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The Secret Of

Getting Ahead Is
Getting Started

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RURAL BANKING SYSTEM


IN INDIA
Presented ToDr. Jasmindeep
Kaur
Presentation BySamiksha
Chawla
Ph.D Course
Work
1605206

Table of Contents

Introduction
Rural Setting In India
Need of Rural Finance
Rural Finance Service Providers
Indian Rural Banking Structure
Position of Rural Banking Access
Rural Credit Flow
Financial Inclusion
PMJDY
Bank Mitra (BM)
Business Correspondent (BC)
Conclusion

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Introduction
Rural Area means any place which meets the following criteria,
A population of less than 5,000
Density of population less than 400 per sq km and
More than 25% of the male working population is engaged in
agricultural pursuits.
by india.gov.in

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Introduction
Banking means the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawal by cheque, draft, order or
otherwise.
Section 5(b) of Banking Regulation Act, 1949
Rural banking is the process of conducting banking transactions
out in the country where bank branches are too far away to be of
use. Rural banking is a common practice in places where
banking are few and far.

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Rural Setting In India


Real India lives in villages. About 72 per cent of Indian population subsists
in about six lakh villages. According to an estimate more than one fifth of the
Indian rural population was below the poverty line in 2007. While the states of
Delhi and Punjab had a low proportion of rural poor, Bihar and Orissa had 4050 per cent of their population below poverty line. The rural people earn their
livelihood directly or indirectly from agriculture and allied activities. Farming
has been the single major occupation in the country. The distribution of land
was highly skewed.
Distribution of operational holdings and are operated among size groups (199
5-96 and 2010-11)
Source : Agricultural Census 2010-2011, Ministry of Agriculture,
Government of India.

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Need of rural finance


Indias rural poor are overwhelmingly dependent on agriculture
as their primary source of income; the majority is marginal or
small farmers, and the poor holds are landless
The World Bank-NCAER Rural Finance Access Survey of 2003
indicates that while rural families are predominantly multipleincome households, their two main sources of income include
the sale of agricultural products and wage labor. Irregular
employment is the most important source of income .

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Need of rural finance


Clearly, rural households depend on one or both of two types of income:
seasonal (post-harvest sale) or highly irregular, due to irregular or part
time wage labor, with the dependence on the latter being inversely
proportional to the size of land holdings.
And because those incomes tend to be small, irregular, and unreliable,
they need the full armory of intermediating modessaving up for future
spending, taking advances against future savings, and building cash
reserves that can be called on at any time. The poor need a wide range of
financial servicesfrom small advances to tide over consumption needs
to loans for investment purposes to long-term savings that help them
manage life-cycle needs.

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Need of rural finance


41% of the population in India is unbanked

40% is unbanked in urban areas

61% is unbanked in rural areas

Higher in North Eastern(63%) and Eastern regions (59%)


Only 14% of adult population have loan accounts

9.5% in rural areas

14% in urban areas

North Eastern(7%) and Eastern regions (8%)


(Source RBI)
203 million households in India

147 million households in rural areas

89 million are farmer households

51.4% of farm households have no access to formal or informal sources of


credit

73% of farm households have no access to formal sources of credit

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Rural Finance Service Providers

Formal
Providers

Semi-formal
Providers

Informal
Providers

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Banks

MFIs

Moneylenders

Rural Finance Service Providers


Table 1: Break-up of Institutional and Non-Institutional Rural Credit
1951

1961

1971

1981

(Per cent)
1991
2002

Institutional Agencies
7.2
14.8 29.2
61.2
64.0
57.1
Government
3.3
5.3
6.7
4.0
5.7
2.3
Co-op. Society/bank
3.1
9.1
20.1
28.6
18.6
27.3
Commercial bank incl. RRBs
0.8
0.4
2.2
28.0
29.0
24.5
Insurance
--0.1
0.3
0.5
0.3
Provident Fund
--0.1
0.3
0.9
0.3
Others institutional agencies*
----9.3
2.4
Non-Institutional Agencies
92.8 85.2 70.8
38.8
36.0
42.9
Landlord
1.5
0.9
8.6
4.0
4.0
1.0
Agricultural Moneylender
24.9
45.9
23.1
8.6
6.3
10.0
Professional Moneylender
44.8
14.9
13.8
8.3
9.4
19.6
Traders and Commission Agents
5.5
7.7
8.7
3.4
7.1
2.6
Relatives and Friends
14.2
6.8
13.8
9.0
6.7
7.1
Others
1.9
8.9
2.8
4.9
2.5
2.6
100
100
100
100
100
100
Total
*: includes financial corporation/institution, financial company and other institutional agencies.
Note: Percentage share of different credit agencies to the outstanding cash dues of the households as
on
30th
June.
-denotes
not
available.
Source: All India Rural Credit Survey (1954); All India Debt and Investment Survey, Various Issues.
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Indian Rural Banking Structure


