR Act says,
“Banking means the accepting, for
the purpose of lending or
investment, deposits of money
from the public, repayable on
demand or otherwise, and
withdrawable by cheque, draft,
order or otherwise”
Major Activities of Banks
Acceptance of deposits
Loaning and investment
Issuing Letter of credit, traveller’s
cheques
Buying and selling of bullion
Provision of safe deposit vaults/
Remittance of money
Acting as agent for government /
local authorities/ persons
Scheduled Commercial Banks
Scheduled Commercial banks are
those banks which are included in
second schedule of RBI Act 1934
These banks have to comply with
the provisions of Section 42 (6) of
RBI Act.
The value of its paid up capital and
reserves is not less than Rs. 5.00
lakhs
Scheduled Commercial Banks
Value means real or exchangeable
value and not the nominal value
which may be shown in the books
of accounts
RBI is satisfied that its affairs are
not conducted in a manner
deterimental to the interest of
depositors
Categories of Scheduled
Commercial banks
• 27 Public sector banks• SBI and 6 associate banks,
• 19 Nationalized banks
• IDBI bank
• 7 New Private Sector banks–
• ICICI, HDFC, Kotak Mahindra, Yes
Bank, Indusind bank, Axis bank
and Development Credit bank
Categories of Scheduled
Commercial banks (contd..)
• 15 Old private sector banks – prominent are
Nainital Bank, Jammu and Kashmir Bank,
ING Vyasa, Dhanlakshmi, Federal bank
• 31 Foreign banks – largest banks in terms
of their branches in India are
• Standard Chartered Bank – 90
• HSBC Ltd. – 47
• Citi Bank – 41
• Foreign banks are mostly operating in
urban and metropolitan centers
Outreach of Scheduled CBs
as on 31.03.09
Rural
Branches
Semi
Urban
branches
Urban
Branches
20058
16146
14761
Metro
ATMs
13643 43651
Activities covered under
services
 Transport Operators
 Computer Software
 Tourism, hotels and restaurants
 Shipping
 Professional services
 Trade – Wholesale ( Other than food
procurement )
 Retail Trade
 Real Estate Loans
 Non Banking Financial Companies
 All other services
Personal Loans- activities
Consumer Durable
Housing
Advances against FDRs
Advances to individuals against
share, bonds, etc.
Credit card outstanding
Education
Other personal loans
Deposits (Rs. Crore)
Components
31.03.08
31.03.09
Growth
rate
Demand
deposits
442056
472578
6.46
Savings
Deposits
744051
874539
17.54
Term
deposits
2133953
2716084
27.28
Total
3320060
4063201
22.38
Loans and advances
(Amount
in Rs. Crore )
Purpose
31.03.08
31.03.09
Growth %
Food credit
44399
46211
4.08
Agri and
allied
Industries
275343
338656
22.99
866875
1054390
21.63
Services
553185
646765
16.91
Personal
loan
Total
507488
562479
10.83
2247289
2648501
17.85
Highlights of performance of
SCBs
• The banks’ CRAR was 13.2 % as on
31.03.09
• Deposits touched Rs. 4063203 cr. from
Rs. 3320061 cr. (growth rate 22.4%)
• Loans outstanding touched Rs. 2648501
cr. from Rs. 2247289 cr. (growth rate
17.85%)
• The banks’ profits increased from Rs.
31203 cr. to Rs. 42726 cr.
Regional Rural Banks Objective
• RRBs were established in 1975 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 labourers, artisans and
small farmers.
RRB-History
• The history of regional rural banks in
India dates back to the year 1975.
• It was the Narshimhan committee that
conceptualized the foundation of
Regional Rural Banks in India.
• Committee felt the need of 'regionally
oriented rural banks' that would
address the problems & requirements
of the rural people with local feel, yet
with the same level of professionalism
of commercial banks.
RRBs History
(contd..)
• RRBs were established by Commercial banks
which were called Sponsor Banks.
• The share capital was contributed by Government
of India, Sponsor Bank and State Government.
