Rural Banking Challenges

P R O J E C T W O R K F O R F I N A N C I A L

I N S T I T U T I O N S A N D P R A C T I C E

Rural Banking– Challenges

Submitted By,

Anuradha T

Kripa Shridhar

Priya Khatri

Durgaprasad Vavileti

Pragadhish C

Jacob Raphael

ACKNOWLEDGEMENTS

We wish to express our deep sense of gratitude to Mr. Ramesh

Subramanian, our professor and guide who drive and guide us to do

this project work.

P G D M W E 3 0 B A T C H

A P R I L 2 0 1 4

Guided By,

P R O F . R A M E S H

S U B R A M A N I A N

We pay our sincere courtesy to all the information

providers who gave valuable information collected for this project.

Our sincere thanks to the institution, Institute for Financial

Management and Research (IFMR) B School, who provided an

opportunity to learn from Mr. Ramesh.

We deeply acknowledge each one of us in our team, who have

made equal contribution and made this a complete project.

Last but not the least; we would thank all of our co-workers, family

members and friends for their support and encouragement.

CONTENTS

Acknowledgements……………………………2

Introduction……………………………..………4

Background..……………………………………5

Indian Banking Sector Outlook – 2013...5

RBI may lower key policy rates, if inflationary pressures ease 5

Asset quality will need to be closely monitored 6

More impetus on fee based and non-interest income services 6

Financial inclusion to play a key role in the near future 7

Banks will expand In overseas market...8

Mobile banking, next major technological leap 8

Competition set to intensify...................8

Banking scenario in Rural India..…….....9

Financial Inclusion……………………………9

Rural Banking Sector: Big Challenges & Road Ahead 11

(i) Priority sector lending…..…….………11

(ii) Regional Rural Banks..…….............14

(iii) Financial Inclusion…………………….15

Case Study……………………………….….…22

Repco Bank……………………………….…...22

ORIGIN………………………………………….22

MAIN OBJECTIVE..…………………………22

Direct Assistance…………………………….22

Employment Scheme…………………….…23

SYSTEMS AND PROCEDURES………...23

Subsidaries of REPCO……………………..23

REPCO HOME FINANCE LIMITED.....23

REPCO MICRO FINANCE LIMITED....24

Conclusion…………………….………….……25

References………………………………….….26

INTRODUCTION

This project titled “Rural Banking – Challenges” is one of the most

important challenges that any bank or a Gnancial institution,

including the Reserve Bank of India, faces in the current scenario

in India. The topic is indeed a huge area which requires much of

the time as an investment to be investigated for the Indian

scenario. However, with the minimal time available, we tried to

source relevant information through primary as well as secondary

source and have amended it into this project work. Some of us in

our team, being into the Gnancial as well as technology sector, we

are glad to bring our experience and knowledge into this project.

Operating a Gnancial institution in a rural village is never easy for

any bank. It involves so many challenges. We tried to identify some

of the common challenges that any bank or Gnancial institution

face to operate / open a branch in rural India. We have also

included a case study of a Gnancial institution. Finally, we have

included our opinions and suggestions in the conclusion part of the

project.

The key challenges identiGed are as follows

Literacy and Financial Literacy in rural areas

Viability of small ticket transactions

Distributions network and reach

Credit Risk on providing loans to low net worth

individuals and business

Technology challenges

KYC and other regulatory documentation requirements

We believe that this project would be useful for most of the

professionals in the Gnancial sector. Most of the private banks,

public sector banks, regulators, technology professionals,

entrepreneurs, micro Gnance institutions, non-banking Gnance

companies, section 25 companies, and other Gnance professionals

may make use of it.

BACKGROUND

INDIAN BANKING SECTOR OUTLOOK – 2013

Over the past couple of years, the Indian banking sector has

displayed a high level of resiliency in the face of high domestic

inflation, rupee depreciation and Gscal uncertainty in the US and

Europe. In order to stimulate the economy and support the growth

of banking sector, the Reserve Bank of India (RBI) adopted severe

policy measures such as increasing the key monetary policy rates

such as repo and reverse repo 16 times since April 2’009 to Oct

2011 and tightening provisioning requirements. Amidst this

economic scenario, the key challenge for the Indian banking system

continues in improving their operational eKciency and implement

prudent risk management practices. Some of the key trends

expected to emerge in the near future are as under-Economic

slowdown likely to impact the demand for credit.

High interest rates, subdued industrial production and domestic

consumption impacted the growth of the Indian economy which

slowed down from 8.4% in FY11 to 6.5% during FY12.The

scheduled commercial banks’ (SCBs) overall credit grew at a

slower pace during FY12 at 17% y-o-y as compared to 21.5%

registered during FYll.As per the recent RBI data, the non-food

bank credit increased by 15.5% in Oct 2012 over its corresponding

month previous year, as compared to 18.2% witnessed in Oct 2011

over its corresponding month previous year. Similarly, credit to

industry and services sector recorded a slower growth of 15.2%

and 13.7% respectively as against 23.1% and 18.4% during the

same period. As per RBI’s second quarter review of monetary

policy for FY13, the GDP growth estimates for FY13 is revised

downwards from 6.5% forecasted earlier to 5.8%.Any further

slowdown in the Indian economic growth is likely to impact the

demand for bank credit.

RBI MAY LOWER KEY POLICY RATES, IF INFLATIONARY

PRESSURES EASE