The forced from above which had to be

The biggest challenge to the banks in this country for the next decade or more is to capture the banking business of 50% population of this country of over 120 billion. Financial exclusion is a serious concern for low earning household and small businesses located in semi-urban or rural India. It is the lack of banking services to the people under poverty line.

Around 240 million adults in the rural area do not have bank account today. The study of census has suggested that rural households that use banking services have increased from 30% to 54% from 2001 to 2011. But still 46% of the rural households are excluded from banking services.

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Total no. of household

Household availing banking services


Total no. of household

Household availing banking services
























The RRBs have performed well in rural credit and rural development. But to expand further and to achieve the target of financial inclusion they will have to face many challenges. Some of the challenges are enumerated below:

Lack of banking facility in the locality – Expansion of the Banks:

The committee for setting up regional rural banks had suggested setting up five pilot banks in the first year at selected places on experimental basis which could be extended based on their performance. Setting up new regional rural banks at this fast pace in relatively short period of time created problems for concerned regional rural banks and their sponsored banks.  The pace of activities for setting up these new RRB’s have been forced from above which had to be accepted by sponsoring commercial Banks, State Governments and even the Co-operatives

At first, the location for branches in various districts was not selected in a co-ordinated manner at the State level, demarcating the areas of operations of the existing institutional credit agencies as was suggested by Working Group on Rural Banks. The other important test in rural banking expansion is the proportion of number of branches opened in relation to the number which was expected to be opened in the given time at unbanked centers.  There was no directive from the government in this regard but the expectation was that each regional rural bank will open 20 to 30 branches in first year of its operation and another 20-30 in second year of operation to reach the target of 50-60 branches in ‘underbank’ centers of its operation. This branch expansion target wasn’t able to achieve by Regional Rural Banks.

Identification of Small Borrowers

RRB’s are not able to meet the expected level of loans. The reasons for not achieving the expected level of loans are enumerated below:

Most of the RRBs are lending directly to the economically weaker section of the rural society. RRBs used borrowed funds for lending purpose. The staff of regional rural banks has to make special efforts to identify potential small borrowers who can be able to pay the loan at relatively higher rate of interest by farming, small business and small trading. Another problem at the time of considering the application of borrower is to verify the genuineness of the borrower as the person of small means. The farmer which the staff considers to be ‘small’ or ‘marginal’ farmer may have substantial amount of income from non-farming activities. Similarly, a small artisan or person owning a small business may not be really poor. Such persons should not deprive the genuine small borrower.