The New Responsibility Suddenly Unfolding

When 14 banks were nationalised in 1969 and earlier social control of banks was promulgated in 1967 with the objective of providing a thrust to rural banking, the banks were not geared for discharging the new responsibilities. These banks so far were urban oriented. The employees were graduates and post graduates selected from the cities. Lending to agriculture is a task about which they had no prior experience or awareness. Banks had therefore to be geared for the task through extensive preparation straight from the scratch.

This was also the early phase of the green revolution in India, a new found prosperity entering the Indian villagesa. This was the ideal period for nationalized banks to mop up new untapped rural liquidity. The declared objectives of the new policy, known as "social and development banking", were the following

• to provide banking services in previously unbanked or under-banked rural areas;

• to provide substantial credit to specific activities including agriculture and cottage industries; and

• to provide credit to certain disadvantaged groups such as, for example, Dalit households.

The Government of India and the Reserve Bank of India (RBI) issued, from time to time, specific directives regarding "social and development banking". These included setting targets for the expansion of rural branches, imposing ceilings on interest rates, and setting guidelines for the sectoral allocation of credit.

To support the public sector banks and other institutions in rural banking the Government of India and RBI evolved these two Institutions of Lead Bank and District Consultative Committee. The Lead Bank Scheme was evolved and introduce by the Reserve Bank of India towards the end of 1969 to provide an appropriate organization framework for ensuring co-operation and co-ordination by various financial institutions with the concerned Governmental agencies in assisting developmental efforts. These efforts were to be undertaken on an area basis, with the district as the unit to ensure that the credit requirement of the rural economy were addressed adequately. The Lead Bank Scheme envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of the given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for the district. Accordingly, all the districts in the country (excepting the metropolitan cities) have been allotted to various banks. The lead bank acts as a consortium leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small scale industries and other economic activities included in the priority sector in the rural and semi-urban areas, with the district being basic areal unit. This scheme gave a tremendous boost to rural branches and government-sponsored programmes such as poverty-alleviation, self-employment, and crop-production.

Under this Lead Bank Scheme, the lead bank have been preparing District Credit Plans since 1973. The Reserve Bank of India gave these Credit Plans a uniform and systematic shape in 1980-82. These District Credit Plans take stock of the followings:-

• Government's various programmes on poverty alleviation;

• Long-term/ short-term trend in credit disbursements by financial institutions for each of the farm and non-farm sector programmes on poverty alleviation;

• Credit-based / non-credit-based promotional programmes for rural industrie and service sector on a district location basis;

The lead bank is the convener of the District Consultative Committee meetings to be presided over by the District Collector, and participated by all officials representing the development wing of the Collectorate, along with representatives of each bank in the area (designated as district coordinators by the non-lead banks in the district). Common problems faced by Banks in funancing developmental projects were discussed and sorted out in these meetings. This focussed better liaison between the local government machinery and the banks operating in the district. Targets under District Credit Plan were allocated to individual banks according to their representation in the district. The Lead Bank also compiled the District Survey Report giving all information about the district, which were relevant and useful for the banks operating there. It surveyed unbanked centres in the district and identified centres with potential for opening new branches. These centres were allotted to the Banks in the district, priority being given to the Lead Bank and the all India/regional banks having sizeable representation in the District.

The banks as an initial venture recruited agricultural graduates and designated them as Technical Officers (Agriculture). Head office of the banks issued Manuals explaining operational guidelines and procedures for rural advances. Credit Schmes were drafted and circulated. Training programmes were conducted and Field level programmes (Agricultural Workshops) were initiated. Officers were given categorical assurances that if they acted bonafide they will not be held responsible even if there were to be unexpected losses occuring or things going wrong otherwise, on account of factors beyond their realm.

RBI controlled branch licensing. It settled every year with each bank its branch expansion plan and decided the number of new branches to be opened by the bank and its composition (rural, semi-urban, urban and metropolitan). Initially the banks were to complete their quota of opening rural and semi-urban branchs and only thereafter this the licences for Urban and Metropolitan Centers were normally issued to them. As the centres for opening rural branches are identified by the Task Force of the Lead Bank and allotted to different banks, the process of opening a large number of rural branches in quick succession became smooth and easier. Thus while in 1969 there were 1443 rural branches representing 17.6% of the total bank branches in the country, the number of rural branches in 1995 increased to 35008 forming 56.2% of the branch network of all banks. After the onset of the banking reforms uneconomic/non-viable rural branches were merged with other bigger units, complying ceretain norms as per guidelines issued bt thr RBI. Consequently the number of rural branchs as at the year 2000 decreaed to 32673 covering 48.7% of the total branches.

