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

Earlier, the farmers used to borrow money from money lenders or trades who would exploit them by charging exorbitant rate of interest or manipulate their accounts to keep them in a debt-trap. In 1969, a welcome change took place in credit facilities of rural economy when social banking and multiagency approach was adopted to meet the credit needs of rural India adequately. The National Bank for Agriculture and Rural Development (NBARD) was also set up later as a Government initiative to coordinate all activities of all the institutions involved in rural financing.

Later, the Green Revolution took place which improved both the Indian agriculture by adopting modern methods and technology in agriculture and also the credit facilities as it led to the diversification of portfolio of rural credit towards product oriented lending.

Today, rural banking consists of a set of multiagency institutions namely, commercial banks, regional-rural banks, cooperatives and land development banks which aims to meet the credit needs of the rural economy with cheaper rate of interests. Recently, Self-Help Groups (SHGs) have established in rural sectors to promote prudent spending by people and save in small proportions and make a minimum contribution to the group. The pooled money would be used to give credit to needy members repayable in small instalments at a small rate of interest.

Rapid expansions in the banking system have helped in developing rural sector in the following ways:

•Positive effect on rural farm and non farm output

•Steady income and employment opportunities as variety of loans were available to meet the production needs of the farmers.

•Achieving food security and buffer stock of grains.

•Promote thrift and savings

Inspite of establishment of multiagency institutions, there were gaps in the credit facilities in rural India. Since, collateral security was required by the banks and cooperatives to avail loan, majority of poor households were out of the credit network and restored to taking loans from unorganised money lenders and rich farmers who would charge high rate of interest.

Although, many measures have been taken in the rural credit development, India still has a long way to go to establish a strong and successful banking system in this area as most credit institutions underperforms and also majority of borrowers are wilful defaulters that discourages lending facilities in this sector. Farmer suicides is a major concern of our nation today, because it shows the lack of employment opportunities or proper earning and also pressure from credit lenders on farmers specially in case of crop failure or other mishap that compels the farmers to commit suicide.