RBI &
NABARD
Commercial
Banks
RRBs

Public Sector

Urban Co-op
Banks

New Banks

Nationalized
Banks

Short-Term

State Co-op
Banks

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Co-operative
Banks

Private
Sector

Old Banks

SBI & its


Associates

State Land
Development
Banks

Central Coop Banks

Primary
Agricultural
Credit
Societies

Rural Co-op
Banks

Long -Term

State Co-op
Agri. And
RRBs

Primary Coop Agri and


RRBs

FI : A Progress Report

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Data on Bank Branches

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Position of Banking Access


Position of households availing Banking Services

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Rural Credit Flow

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Rural Credit Flow

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Financial Inclusion
Poverty is the worst form of violence.
- Mahatma Gandhi
The Government of India and the Reserve Bank of India have been
making concerted efforts to promote financial inclusion as one of the
important national objectives of the country. Some of the major efforts
made in the last five decades include - nationalization of banks, building
up of robust branch network of scheduled commercial banks, cooperatives and regional rural banks, introduction of mandated priority
sector lending targets, lead bank scheme, formation of self-help groups,
permitting BCs to be appointed by banks to provide door step delivery of
banking services, zero balance BSBD accounts, etc.
The fundamental objective of all these
initiatives is to reach the large sections of the hitherto financially
excluded Indian population.

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Financial Inclusion
Financial inclusion may be defined as the process of ensuring access to
financial services and timely and adequate credit where needed by
vulnerable groups such as weaker sections and low income groups at an
affordable cost.
-The Committee on Financial Inclusion, Chairman: Dr. C.
Rangarajan.
Financial Inclusion, broadly defined, refers to universal access to a wide
range of financial services at a reasonable cost. These include not only
banking products but also other financial services such as insurance and
equity products.
-The Committee on Financial Sector Reforms, Chairman: Dr.
Raghuram G. Rajan

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Extent of Financial Exclusion

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NSSO 59th Round Survey


Results
51.4% of farmer households are financially excluded from both
formal/ informal sources.
Of the total farmer households, only 27% access formal sources of
credit; one third of this group also borrowed from non-formal
sources.
Overall, 73% of farmer households have no access to formal
sources of credit.

However, over the period of five decades, there has


been overall improvement in access to formal sources of
credit by the rural households

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NSSO 59th Round Survey Results

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Government of India Population

Census 2011
As per census 2011, only 58.7% of households are availing
banking services in the country. However, as compared with
previous census 2001, availing of banking services increased
significantly largely on account of increase in banking services
in rural areas .

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CRISIL-Inclusix
In June 2013, CRISIL first time published a comprehensive financial
inclusion index (viz.,Inclusix). For constructing the index, CRISIL
identified three critical parameters of basic banking services namely
branch penetration, deposit penetration and credit penetration.
The CRISIL Inclusix indicate that there is an overall improvement in the
financial inclusion in India .
CRISIL Inclusix (on a scale of 100) increased from 35.4in March 2009
to 37.6 in March 2010 and to 40.1 in March 2011.

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RBI Working Paper Series Study on


Financial Inclusion in India:
A Case-study of West Bengal

Sadhan Kumar(2011) worked out an Index on financial inclusion (IFI)


based on three variables namely penetration (number of adults having bank
account), availability of banking services (number of bank branches per
1000 population) and usage (measured as outstanding credit and deposit).
The results indicate that Kerala, Maharashtra and Karnataka has achieved
high financial inclusion (IFI >0.5), while Tamil Nadu, Punjab, A.P, H.P,
Sikkim, and Haryana identified as a group of medium financial inclusion
(0.3 <IFI<0.5) and
the remaining states have very low financial inclusion.

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World Bank Financial Access Survey


Results
From the table it would be observed that in our country, financial
exclusion measured in terms of bank branch density, ATM density,
bank credit to GDP and bank deposits to GDP is quite low as
compared with most of developing countries in the world.