• Its’ authorised share capital is Rs. 5.00 crore and
paid up capital is Rs. 1.00 crore.
• Five regional rural banks were set up on October
2 with a total authorized capital of Rs. 1 crore,
which was later augmented to Rs. 5 crore. There
were five commercial banks, viz. Punjab National
Bank, State Bank of India, Syndicate Bank, United
Bank of India and United Commercial Bank, which
sponsored the regional rural banks.
RRBs- History
(contd..)
• The number of RRBs has touched
196.
• The restrictions imposed on them in
the form of target group lending,
restrictions on types of business to
be undertaken, investments and poor
recovery made these institutions
sick.
• Government of India launched a
restructuring programme for RRBs in
93-94.
RRBs- History
(contd..)
• The Government of India
approved the recapitalisation of
RRBs.
• Relaxations in business
parameters were given.
• A Change Management
Programme in the form of ODI
was launched.
RRBs- History
• The restructuring of RRBs gave
desired results.
• GoI accepted the recommendations
of Narshiman Committee regarding
adoption of prudential norms.
• Income recognition and asset
classifications norms were made
applicable to RRBs.
RRB- History
• The advisory committee on Flow of
Credit to Agriculture & Related Activities
(Vyas committee) recommended the
restructuring of RRBs.
• With a view to improve the viability of
RRBs and enable them to compete with
other banking institutions, GOI has
implemented the sponsor bank wise
merger of RRBs at state level from the
year 2005.
• No of RRBs is 86 as on 31.03.09.
RRB- History
• Scheme for phased recapitalisation
of RRBs with negative net worth
was announced in the budget for
2007-08.
• The recapitalisation process has
been completed in case of 27 RRBs
with an amount of Rs. 1796.00 cr.
Performance of RRBs during
2008-09
The deposits touched Rs. 120189 cr.
and recorded an increase of 21%.
Loan outstanding touched Rs. 67802
cr. and recorded an increase of 15 %.
Credit Depost ratio was 56%.
Net NPA of RRBs were Rs.1188.00 cr.
( 1.75% of outstanding)
80 RRBs were in profit while 6 were
in loss.
Local Area Banks
• The Local Area Bank scheme was
introduced in August 1996.
• The idea behind setting up new
private local banks with jurisdiction
over two or three contiguous
districts was to help mobilisation of
rural savings by local institutions
and make them available for
investment in local areas.
Local Area Bank
At present only 4 local area
banks are functioning :
1. Capital Local Area Bank Ltd
2. Coastal Local Area Bank Ltd.
3. Krishna Bhima Samruddhi
Local Area Bank Ltd.
4. Subhadra Local Area Bank Ltd.
Business Parameters
Sr.
no.
Particulars
31.03.08
31.03.09
1
Deposits
514
616
2
Advances
355
439
3
Profit
9.5
14.1
Present Status
RBI has decided not to issue
new licences in respect of Local
Area Banks.
Cooperative Credit
Structure
Cooperative Credit structure in
India generally can be divided
in two categories :
1. Urban Cooperative Banks
2. Rural Cooperative Credit
institutions
Urban Cooperative
Banks
• The urban areas are served
by urban cooperative banks
• These banks are divided into:
• Scheduled
• Non –scheduled
Grade wise distribution of
UCBs
 UCBs are divided into 4 categories :
 Grade I and II are relatively stronger
banks
 Grade III and IV are weak and sick
banks
 With a view to improve the health of
Urban Cooperative Banks, a Vision
Document was prepared by RBI in
2004-05 and based on feed back, a
Medium Term Framework was put into
place.
Medium Term Framework
• The regulatory coordination between
the two authorities, RBI and State
Government, was to be achieved by
signing the MOU in each state with a
view to address the problems of dual
control.
• As on 20 July 2009, MOUs have been
signed with 26 State governments and
also with Central Government in
respect of multi state UCBs.
Progress
• The number of UCBs declined
from 1770 in 2008 to 1721 in 2009.
