Rural banking started since the establishment of
banking sector in India. Rural Banks in those days mainly focused upon the agro
sector. Regional rural banks penetrated every corner of the country and
extended a helping hand in the growth process of the country. Today, branches are the
primary delivery channel in rural areas. Though there are 32,000
commercial bank branches in India, they cover less than
7% of total villages. Opening more branches is not necessarily
profitable as many pockets of rural areas do not have business
enough to justify an expensive branch channel. Rural banking having committed 75% of their branches network
to serving rural and semi-urban population, public sector banks have to adopt a
financial emerging approach to rural banking.
Improve access in rural areas
To improve access in rural
areas, banks need to modify existing channels, introduce
new channels and identify innovative ways to integrate there are two ways---
1) Modify Existing Channels
Fortunately there are a
variety of options available for banks looking to modify their existing
channels. To reduce the costs
imposed by branches, banks should consider the option of sharing their branch
Infrastructure. This would not
be too dissimilar to the example of the
Telecom industry sharing
network infrastructure or the fast food industry sharing food
courts in urban areas.
2) Introduce New Channels
The RBI allows banks to
appoint
business correspondents and facilitators to be used as
intermediaries in providing banking services. NGOs,
MFIs, Societies, Section 25 companies, registered NBFCs not accepting public deposits, and Post Offices can be appointed as
Business Correspondents. Business Correspondents can provide
several services which are not currently offered by SHGs and
MFIs, including:
(i)
identification of borrowers and fitment of
activities;
(ii)
collection and preliminary
processing of loan applications including verification
of primary information/data;
(iii)
creating awareness about savings and other products
and education and advice on managing money and debt
counseling;
(iv)
processing and submission of applications to banks;
(v)
promotion and nurturing Self Help Groups/Joint Liability
Groups;
(vi)
post-sanction monitoring;
(vii)
monitoring and handholding of Self Help Groups/Joint
Liability
SOME CHALLENGES BEFORE RURAL
BANKING-
Challenges facing rural banking --The
main challenges facing by banking are the role of financial instrumentation in
different phases of the business cycle, the emerging compulsions of the new
prudential norms and benchmarking the financial system against international
standards and best practices. The need for introduction of new technology in
the banking and the importance of skill building and intellectual capital
formation in the banking industry are also equal important.
1) Financial intermediation Till
recently the role of banks in the economy was perceived to be 'catalysts' of
mobilizing resource requirement for growth. This view has undergone a change
and banks are no longer viewed as passive mobilizer of funds, Efficiency in the
financial intermediation is the ability of the financial institution to
intermediate between savers and investors, to set economic prices for capital
and allocate resources among completing demands is now emphasized. In the wake
of the recent emphasized in the economy the intermediation role assumes even
greater relevance. By virtue of their experience and superior credit assessment
of the investment proposals banks should play a significant role in identifying
nurturing growth impulse in the commodity and service producing sector in the
economy.
2) Market discipline Transparency and disclosure norms are assuming
greater importance in the emerging their notes to balance sheet. Efforts are on
to set up a credit information bureau to collect and share information on
borrowers and improve the credit appraisal of banks and financial institutions.
3) Adopting International Standards The
fallout of Asian crisis and the impetus given to the strengthening of domestic
financial systems has resulted in a more by the regulators to set up
universally acceptable standards and codes for benchmarking financial systems.
RBI has also set-up an advisory group to draw a road map for implementation of
appropriate standards and codes in light of existing levels of compliance,
cross country experience and the existing legal and institutional
infrastructure. In view of the vast diversity in the size, an asset liability
profiles of the banks it becomes very difficult for a few of them to meet the
new benchmark of global standards. Each bank has to draw it own strategy to
move towards this direction. 4)Technology Banking Innovation
in technology and world-wide revolution in information and communication
technology are perceived to be the catalyst of productivity growth. The
relationship between IT and Banking is fundamentally symbiotic. It is expected
to reduce costs, increase volumes and facilitate customized products.
Technology adoption is a dire necessity for the public sector banks to complete
with new generation private sector and foreign banks. It is a `compulsion'
rather than a `choice'. Retention of existing customer is the primary concern
of majority of the banks today.
The
major challenge for banks is to fall in line with the emerging scenario and
adopting the require technology to provide stake-of-the-art services to the
customers. Introduction of on-line, inter-connected automatic teller machines
(ATM), telephone banking, on-line bill payment and Internet banking are some of
the high tech facilities. Banks have to provide in order to survive in the
competitive scenario. Technology should ultimate results in better customer
service, low cost and quick delivery.
The introduction of
Business Correspondents may face some challenges from
* labor unions. However,
Diamond believes that there may be some options to address the concerns of the current workforce
while using Business Correspondents to capture more value from
rural customers.
