From financial products and services to the people living

From discussion till now, we are completely familiarized with
the role up-tapped rural India will play in Indian economic growth in future. Rural
banking sector has been and will be seen as the key institution for achieving financial
inclusion by providing financial products and services to the people living in
the farthest reach of the country. The rural banks (mainly commercial banks,
cooperative banks and regional rural banks) have been into the existence in
Indian financial scene for around 38 years now, but rural areas still have
continued to suffer from insufficient access to financial services. The main
reason of incapability in achieving one hundred per cent rural financial
inclusion is the challenges and difficulties which are faced by these banks in
their operations and expansion.

Various challenges faced by Indian rural banking system are enumerated
as under:

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and Managerial Problem


of loans

of Loans


Each of these issues are broadly explained below.

Organisational and Managerial Problem

70 per cent of rural population in India has been spread over
the 5.6 Lakhs villages all across India and more than half of these villages
have a population count of less than 500 individuals. These individuals are the
potential customer for every banks but the major problem faced by the banks is
to keep constant communication with these individuals and their families.
Constructing a branch in every such remote location is infeasible since it will
be impossible for banks to operate profitably with such minimal population. Hence,
reaching and catering this section of population possess an issue.

Secondly, in location where branches are present,
availability of suitable and adequately trained staff is a biggest issue.
Finding and training staff in accordance with the constraints like local
language, culture and traditions of the local people to understand their
problem and giving them solutions accordingly is the difficult task adding to
the periodical transfer of these staff members.

Thirdly, the staff orientation of these banks towards cities
possess another issue since they fail to adapt themselves sufficiently to
become integral part of the socio-economic environment of areas in which they
function. This result into performance lags by these highly capable staff
members, hence performance of these banks suffer. The staff members of officer
level and above who have responsibility to lead these banks look for urban
options because of higher salaries allowances, perks and facilities in
cities.  This tendency has posed problems
in leadership of the rural banks at operational level.

Fourthly, the differences in the pay scale of staff of RRB’s
and commercial banks possess a potential threat in coming years to retain staff
with such salary differences for the same work both banks undertake.

Fifth, overlapping financial institution another financial
issues which are faced these banks. At present number of financial institutions
which are operating in same rural areas. This resulted in overlapping of operational
areas like double or multiple financing, unhealthy competition among competing rural
financial institutions and less area coverage as various rural institutions are
concentrated at limited rural destination.