News: Rural Banking - The new mantra for banks
(SF 12/07/2006) Mumbai - Banks have woken up to the potential in the rural sector. Specialised and innovative schemes to improve rural penetration are the new mantra. Rural credit cards and ATMs, a franchisee network, supply chain financing for agriculture; investments in rural infrastructure and cross-selling of products are only some of the schemes directed at the village folk. Building a specialised cadre for rural banking and improving awareness can help reduce default and make these schemes effective.
The Union Budget for 2006-07 highlighted a number of schemes for rural India including creating opportunities for rural employment and a National Rural Health Mission. It has also asked banks to give farm credit at 7 per cent to bring more farmers under the organised credit net.
The finance ministry has proposed to ask banks to increase the level of farm credit to Rs 1,75,000 crore in 2006-07, an increase of about Rs 33,500 crore. In addition, banks are being asked to bring 50 lakh more farmers into the banking fold. The potential, no doubt, is tremendous.
According to Dr Nachiket Mor, Deputy Managing Director, ICICI Bank, "The informal credit segment is about $82 billion. Yearly demand for credit is estimated at about Rs 1,50,000 crore, of which Rs 4,000 crore is actually met."
However, the problem is rural penetration. A recent national sample survey has found that 41 per cent of the country's adult population does not have access to formal banking facilities. This leaves a huge population outside the ambit of the formal financial structure. Banks are trying to remedy this problem now. Most have taken to rural expansion in a big way.
Take the country’s largest bank, State Bank of India for instance. Its rural branch network has touched a stupendous 6,600 with 972 specialised branches, which have been set up in different parts of the country exclusively for the development of agriculture through credit deployment.
In addition, rural agricultural business units, education programmes for local farmers and kisan cards. It is no wonder that the bank is a leader in agricultural finance in the country with a portfolio of Rs. 18,000 crore in advances to around 50 lakh farmers.
The bank has brought out innovative and specialized mango and litchi credit cards for orchard owners in Uttaranchal.
Its most recent endeavor in this direction is a tie-up with National Agricultural Cooperative Marketing Federation (NAFED) for cooperation in to finance farmers for production and cultivation of various crops like soyabean, paddy, jute and potato.
Not far behind is ICICI Bank, the country’s second largest bank. It has decided to adopt an unconventional method to beef up its presence in rural India. Instead of opening branches, the largest private bank has decided to adopt the franchisee model. Besides credit franchisees, the bank's rural delivery channels may include branches in major agricultural markets, rural Internet kiosks and micro-finance institution partnerships, targeting specific segments of the rural population.
The bank had disbursed Rs 2,500 crore towards rural sector financing was expecting good rural credit offtake in the current year. It has also rolled out `Ashan' ATMs for the urban and semi-urban markets in India. Clearly, the bank is taking the high-tech route to reach out to the rural population.
Canara Bank on the other hand has launched a more grassroots-level plan. It plans on a programme for "100 per cent financial inclusion" in 1400 villages all over India, which is expected to bring 7 lakh families into the bank’s net.
Under the programme, every adult member of a rural household in the selected villages would be encouraged to open 'No Frills' accounts with minimum entry-level formalities. An artisans credit card will help village artisans like blacksmiths, carpenters, leather workers, people engaged in servicing of agricultural implements and household equipment.
Meanwhile, several banks have been pursuing corporate-linked advances where finance could be provided against procurement commitments. Such supply-chain management is had now been introduced to rural lending as well. Farmer loan portfolios are increasingly getting skewed towards investment credit rather than crop loans.
Investment credit could involve credit for the acquisition of farm equipment like tractors and other farm equipment. Banks are also involved in commodity financing where advances are provided to farmers against their final produce.
Apart from the rising credit needs, banks can generate substantial amount of fee-based volumes from the rural segment. The agricultural sector offers cross-sell opportunities for products like micro insurance. Banks are also focusing on financing of rural infrastructure.