Financial
Inclusion RBI
Policy
Initiatives
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World Bank Financial Access Survey Results

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Committee on Financial Inclusion

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PMJDY
Objective of "Pradhan Mantri Jan-Dhan Yojana (PMJDY)" is ensuring
access to various financial services like availability of basic savings bank
account, access to need based credit, remittances facility, insurance and
pension to the excluded sections i.e. weaker sections & low income
groups. This deep penetration at affordable cost is possible only with
effective use of technology.

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PMJDY
PMJDY is a National Mission on Financial Inclusion encompassing an
integrated approach to bring about comprehensive financial inclusion of
all the households in the country. The plan envisages universal access to
banking facilities with - at least one basic banking account for every household,
financial literacy,
access to credit,
insurance and
pension facility.

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PMJDY
In addition, the beneficiaries would get RuPay Debit card having inbuilt
accident insurance cover of 1 lakh.
The plan also envisages channeling all Government benefits (from Centre
/ State / Local Body) to the beneficiaries accounts and pushing the Direct
Benefits Transfer (DBT) scheme of the Union Government.
The technological issues like poor connectivity, on-line transactions will
be addressed.
Mobile transactions through telecom operators and their established
centres as Cash Out Points are also planned to be used for Financial
Inclusion under the Scheme.

Also
an effort is being made to reach out to the youth of this
country to participate in this Mission Mode Programme.

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Scheme Details
Account can be opened in any bank branch or Business Correspondent outlet.
PMJDY accounts are being opened with Zero balance. However, if the accountholder wishes to get cheque book, he/she will have to fulfill minimum balance
criteria.
Documents required to open an account under Pradhan Mantri Jan-Dhan Yojana
I. If Aadhaar Card/Aadhaar Number is available then no other documents is
required. If address has changed, then a self certification of current address is
sufficient.
II. If Aadhaar Card is not available, then any one of the following Officially Valid
Documents (OVD) is required: Voter ID Card, Driving License, PAN Card,
Passport & NREGA Card. If these documents also contain your address, it can
serve both as Proof of Identity and Address.

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Scheme Details
III. If a person does not have any of the officially valid documents mentioned
above, but it is categorized as low risk' by the banks, then he/she can open a bank
account by submitting any one of the following documents:
Identity Card with applicant's photograph issued by Central/State
Government Departments, Statutory/Regulatory Authorities, Public Sector
Undertakings, Scheduled Commercial Banks and Public Financial
Institutions;
Letter issued by a gazette officer, with a duly attested photograph of the
person.

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Bank Mitra
What is a CSP or Bank Mitra?
CSP stands for Customer Service Point which is also called a Bank
Mitra. Bank mitra is a concept designed under PPP (Public Private
Partnership) Where a Bank Mitra or CSP works as a representative or agent
of Bank and appointed to provide Banking services to citizens. The
Banking services like, Account opening, cash deposit acceptance and cash
withdrawal etc.
What are the duties and responsibilities of CSP or Bank Mitra?
To help citizens to open a saving bank account under different government
schemes and policies like Pradhan Mantri Jan Dhan
Yojna. Acceptance of cash deposit and cash withdrawal, to
process Kisaan Credit Card Direct benefits transfer and Subsidy
transfer etc.

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Bank Mitra
What are benefits of becoming CSP or Bank Mitra?
Its an opportunity to work with banks as a Bank Mitra to provide banking
services which entitles you for the commission on it. As a Bank Mitra you
earn some commission on accounts opening, cash deposit, cash withdrawal,
Credit Card payments, Bill Payments, Most important a basic fix pay of Rs.
2000 per month to Rs.5000 per month is being paid to Bank Mitra on
certain conditions.
What are the requirements to become CSP/Bank Mitra?
To become a CSP or Bank Mitra to any bank you must have following
things readily available.
Computer (Desktop or Laptop)
Internet connectivity (Broadband, Modem or Dongle)
Printer (Along with Scanner)
Minimum 100 SQFT office space
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Bank Mitra
Who can become a CSP or Bank Mitra?
Any Firm, organisation or individual who is 18 and studied 10th can apply
and become a CSP or Bank Mitra, apart from this an applicant should have
basic computer knowledge. Experience is not mandatory but preferred.
Where a CSP can open?
According to Government and Reserve Bank of India circular, a CSP can be
opened on every village basis and in urban areas on ward basis.

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Bank Mitra
How to become a CSP or Bank Mitra?
To become a CSP on BankMitra.org for any bank you are required to apply
online. Click here to open online form, now you have to select the Bank
which you want to apply for. Fill the correct details in online form after
submission of your form that would be forwarded to operations department
for Cross Check and primary validation. Once the validation is done, you
would be notified by email/sms and same way your application would be
processed to BC (Business Correspondent) for code generation and
registration.