Aggregate deposits of rural branches of all commercial banks, which was a meagre Rs.306 Crores (6.3%) in 1969 (brfore nationalisation) swelled to Rs.120,539 Crores (14.7%) in the year 2000. In terms of rural credit the comparative figures as at 1969, and 2000 are Rs.115 Crores (3.3%) and Rs.48753 Crores (10.6%) respectively.

Banks were under obligation to extend credit to priority sectors to an extent of 40% of their aggregate outstanding credit. As part of the overall PS-Credit, they are also to extend 18% of their aggregate credit to direct agriculture & indirect agricutlure category of borrowers. Performance of individual banks in achieving priority sector targets were reviewed regularly at quarterly intervals by the Finance Ministry & RBI. In the intial years of nationalisation the thrust was on "social & Developmental banking", the objectiveds of which are-

• to provide banking services in previously unbanked or under-banked rural areas;

• to provide substantial credit to specific activities including agriculture and cottage industries; and

• to provide credit to certain disadvantaged groups such as, for example, scheduled caste/scheduled tribe beneficiaries.

Subsequently in the Eighties financing anti-poverty programmes (loans-cum-subsidy schemes) exclusively for the benefit of the weakest amongst the weaker sector beneficiaries amongst rural poor gained momentum. Thus began a period of directed credit, during which credit was directed towards the so-called weaker sectors. The most important new scheme of this phase was the Integrated Rural Development Programme (IRDP), a scheme for the creation of productive income bearing assets among the poor through the allocation of subsidized credit. Initiated as a pilot project in 1978-79, it was extended to all rural blocks of the country in 1980. Despite certain weaknesses in the programme in its implementation, IRDP played an important role in the 1980s in that it gave new access to millions of rural households to the formal banking system and increased levels of purchasing power in rural India significantly.

There are various other rural development schemes in many of which Banks have a significant role to play. Some of them are listed below:

• Jawahar Gram Samridhi Yojana

• Swarnjayanti Gram Swarozgar Yojana (SGSY)

• Jawahar Rozgar Yojana

• Employment Assurance Scheme (EAS)

• Indira Awaas Yojana

• Ganga Kalyan Yojana

• Supply of Improved Toolkits to Rural Artisans (SITRA)

• Rural Sanitation Programme

• Accelerated Rural Water Supply Programme (ARWSP)

• Drought Prone Areas Programme (DPAP)

• Desert Development Programme (DDP)

• Integrated Wastelands Development Programme (IWDP)

• Rural Water Supply Programme

• Million Wells Scheme

• National Watershed Development

• Pradhan Mantri Gramodaya Yojana (PMGY)

• Scheme for Land Development

• Pradhan Mantri Gram Sadak Yojana (PMGSY)

• Training of Rural Youth for Self-Employment (TRYSEM)

• Agricultural and Rural Debt Relief Scheme

• Food for Work Programme

• Self Help Groups

• Sampoorna Grameen Rozgar Yojana (SGRY)

The programme was initiated by the Prime Minister Mrs.Indira Gandhi during July 1975 after decalring emergency in the country. It is a package of twenty measures for the quick social and economic upliftment of the poor. The programme was popular and brought about good results in realms of releasing bonded labours, steps against rural-indebtedness, providing subsidised foodgrains through fair price shops etc. However after the emergency, the new Government did not pursue it further.

A recent innovation is the institution of Micro-credit and SHGs. The subject has been dealt with elaborately in separate pages. These Institutions bears the potential for bringing productive credit within the easy reach ofthe poorestof the poor & transforming our villages into vibrant and self-reliant activity & growth centres.

Rural presence of commercial banks has come to stay. These rural branchs have proved to be viable and stable growth centres. In fact these branches have a role in ushering the green revolution and later the white revolution in the country. Precisely the "every-where presence" is one of the unique strengths of the state-owned and the old private sector banks, as against the new private and foreign banks. More appropraitely it is also a distinguishing factor that makes the banking network of our country as one of the widest in its spread globally. As agriculture becomes more and more of a commercial venture in contrast to being a mere "way of life" as it turned out to be earlier, as infrastructure development, social, educational and economic resurgence reaches the villages, as villages boom with all diverse economic enterprises, and not merely being confined predominantly to agriculture and animal husbandry, these branches are sure to turn into robust and thriving business centres providing multiple service facilities to pose as an equal rival to the overcrowded branches of the urban centres. This process has started already.