An improved rural branch network, building a banking cadre specialised in rural banking, more flexible schemes and most importantly improving awareness among farmers about the advantages of bank credit are working for banks. The rural initiative, though relatively new, has tremendous potential. The coming years will show the extent of its success.
The Union Budget for 2006-07 highlighted a number of schemes for rural India including creating opportunities for rural employment and a National Rural Health Mission. It has also asked banks to give farm credit at 7 per cent to bring more farmers under the organised credit net.
The finance ministry has proposed to ask banks to increase the level of farm credit to Rs 1,75,000 crore in 2006-07, an increase of about Rs 33,500 crore. In addition, banks are being asked to bring 50 lakh more farmers into the banking fold. The potential, no doubt, is tremendous.
According to Dr Nachiket Mor, Deputy Managing Director, ICICI Bank, "The informal credit segment is about $82 billion. Yearly demand for credit is estimated at about Rs 1,50,000 crore, of which Rs 4,000 crore is actually met."
However, the problem is rural penetration. A recent national sample survey has found that 41 per cent of the country's adult population does not have access to formal banking facilities. This leaves a huge population outside the ambit of the formal financial structure. Banks are trying to remedy this problem now. Most have taken to rural expansion in a big way.
Take the country’s largest bank, State Bank of India for instance. Its rural branch network has touched a stupendous 6,600 with 972 specialised branches, which have been set up in different parts of the country exclusively for the development of agriculture through credit deployment.
In addition, rural agricultural business units, education programmes for local farmers and kisan cards. It is no wonder that the bank is a leader in agricultural finance in the country with a portfolio of Rs. 18,000 crore in advances to around 50 lakh farmers.
The bank has brought out innovative and specialized mango and litchi credit cards for orchard owners in Uttaranchal.
Its most recent endeavor in this direction is a tie-up with National Agricultural Cooperative Marketing Federation (NAFED) for cooperation in to finance farmers for production and cultivation of various crops like soyabean, paddy, jute and potato.
Not far behind is ICICI Bank, the country’s second largest bank. It has decided to adopt an unconventional method to beef up its presence in rural India. Instead of opening branches, the largest private bank has decided to adopt the franchisee model. Besides credit franchisees, the bank's rural delivery channels may include branches in major agricultural markets, rural Internet kiosks and micro-finance institution partnerships, targeting specific segments of the rural population.
The bank had disbursed Rs 2,500 crore towards rural sector financing was expecting good rural credit offtake in the current year. It has also rolled out `Ashan' ATMs for the urban and semi-urban markets in India. Clearly, the bank is taking the high-tech route to reach out to the rural population.
Canara Bank on the other hand has launched a more grassroots-level plan. It plans on a programme for "100 per cent financial inclusion" in 1400 villages all over India, which is expected to bring 7 lakh families into the bank’s net.
Under the programme, every adult member of a rural household in the selected villages would be encouraged to open 'No Frills' accounts with minimum entry-level formalities. An artisans credit card will help village artisans like blacksmiths, carpenters, leather workers, people engaged in servicing of agricultural implements and household equipment.
Meanwhile, several banks have been pursuing corporate-linked advances where finance could be provided against procurement commitments. Such supply-chain management is had now been introduced to rural lending as well. Farmer loan portfolios are increasingly getting skewed towards investment credit rather than crop loans.
Investment credit could involve credit for the acquisition of farm equipment like tractors and other farm equipment. Banks are also involved in commodity financing where advances are provided to farmers against their final produce.
Apart from the rising credit needs, banks can generate substantial amount of fee-based volumes from the rural segment. The agricultural sector offers cross-sell opportunities for products like micro insurance. Banks are also focusing on financing of rural infrastructure.
An improved rural branch network, building a banking cadre specialised in rural banking, more flexible schemes and most importantly improving awareness among farmers about the advantages of bank credit are working for banks. The rural initiative, though relatively new, has tremendous potential. The coming years will show the extent of its success.
posted by InCar Group Press Room at 17:25
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