*. The lottery network and
distributes government benefits. To increase the access
of its services opened about 2.8 million new accounts
and estimates that 40% of its banking transactions are
handled through the banking correspondent channel.
* Satellite offices
are a cost-effective alternative to branches. These
Offices can be
established at fixed premises in villages and are controlled and operated
from a base branch located at a block headquarters. All
types of banking transactions may be conducted at these
offices.
* Banks have, however,
not used this channel actively, despite the argument that this channel
is relatively less expensive, as it can draw personnel
from the main branch and can remain open for just two days
a week. This channel, therefore, is appropriate in blocks and districts which are densely populated. In the urban areas, most
I banks opt for an extension counter where the business does
not justify a full-fl edged branch.
* Similarly, satellite
branches can cater to rural areas which do not justify a large branch. Where banks
do not find it economical to open full-fl edged branches of satellite offices,
mobile offices may be more appropriate. Mobile
offices extend banking facilities through a
well-protected truck or van. The mobile unit
visits villages on specified days/ hours. The mobile office
would be affiliated with a branch of the bank, and serve areas which have a large concentration of villages. This will not be
dissimilar to the mobile ATMs implemented by some of the
banks in the urban areas.
Determine the Combination of Channels
There is no one right channel or solution
to improve access in rural
areas. Banks have to evaluate the trade-offs between those channels
areas. Banks have to evaluate the trade-offs between those channels
Branches and Satellite Branches— In
addition to providing regular
banking operations, providing backend support to manage
and audit
the operations of business correspondents.
• A low-cost, custom-made ATM— Managed by a
business
correspondent to bring down the operating cost and scale
the channel.
• An e-kiosk—Managed by a business
correspondent with internet
banking, ATM and POS terminal in relatively large rural
areas.
• A business correspondent—Using manual
ledgers or POS/Palmtop to act
as deposit collector and remitting agent in smaller rural areas
Financial System is the most important
institutional and functional vehicle for economic transformation of any
country. Banking sector is reckoned as a hub and barometer of the financial
system. As a pillar of the economy, this sector plays a predominant role in the
economic development of the country. The geographical pervasiveness of the bank
coupled with the range and depth of their services make the system an
indispensable medium in every day transactions. The virtual monopoly of banks
in `Payment Mechanism' touches the lives of millions of people every day and
every where. Thus the banking sector has been playing a significant role as
growth facilitator.
The changing paradigm of Banking Change
is the only constant factor in this dynamic world and banking is not an
exception. The changes staring in the face of bankers relates to the
fundamental way of banking-which is undergoing rapid transformation in the
world of today, in response to the forces of completion productivity and efficiency
of operations, reduced operating margins better asset/liability management,
risk management, any time and any where banking. The major challenge faced by
banks today is to protect the falling margins due to the impact of competition.
Another significant impact of banks today is the technology issue. There is an
imperative need for not mere technology up gradation but also its integration
with the general way of functioning of banks to give them an edge in respect of
services provided to optimizing the use of funds and building up MIS for
decision making and better management of assets and liabilities and risk
assumed which in turns have a direct impact on the balance sheet of banks as a
whole. Word over, technology has demonstrated potential to change methods of
selling marketing, advertising, designing, pricing and distributing financial
products of an electronic, self-service product delivery channel. All these
changes call for a new, more dynamic, aggressive and challenging work culture
to meet the demands of customer relationships, product differentiation, brand
values, reputation, corporate governance and regulatory prescriptions
Human resource development in banks --The
core function of HRD in the banking industry is to facilitate performance improvement,
measured not only in terms of certain financial indicators of operational
efficiency but also in terms of quality of financial services provided. The
skill level, attitude and knowledge of the personnel play an important role in
determining the competitiveness of a bank. Banks have to understand that the
capital and technology-considered to be the most important pillars of banking
-are replicable, but not human capital, which needs to be viewed as a valuable
resource for the achievement of competitive advantage. The primary concern of
the bank should be to bring in proper integration of human resource management
strategies with the business strategies. It should faster cohesive team work
and create commitment to improve the efficiency of its human capital. More than
operational skills today's banking call for these `soft skills' to attend the
needs and requirement of the customers at the counter. The need to adopt global
best practices to financial sector regulation and supervision and adopt them to
the domestic environment, places a premium skills and expertise of the bank
human resources.
Conclusions
The Indian banking industry is facing newer
challenges in terms of narrowing spreads, new banking products and players and
mergers and acquisitions. Adoption of risk management tools and new information
technology is now no more a choice but a business compulsion. Technology
product innovation, sophisticated risk management systems, generation of new
income streams, Building business volumes and cost efficiency will be the key
to success of the banks in the new era.
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