Critically evaluate the role of the rural banking system in the process of rural development in India.

Question

Accepted Answer

Since 1969, when the nationalisation of commercial banks took place, rural banking has expanded a great deal. Significant expansion of rural banking system played a positive role in:

1. Raising farm and non-farm output by providing services and credit facilities to farmers.

2. Providing long term loans with better repayment options. It, thus helped in eliminating moneylenders from the scene.

3. Generating credit for self-employment schemes in rural areas.

4. Achieving food security which is clear from the abundant buffer stocks of grains.

**Limitations of rural banking are:**

1. The sources of institutional finance are inadequate to meet the requirements of agricultural credit. Farmers still depend on money-lenders for their credit needs.

2. There exist regional inequalities in the distribution of institutional credit.

3. Rural banking is suffering from the problems of large amount of overdues and default rate.

4. Small and marginal farmers receive only a very small portion of the institutional credit. A large portion of institutional credit is taken away by the rich farmers.