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Credit and Banking in Rural Areas

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Details of Credit and Banking

Rural India is faced with the burning problem of poor credit and banking services. The rural banking sector is also not in a good position. Farmers and people of other occupations in rural areas often fail to pay the credit to the banks and commit suicide. With such a situation increasing rapidly, it is high time we divert our attention towards credit and banking in rural areas. In the following, we will be talking about the credit system in rural areas and the role of rural banks in the economic development of the country. 

 

History of Rural Bank

The importance of rural banking was felt right after independence and from there NABARD came into operation. It started giving credit to the farmers and other rural people at lower interest rates. That there is a difference between the monetary activities of the rural people and the urban people gave rise to the conception of the National Bank for Agricultural and Rural Development or NABARD.

 

As days passed, various self-help groups also started performing and brought forth microcredit generation. Post green revolution, agriculture improved and so did the income of the farmers. Thus, the role of rural banks also went through a change.  After independence, rural people, poor people in need of money, were exploited a lot. Traders and local moneylenders took their advantage and granted them loans at interest rates incredibly high. Thus, deb was unavoidable. NABARD came to the rescue of these people and offered loans and credits at an easy interest rate. 

 

Presently, India has 45 regional rural banks all across the country. Haryana Kshetriya Gramin Bank Bhiwani, Gorakhpur Kshetriya Gramin Bank etc are a few examples of a rural bank.

 

Banking Facilities in Rural Areas

Rural development is a lot dependent on the credit system. Modifying the banking and credit system is quite the need of the hour to improve productivity in both agricultural and no-agricultural activities. Farmers are most in the need of credit in between the time of sowing and harvesting. This is the time they are short in cash and need it for general purposes, buying cattle, investing in more land and carrying on with life. 

 

Reserve Bank of India or RBI is the apex body of national banking. But with regard to banking facilities in rural areas, NABARD is given all the power and referred o as the apex banking body. All the activities associated with banking and credit in rural India are managed and regulated by NABARD only. 

 

What Role does Rural Banks Perform?

The growth of the Indian economy is largely dependent on rural emancipation from socio-economic hindrances such as unemployment, poverty etc. This is where rural banks come in and the role of banking in rural development becomes undeniable. The rural credit structure is gradually getting rejuvenated with the help of the rural baking and credit system. With the increased activity of rural banks, both the priority as well as non-priority sectors have been able to get loans sanctioned. Development of agriculture-based economy is what the rural banking sector targets at and for that gives out short and long term loans. The involvement of the formal banking system has its problems also. To continue with formal banking, it is a must that there is some collateral involved. But for rural people in urgent need of credit, it is difficult to have collateral ready or sometimes they do not even possess any. As a result, the formal banking system rules them out. Here lies the importance of self-help groups or the SHGs. 

 

The SHGs give out small credit to those in need without any collateral. Instead, the members of the group, the needy ones, commit to keeping a certain sum of money in the pool. Loans are sanctioned at an interest rate that is a lot cheaper than the formal banking system. This is why a huge number of SHGs are found to be operational throughout the country. Thus, the microcredit concept is run. 

 

Did You Know?

  • NABARD was set up with the primary goal of elevating agriculture and other non-farm areas in rural areas of the country by increasing the credit flow and thus further strengthening rural India. 

  • Initially, NABARD had the capital of Rs. 100 crores. 

  • No other institution in India is as important as NABARD when it comes to taking care of the small industry, cottage industry, village industry and other rural local industries. 

  • SHG Bank Linkage Programme is another name for NABARD. It encourages the banks to lend to the self-help groups so that the poor rural people in need without the capability of producing collateral can have the loans. 

  • The pioneer of the rural banking system NABARD boasts of supporting 100% corporate social responsibility. 