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Business Correspondent
Concept of Business Correspondents
In 2000, a roadmap had been drawn to provide banking services in every
village with population above 2000 by March 31, 2012. In 2006, the
Reserve Bank of India allowed banks to use non-bank intermediaries as
business correspondents to extend banking and other financial services to
areas where the banks did not have a brick and mortar branch present.

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Business Correspondent
Objective
The objective was to aid the process of financial inclusion and consequently
take banking to the remotest areas of the country and make them bankable.
So far, banks have covered 74, 199 (99.7 percent) out of 74,414 such
villages.
Who is a Business Correspondent?
The business correspondent is nothing but a bank-in-person, who is
authorised to collect small ticket deposits and extend small credit on behalf
of the banks. A BC also does the following activities:
Recovering the principal interest of small value deposits
Sale of micro insurance products
Selling mutual fund products
Selling Pension products
Receipt and delivery of small value remittances/other payment
instruments.
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Business Correspondent
Are Individuals only allowed to work as Business Correspondents?
No. In fact, Reserve Bank has allowed an array of entities to work as BCs.
These include:
NGOs
Micro-finance Institutions set up under Societies/Trust Acts
Societies registered under Mutually-Aided Co-operative Societies Acts,
or the Co-operative Societies Acts of States
Companies in which NBFCs, banks, telecom companies and other
corporate entities or their holding companies do not have equity holdings
in excess of 10%
Individuals such as Post offices and retired bank employees, exservicemen and retired government employees.

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Business Correspondent
Can Business Correspondents work only for a single bank?
No. The Reserve Bank of India (RBI) has permitted all business
correspondents (BCs) or representative of any one particular bank to
conduct business for other banks as well. This so called interoperability
system has been allowed at the retail outlets which is the point of customer
interface. Business correspondent authorised by a bank would now be able
to offer services like cash transactions to customers of other banks if the
lender doesnt have a branch of the same bank.

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Business Correspondent

Source: RBI; ICT refers to use of technology such as Micro ATMs


or Mobile phones as a medium to communicate with the bank
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Rural Initiatives
ICICI Rural Products
Business Correspondents List
Bank Mitra Location ICICI Bank

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Conclusion
There are 185 million bankable adults in rural India who are unbanked
because of access and usage issues. This presents a significant
opportunity for commercial banks. However, to reach this market and
subsequently build an inclusive financial system, there must be a
coordinated and concerted effort by the three key stakeholders: the
Government of India, the Reserve Bank of India and the commercial
banks. In addition, a partnership between banks and business
correspondents, and collaboration amongst banks is critical.
Furthermore, banks should tailor their product and service mix to meet
rural.

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References
http://apjor.com/files/1372132807.pdf
http://www.epw.in/system/files/pdf/1960_12/27/the_banking_system_and_rural_
india.pdf
http://shodhganga.inflibnet.ac.in/bitstream/10603/58896/9/09_chapter%203.pdf
http://shodhganga.inflibnet.ac.in/bitstream/10603/26012/13/13_chapter2.pdf
https://www.google.co.in/url?sa=t&rct=j&q=&
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H-T3RRMWNcW8sLcfedrDcHv6oung
https://
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.pdf
https://
rbidocs.rbi.org.in/rdocs/Publications/PDFs/0FLTP577BF4E172064685A26A
73A6BC9210EC.PDF
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References

https://www.rbi.org.in/
http://journalshub.com/mrp-admin/journal/pdf/3--imj2012.pdf
https://www.nabard.org/pdf/Chap_IV.pdf
http://shodhganga.inflibnet.ac.in/bitstream/10603/7130/14/14_chapter%204.pd
f
http://www.abhinavjournal.com/images/Commerce_&_
Management/Oct12/12.pdf
http://www.iba.org.in/Documents/Rural-Banking.pdf
http://financialservices.gov.in/banking/overviewofefforts.pdf
http://www.gktoday.in/blog/regional-rural-banks/

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References

http://comtday.blogspot.in/2009/04/indian-rural-banking-emerging-trends.html
https://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/MFI101213FS.pdf
http://www.gktoday.in/concept-of-business-correspondents/
https://letstalkpayments.com/banking-correspondent-channel-financial-inclusionindia/
http://bankmitra.org/bank-mitra/
http://www.pmjdy.gov.in/account
http://www.atimes.com/atimes/South_Asia/NG06Df02.html

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