The financial sector reforms without social and rural sensitivity would only aggravate the

complexities of agrarian sector reforms, which are yet to take shape. It is thus hoped that
the Advisory Committee, being constituted by the RI, will be a !igh"#owered one suggest
innovative measures with a definite roadmap to meet the emerging challenges in rural
credit.
CHALLENGES AND TRENDS IN RURAL CREDIT
THE Reserve Bank of India has indeed made a categorica move in the matter of
r!ra credit" Its initiative in this res#ect has $een o!tined in its recent %onetar&
and Credit 'oic& as !nder(
)In order to #rogress f!rther in meeting the credit needs of the agric!t!re sector* it
is #ro#osed to constit!te an Advisor& Committee to s!ggest short+and medi!m+term
meas!res to enhance credit fo, to this sector" The Committee ,o!d* inter alia* ook
into Na$ard-s roe in the deveo#ment of the sector. the #resent str!ct!re and
de#o&ment of r!ra infrastr!ct!re deveo#ment f!nd /RID01. the roe of RRBs. and
the incentive and attit!dina as#ects of credit deiver&" It ,o!d s!ggest a##ro#riate
changes in the instit!tiona and #roced!ra arrangements for the smooth fo, of
credit to agric!t!re" The committee is e2#ected to he# in ca#t!ring technoogica
deveo#ments in the ca!se of im#roving credit deiver&")
0or the task of the #ro#osed committee* a ook at the c!rrent trends and chaenges
in r!ra credit(
C!rrent trends in r!ra credit
The c!rrent $anking #rofie /as on %arch 341 refects the o, credit+de#osit /CD1
ratio of 56 #er cent and 37 #er cent at the r!ra and semi+!r$an centres res#ective&
com#ared ,ith 89"7 #er cent in the !r$an centres /inc!sive of metro centres1 and
79"3 #er cent at the nationa eve" The CD ratios at the metro and the to# 4:: !r$an
centres are as high as ;3 #er cent and <5 #er cent res#ective&" The e2c!sive CD
ratios of $anks- r!ra and semi+!r$an $ranches ,ere 3<"6 #er cent and 39"< #er cent
res#ective& at end+=!ne 4989 /the time of nationaisation1 and rose to 7<"< #er cent
and 59"4 #er cent at end+=!ne 49;4" 'ost+reforms* the e2c!sive CD ratios at the
r!ra and semi+!r$an $ranches amost #!mmeted to the eves #revaent d!ring the
#eriod of nationaisation of $anks" Des#ite the ,ides#read $anking net,ork no,*
these trends indicate the contin!ed migration of r!ra>semi+!r$an savings to
!r$an>metro centres* there$& ca!sing a $anking divide a la digita>r!ra+!r$an
divide /Ta$e 41"
The gro,th of commercia $anks- ending to agric!t!re and aied activities sa, a
s!$stantia decine in the 499:s com#ared to the 49;:s" Agric!t!re-s share in
sched!ed commercia $anks- tota o!tstanding credit as on %arch 34* 6::6* ,as
on& Rs 85*::; crore /9"; #er cent1" The decining #enetration in r!ra $anking
d!ring #ost+reforms is given in Ta$e 6"
A#art from ending ess than the sti#!ated 4; #er cent target* man& sched!ed
commercia $anks are sh&ing a,a& from agric!t!re and #riorit& sector ending $&
resorting to the soft o#tion of investing in the RID0 ,indo, of Na$ard" As
contri$!tions to the cor#!s of RID0* Rs 48*457 crore ,as received $& Na$ard since
4997+98 from sched!ed commercia $anks against their shortfa in #riorit&
sector>agric!t!ra ending d!ring the #receding &ear" The o!tstandings of RID0
de#osits at end+%arch 6::3 stood at Rs 46*479"63 crore"
A#art from the a$ove* the 6::4 Cens!s fig!res give an aarming #ict!re a$o!t the
!sage of $anking services among the Indian ho!sehods in !r$an and r!ra areas
des#ite ,ide $anking net,ork in the co!ntr&" Ta$e 3 reinforces the conc!sions
a$o!t the o, eve of $anking !sage among Indian ho!sehods* in genera /37"7 #er
cent1* and r!ra ho!sehods* in #artic!ar /3:"4 #er cent1* and aso refects the atent
#otentia demand for credit in r!ra segment"
Chaenges in r!ra credit
The econom& recorded 3"< #er cent gro,th in 6::6+:3 /7"8 #er cent1 against the
#revio!s &ear" The deceeration in the #erformance ,as arge& attri$!ted to the
negative gro,th of 5"5 #er cent in the agric!t!re sector" This stee# do,nfa of GD'
$ro!ght to the s!rface the v!nera$iit& of the econom& to agric!t!ra sector gro,th
des#ite its strengths on other macro+economic indicators>sectors" ?hen the econom&
