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Exercises · Q6

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

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The rural banking system greatly widened institutional credit, freed farmers from moneylenders and financed the Green Revolution, helping India become food self-sufficient. But it suffers from inadequate reach to the poorest, mounting overdues, defaults and a weak repayment culture, so its performance is a mixed success needing reform.

The positive role

The expansion of the rural banking system after independence brought several achievements:

  • Rapid growth of institutional credit through cooperatives, nationalised commercial banks, Regional Rural Banks (RRBs) and NABARD (the apex refinancing body).
  • It freed farmers from the clutches of moneylenders who had charged exploitative interest and trapped them in debt.
  • It financed the Green Revolution, enabling farmers to buy modern inputs (HYV seeds, fertilisers, machinery).
  • It helped India achieve self-sufficiency in foodgrains and enabled the maintenance of buffer stocks.
  • Facilities like the Kisan Credit Card (KCC) and personal accident insurance schemes improved farmers' access to timely credit.

The critical evaluation — weaknesses

Despite these gains, the system has serious shortcomings:

  • Inadequate credit — the volume of rural credit is still insufficient relative to need.
  • Neglect of the poorest — the formal system largely bypassed the small, marginal and landless farmers; this gap led to the rise of micro-credit and Self-Help Groups.
  • Overdues and defaults — a large volume of loans is not repaid; the recovery of loans is poor.
  • Weak repayment culture — after loan-waivers and lax discipline, many borrowers treat loans as grants, threatening the viability of banks.
  • Regional and social imbalances in the spread of banking.

Conclusion …

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