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A Critical Appraisal of Rural Banking

The rural farm and non farm input and output, income and employment were affected positively by the expansion of the banking system. The green revolution and the expanding banking system helped the farmers avail credit facilities, services and a variety of loans to cater to their production needs. Famines became non existent. Today, we have achieved food security and we have an abundant buffer stock of grains. The banking system however is not doing well. There has been consistent underperformance of the formal credit institutions and high incidence of overdue installments by the farmers.

All formal institutions except the commercial banks have failed to find a system of mobilization of deposits. They also failed to lend to worthwhile borrowers and there was a complete failure in the recovery of loans. About 50% of defaulters amongst the defaulters of agricultural loans have been termed as willful defaulters and this has to be controlled as it is a big threat to the banking sector.

After the advent of reforms, the promotion and expansion of rural banking has taken a backseat. If this situation has to be improved, banks have to change their approach. They have to concentrate on building relationship banking with the borrowers instead of being mere lenders. Encouraging thrift and efficient utilization of financial resources has to be developed amongst the farmers.

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