achieved 7"8 #er cent GD' gro,th in 6::4+6::6* the contri$!tion of agric!t!re and
aied sectors ,as 7"< #er cent vis"$"vis 6"8 #er cent of the ind!stria sector" At the
same time* the Tenth 'an /6::6+6::<1 has set an am$itio!s average GD' gro,th
rate of ; #er cent #er ann!m" To achieve this* a the energies of the co!ntr& need to
$e foc!ssed for the tota revitaisation and revam#ing of the farm sector and the
r!ra financia instit!tions to ens!re average < #er cent s!staina$e gro,th #er
ann!m from this sector in the ne2t five &ears" @ther,ise* the target of ; #er cent
GD' gro,th for the econom& ,o!d remain a dream"
The farm sector* to a arge e2tent* ,as e2c!ded from genera economic reforms
initiated in 4994" Ho,ever* the reforms introd!ced in ind!str&* finance* $anking and
other sectors over the ast decade have had a considera$e im#act on the farm
sector" The financia sector reforms have created a eve+#a&ing fied $et,een r!ra
financia instit!tions /RRBs and coo#eratives1 and other sched!ed commercia
$anks in treatment and in com#iance of reg!ator& norms* $!t ,itho!t an&
concomitant reforms in agric!t!ra sector"
The Task 0orce on R!ra Credit for the Tenth 'an #roAected the instit!tiona credit
fo, to agric!t!re and aied activities to $e Rs <*38*7<: crore d!ring the #eriod
6::6+6::<* ,hich is more than three times /36: #er cent1 the credit fo, /Rs 6*69*;73
crore1 d!ring the Ninth 'an /499<+6::61"
The farm sector is emerging as a #art of the ne, economic order arising o!t of
go$aisation and im#ementation of Agreement on Agric!t!re /AoA1 !nder the
?ord Trade @rganisation" At the Canc!n ro!nd* the negotiations on agric!t!re
ma& not have arrived at the fina stages of consens!s $et,een deveo#ed and
deveo#ing co!ntries" If some agreement is reached at the ?T@ negotiations sooner
than ater* the agric!t!re sector is #oised for a radica transformation" To ,ithstand
the go$a com#etition* enhanced #rod!ctivit& and s!staina$iit& of the sector has
$ecome im#erative"
The R!ra Non+0arm Sector /RN0S1 has emerged an area of foc!s for creating
em#o&ment in the r!ra sector and to ena$e migration from the over+stretched
farm sector" The f!t!re strateg& of r!ra credit instit!tions ,o!d have to inc!de
strengthening the credit deiver& s&stem for increasing RN0S em#o&ment"
Deveo#ment of entre#rene!rs- skis* enhanced credit fo, to ,omen and other
,eaker sections* s!##orting tin&* cottage and viage ind!stries* and coverage of
,ide variet& of service sector activities ,o!d reB!ire arger and ,ider roe of r!ra
financia instit!tions in RN0S sector"
The gro,ing roe of microfinance thro!gh sef+he# gro!#s /SHGs1* es#ecia& of
,omen* in the !niB!e #rocess of socio+economic engineering has ass!med a critica
chaenge" The SHG movement has so far $een most& So!th+centric /constit!ting 85
#er cent share1 $!t is &et to take off in other regions" Na$ard-s goa of reaching
microfinance services to one+third of the r!ra #oor C a$o!t 4:: miion C thro!gh
one miion SHGs $& 6::8+6::< #oses man& chaenges for r!ra financia
instit!tions"
The socio+economic conditions of a maAorit& of the r!ra #o#!ation contin!es to $e
the ca!se of concern for #oic&+makers in this era of reforms and the ?T@"
There are sti more than 6:: miion #eo#e in r!ra areas ,ho ive $eo, the
#overt& ine and for ,hom $anking access is sti not a reait& and* des#ite a arge
$ank net,ork* the critica ga# in r!ra credit sti e2ists"
Therefore* the reB!irement for strong and fe2i$e str!ct!re of r!ra financia
instit!tions in r!ra and semi+!r$an segment need not $e overem#hasised"
The financia sector reforms ,itho!t socia and r!ra sensitivit& ,o!d on&
aggravate the com#e2ities of agrarian sector reforms* ,hich are &et to take sha#e"
Therefore* it is ho#ed that the Advisor& Committee* $eing constit!ted $& the RBI*
,i $e a High+'o,ered one /on the ines of the A India R!ra Credit S!rve&
Committee of 49751 and take a com#rehensive revie, of the c!rrent r!ra credit
str!ct!re and s!ggest innovative meas!res ,ith a definite roadma# to meet the
emerging needs>chaenges in r!ra credit"