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“India lies in the village’, Mahatma Gandhi once said, decades ago. The saying hasn’t lost its significance and relevance decades later. Around 70% of Indians depend on the agriculture sector directly or indirectly for their sustenance, 60% of the industries are agro-based and the agriculture sector contributes roughly 50% to the national income. It is also the biggest foreign exchange earner in the country. Despite such staggering numbers the rural sector of India is still grappling with credit issues and financial inclusion. It is imperative that banking in rural centers be brought at par with their urban counterparts. Here we take a look at the past, present, and what the future holds for the rural banking sector of India.

Rural Banking: Historical Perspective

Since Independence, successive Indian governments have given importance to rural banking in India. Historically, farmers have relied on informal sources for raising credit. They have faced hardship and exploitation at the hands of the lenders. The practice, howsoever perverse is still pervasive in many parts of the country. 

To help the farming community get access to formal credit at easy terms and avail conventional banking services, Regional Rural Banks or RRBs were established in 1975. RRBs work under the supervision of RBI and the National Agricultural Bank and Rural Development (NABARAD).  They act as their agents in remote areas of the country. 

They were essentially commercial banks but with some cooperative characteristics. They provide easy-term loans and financial services to small or sidelined farmers living in far-off rural areas of the country. They were established to bring banks to the doorsteps of farmers, tilers, agricultural labor, and small artisans. By providing them credit the RRBs hoped to bring positive change to the lives of these peasants and spur economic activity in their area. They also wanted to end the exploitation of farmers at the hands of traditional money lenders. 

RRBs were reformed and revamped to better address the needs of the farming community in the early 1990s. The aim was to remove the bottlenecks and hurdles in the disbursement of loans and other services. 

They were somewhat successful in their endeavors and helped farmers by raising their living standards. But they were not a resounding success. Let’s take a look at some of the problems they faced that led to their unpopularity. 

Problems of RRBs

Despite their relative success, RRBs were not without their share of problems. The important ones were;

• Uncooperative staff unwilling to work in remote villages
• The high cost of operations
• Low recovery of loans
• Overdue loans
• Weak monitoring of the loaned amount by the staff
• Political interference
• Non-cooperative state governments
• External factors like floods, droughts, etc.
• Changing dynamics of rural economies

Rural Banking: Present and Future

India cannot lay claim to inclusive and holistic development without developing its rural economy and bringing it to the mainstream financial sector. For that to happen the rural banking sector needs to focus on the following areas;

• Banking with the specific needs of the community in mind
• Access to contemporary and advanced banking services in addition to the basic ones
• Sensitizing the rural populace about the importance of banking services
• Easy accessibility 
• Low cost of operations
• Coming up with innovative, tailor-made financial solutions for rural masses

Fortunately, to address all these issues technological breakthroughs happened at just the right time and for all the right reasons. We shall now see how technology has led to a revolution of sorts in the rural banking sector of India and how it is helping the local community. 

Rural Banking with a Technological Edge

Thanks to the arrival of fast-speed internet, availability of mobile phones and other communication devices, it is now easier than ever before to bring banking services to far-flung areas of the country. Banks have taken the cue and are revamping their services using technology to reach unbanked masses and bring them under the financial net. They are doing the following to penetrate the distant places of the country:

Using Third-Party Services:Thanks to schemes like Bank CSP provider, Bank Mitra CSP, etc. anyone can now become a mini bank in India. CSP refers to the customer service point. Anyone like a grocery store, post office, an individual, etc. can apply for CSP registration and if he fulfills the criteria set by the bank, can start giving banking services in its area. Banks do not have to open branches or hire staff, etc. The CSP provider company will pay for everything on its own and provide business to the banks and in the process earn salary and commission from the bank. The range of services includes opening accounts, cash withdrawal/deposit, loan application, ATM cards, etc.

Banking at Customers’ Doorsteps: Using PoS or point of sale machines, the bank CSP agent can reach the homes of the customers to fulfill their banking needs. He just needs an internet connection to link the PoS machine with the bank. He can then provide the customers with all the basic banking services right in their homes.

All these technological innovations are changing the way banking is done in far-off rural areas. The banks’ CSP agents are helping the customers and the banks in the following ways;

• Provision of banking services at the customer’s doorsteps
• Offering banking services in a very cost-effective manner
• Banking at almost all hours of the day and night.
• Facilities like AEPS, utility bills payment, etc.
• Providing awareness to the masses and highlighting the importance of banks and banking services
• Bringing the unbanked population under the banking services net and educating them about mobile banking
• Giving new clients to the banks and increasing their reach.
• Developing a personal equation with rural customers and helping them engage in banking services like never before.

Conclusion

CSP provider companies have gained a prominent place in the rural banking milieu of India. They are helping to spread the reach of banking services like never before. You cannot ignore their presence and they are indeed the future of the rural banking sector of India.  

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