 

How to Prepare Notes on Credit and Banking in Rural Areas

  • Go through Credit and Banking in Rural Areas

  • Read the page thoroughly

  • Start writing down everything that you read in your own language

  • Follow the sequence of the page

  • Do not write down everything that you read

  • Do not just copy-paste but understand the stuff that you write

  • Use drawings and illustrations to better understand the concepts

  • Write brief sentences

  • Revise from these prior to an exam

 

Does Vedantu have Anything on Credit and Banking in Rural Areas?

Vedantu has ample study material on Credit and Banking in rural areas. Students can read from  Credit and Banking in Rural Areas and then clarify all doubts related to the topic. This page can be downloaded in a PDF format and then be referred to as well. Everything here has been provided free of cost to the students so that they can go through these without any second thoughts. Vedantu has remained instrumental in shaping the careers of countless students who have availed its platform.

FAQs on Credit and Banking in Rural Areas

1. What are the functions of NABARD?

The main function of NABARD is to meet the credit and banking demands of the people living in rural areas. The rural banks in India perform under the control of this. Apart from this, NABARD has some unique functions to perform. These are:

  • Coordinating the financial activities of the rural areas, or to be more specific, the government institutions of the rural areas.

  • Closely monitoring the credit and banking system.

  • Refining the organisations involved in investment and credit to the farmers or other people associated with the agriculture sector.

  • Developing credit plans directed towards the rural districts after analysing the needs.

  • Supporting the SHGs, providing financial assistance to them and also giving managerial support to ensure their smooth functioning.

2. What are regional rural banks?

Regional Rural Bank or RRBs are the Indian Scheduled Commercial Banks which operate at the rural levels of the country. The main focus is on providing people of rural area with basic banking services and providing financial assistance to them. But this does not necessarily mean that RRBs do not have branches in urban areas. These banks are responsible for pension distribution, wage disbursement for those working under MGNREGA etc. The account holders of these banks can also enjoy other facilities provided such as issuing debit and credit card, enjoying locker facilities, UPI, mobile banking and also, internet banking.

3. Where can students read about the history of the rural banks?

Students can find out the history of rural banks online on Vedantu’s online tutoring platform. Rural banking has its roots right after independence was granted to India. Farmers and other people were given credits at lower interest rates than others. More about it has been explained in Credit and Banking in Rural Areas. This page has relevant inputs on the topic that can be used by all students to get to know more about the history of rural banks. It has been designed by expert Commerce teachers.

4. What is NABARD?

NABARD or National Bank for Agricultural or Rural Development was set up with the main purpose of elevating agriculture in the rural areas of the country. Initially, NABARD had a capital of about 100 crores. NABARD has been discussed in depth if the students read from Credit and Banking in Rural Areas. This page has valid explanations on NABARD and other related topics.  All students who need to understand NABARD and make notes on it can read from here and achieve their purpose. All the explanations here are simple and to the point.

5. How are the banking facilities in the rural areas?

Both the banking and credit systems need improvement in rural areas. Farmers are the worst affected and so, their plight needs to change. All banking facilities of rural areas need to be monitored well. Students need to refer to Credit and Banking in Rural Areas on Vedantu to understand more. This page has explained everything as per the student’s level of comprehension. The banking facilities of rural areas need to be understood properly by the students so that they are able to answer all questions that come their way.

6. What is the SHG bank linkage programme?

SHG Bank Linkage is another name for NABARD. This encourages banks to lend to all self-help groups so that poor rural people who cannot produce collateral can have the loans.  More about this has been explained in Credit and Banking in Rural Areas on Vedantu’s e-learning portal. The page can be read by students to know about NABARD so that they know what it actually is. The credit and banking system in the rural areas can be learnt through this page.

7. How do students revise credit and banking systems before an exam?

All students can read from Credit and Banking in Rural Areas on Vedantu. This page has relevant inputs on credit and banking systems in the rural areas which the students can use to make notes. The matter is sufficient for the students to understand. All students can revise from this page before an exam so that they are able to answer any questions that come from here. This page is especially important for those students who have not understood how the credit system works in all rural areas.