Accelerating Rural Financing Process by Banks in India: Need For Creating Enabling Environment

This paper analyzes the data on the performance of banks, especially public sector banks, and argues for need to create an enabling environment that can facilitate banks to:

• Expand outreach especially in remote locations to cover small/marginal and tenant farmers, landless laborers and households residing in drought prone, hilly and tribal areas of the country.
• Understand the demand for rural financial products and services in the changed rural socio-economic scenario and meet them.
• Introduce improvements in management and training policy for rural areas, reducing transaction costs and mitigating portfolio risk.
• Pursue rural finance research and development tasks.

The paper finds that in order to encourage Rural Financial Institutions (RFIs) to play a role in farm sector development and rural rejuvenation, an enabling environment needs to be created in the areas of:

• Removal of urban-biased policies,
• Sound agricultural and rural development policies,
• Promotion of broad-based rural financial sector reforms;
• Development of effective legal system to enforce contracts,
• Sound interest rate policies,
• Appropriate legal status and prudential regulation of Rural Financial Intermediaries etc.

The paper concludes by making recommendations for the financial sectors, investments in agriculture, land usage and rural banking