• Similarly, the number of Grade III
and IV banks declined from 496 in
2008 to 392 in 2009.
• The number of Scheduled UCB has
remained 53 while the number of
unscheduled UCBs have declined
to 1668 in 2009 from 1717 in 2008.
Business Parameters as on
31.03.09
Sr. no.
Particulars
(Rs.in crs. )
2008
2009
Growth
rate
1
Deposits
139871
158733
13.5
2
Advnaces
90444
97918
8.3
3
Profit net
1520
1746
23.2
4
NPA
6083
5318
(12.57)
Rural Cooperative Credit
Structure
Rural cooperative credit structure
can be divided into two parts :
• Short term Cooperative credit
Structure – comprising of SCB, DCCB
and PACS which cater to short term
and medium term credit requirement of
farmers.
• Long term credit structure – consisting
of SCARDBs and PCARDBs- catering
mainly to long term credit needs of the
farmers.
Rural Cooperative Credit
structure as on 31.03.09
• Short term cooperative credit
structure – 96061
- SCB (31), DCCB (371), PACS
(94942)
• Long term Cooperative Credit
Structure
- SCARDB (20), PCARDB ( 697)
What is PACS ?
• PACS means Primary Agriculture Credit
Society, the principal business of which
is to provide financial accommodation
to its members for agricultural purposes
or purposes connected with agricultural
activities (marketing of crops).
• Byelaws do not permit the admission of
any other cooperative society as a
member.
• DCCB which is contributing to share
capital from state government funds can
be a member.
Central Cooperative
Bank
Central Cooperative bank means
the principal cooperative society
in a district of a state, the
primary object of which is
financing of other cooperative
societies in that district.
State Cooperative bank
State Cooperative bank
means the principal
cooperative society in a state,
the primary object of which is
financing of other
cooperative societies in the
state.
State Land Development
Bank
State Land Development bank
means the cooperative which is
the principal land development
bank ( by whatever name called )
in a state and which has as its
primary object of providing long
term finance for agriculture
development.
Two tier and Three tier
structure
• In case of STCCS, both two tier
and three tier structure are
functioning in different states :
• Two tier means
SCB - PACS
• Three tier means
SCB – DCCB - PACS
Performance of SCB as on
31.03.08
Sr
no.
Particulars
31.03.07
31.03.08
1
Deposits
( Rs. Crore)
48560
52973
2
Advances
(Rs. Crore)
47354
48228
3
Profit
( Rs. Crore)
275
185
4
NPA
6704
6169
Performance of SCARDB as on
31.03.08
Sr.
no.
1
2
3
4
5
Particulars
31.03.07
31.03.08
Deposits
( Rs. Crore)
Borrowing
( Rs. Crore)
Advances
(Rs. Crore)
Profit
( Rs. Crore)
NPA
605
645
16662
15483
18644
18217
89
-247
5643
6292
Performance of DCCB as on
31.03.08
Sr.
no.
1
Particulars
31.03.07
31.03.08 P
Deposits
(Rs. Crore)
94529
102986
2
Advances
(Rs. Crore)
89038
91374
3
Profit
(Rs. Crore)
31
-65
4
NPA
16495
18728
Performance of PCARDB as on
31.03.08
Sr
no.
1
2
3
4
5
Particulars
Deposits
( Rs. Crore)
Borrowing
( Rs. Crore)
Advances
(Rs. Crore)
Profit
( Rs. Crore)
NPA
31.03.07
31.03.08
P
341.00
331.00
12751.00
10206.00
12114.00
9529.00
-147.00
-346.00
4316.00
5113.00
Performance of PACS as on
31.03.08
Sr.
no.
1
2
Particulars
Deposits
( Rs. Crore)
Advances
(Rs. Crore)
3
% of overdues to loan
outstanding
4
NO of societies
31.03.07
31.03.08 P
23484
25449
58620
656666
26.9
36.6
97224
94942
Revival of STCCS
Government of India appointed a
Task Force under the Chairmanship
of Shri A. Vaidyanathan of Madras
Institute of Technology in the year
2004
to
recommend
an
implementable action
plan
for
reviving the RCIs, taking into
consideration,
interalia,
main
recommendations
by
various
committees in this regard.
DETAILS OF STCCS AT THE TIME
OF STUDY
112309 PACS- ACC.LOSSES RS.4595
CR
367 DCCBs- ACC.LOSSES RS.4401
CR
30 SCBs- ACC.LOSSES RS.281 CR
DECLINE IN MARKET SHARE- FROM
62% IN EARLY 92-93 TO 34% IN 200203
PACS –MEMBERSHIP-12 CRORE50% BORROWING MEMBERS
Recommendations
REVIVAL AND REVITALSIATION
COMPULSORY BOTH ON
IDEOLOGICAL AND FUNCTIONAL
GROUNDS
COOPERATIVES HAVE A WIDER AND
DEEPER REACH IN RURAL AREAS
Salient features of Revival
package
• Aims at reviving the short term RCI
• Three components
- Provide financial assistance to bring the
system to an acceptable level of health
- Introduce legal, institutional reforms
necessary for their democratic, self reliant
and efficient functioning
- Take measures to improve the quality of
management
Present status
25 state governments have signed MOU.
Special Audit has been taken up in 79,822
PACS and completed in 79,530 PACS.
Special Audit of CCBs has been taken up
in twelve states.
Rs.7,987.60 crore has been released by
NABARD as GOI share for recapitalisation
of 49,764 PACS in fourteen states, while
the State Governments have released
Rs.752.88 crore as their share.
Non banking Financial
Company
A non-banking institution which
is a company and which has its
principal business of receiving
deposits under any scheme or
arrangement or any other
manner, or lending in any
manner is also a non-banking
financial company (Residuary
non-banking company).
NBFC
• A Non-Banking Financial Company (NBFC) is
a company registered under the Companies
Act, 1956 and is engaged in the business of
loans and advances, acquisition of
shares/stock/bonds/debentures/securities
issued by Government or local authority or
other securities of like marketable nature,
leasing, hire-purchase, insurance business,
chit business but does not include any
institution whose principal business is that of
agriculture activity, industrial activity,
sale/purchase/construction of immovable
property.
Difference between
NBFCs and Banks
NBFCs can not accept demand
deposits
NBFCs are not part of payment
and settlement system hence
can not issues cheques drawn
on itself or demand draft
Its deposits are not covered by
DICGC
Types of NBFCs
i) Asset Finance Company (AFC)
(ii) Investment Company (IC)
(iii) Loan Company (LC)
What is an AFC ?
• AFC would be defined as any company which
is a financial institution carrying on as its
principal business the financing of physical
assets supporting productive/economic
activity, such as automobiles, tractors, lathe
machines, generator sets, earth moving and
material handling equipments, moving on own
power and general purpose industrial
machines.
• Principal business for this purpose is defined
as aggregate of financing real/physical assets
supporting economic activity and income
arising therefrom is not less than 60% of its
total assets and total income respectively.
What is a Loan Company
Loan company" means any company
which is a financial institution
carrying on as its principal business
the providing of finance whether by
making loans or advances or
otherwise for any activity other than
its own but does not include an
equipment leasing company or a hirepurchase finance company
What is investment company
Investment company" means
any company which is a
financial institution carrying
on as its principal business
the acquisition of securities.
Examples of NBFCsLoan company
• Mahindra and Mahindra Financial
Services Limited is one of India’s
leading non-banking finance
companies.
• It provides Loans For Festival
Expenditure, Medical needs,
Education needs, Agricultural needs,
Marriage Health enhancement,
Vehicle repairing and Insurance
purchase etc.
Examples of NBFC
o Bajaj Finance
o SKS Micro Finance
o Electronic Finance Limited –
Asset Finance Co – Hire
purchase or term loan
o Peerless General Finance and
Investment Co.Ltd.
Thank You