CHAPTER 4 REGIONAL RURAL BANKS IN INDIA AND PROFILE OF PRAGATHI GRAMINA BANK

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1 CHAPTER 4 REGIONAL RURAL BANKS IN INDIA AND PROFILE OF PRAGATHI GRAMINA BANK 4.1 Introduction Activities of modern economy are significantly influenced by the functions and services of banks. Banking sector constitutes the core part of economic system. Indian economy is an agricultural economy and real India lies in villages. Village economy is the backbone of Indian economy. Even after 60 years of independence the rural economy in India is still handicapped in terms of infrastructure and other chronic problems of cultivators. In fact, economic progress and industrial development are determined by the rural sector. More than 70% of Indians are dependent on agriculture; 60% of industries are agro based; 50% of national income is contributed by rural sector, and the agricultural sector is the largest foreign exchange earner to India. Without the development of rural economy the objectives of economic planning cannot be achieved. Hence, banks and other financial institutions are considered to play a vital role for the development of the rural economy in India. The Commercial Banks had little interest in rural areas, as these banks concentrated on deposits rather than credits. Thus they provide for the flight of funds from the rural to the urban. So, there was a strong need for the establishment of Regional Rural Banks (RRB). Rural banking system occupies a significant position in the structure of Indian banking system. Being an agrarian economy with more than 50% of the population depending on agriculture for their livelihood, rural banking has acquired increasing relevance in the recent times. Rural Banking will connote the banking need of the rural population. These needs are for activities relating to agriculture, rural and cottage industries which dot the rural settings. The needs of these different segments are varied and complex. These needs were from ancient times met usually by the village money lenders, the lending activities of these money lenders operated on an informal basis without much of the paraphernalia of a modern banking system. But these money lenders were literally charging exorbitant rates of interest and were engaged in 75

2 practices not very conducive to the interest of the rural borrowers. Thus came the cooperative movement during the beginning of 1900 s by enactment of the act in 1904, which officially launched the movement in India. The co-operative sector could cater only to the short term credit requirements of the rural borrowers. Hence, in order to provide a mechanism for a long term lending operations, land mortgage banks appeared on the scene. These arrangements with all their deficiencies and problems continued as an institutional support system to the credit needs of the agriculturists and other person engaged in village and cottage industries. A notable development in the domain of agricultural financing was the formation of Agricultural Refinance Corporation on July 1 st, In order to give a clear focus on the promotional and developmental role played by the corporation, its name was changed into Agricultural Refinance and Development Corporation (ARDC). The corporation essentially was a refinancing agency and provided assistance to those agricultural and developmental projects which could not be financed by other institutions either because of the large outlay involved or because the projects could not be brought within the purview of normal rules of business of these institutions. Its establishment was in recognition of the fact that if commercial and other institutions were to embark on agricultural lending on a large scale, refinance have to be provided. With the establishment of National Bank for Agriculture and Rural Development (NABARD) in July 1982, all the functions of ARDC have been taken over. Further, the inadequacy of the system to cater to the rural banking needs forced Govt. of India to come with the concept of Social Control in the year 1967 to address the problems of rural finance. This experiment was found to be inadequate, the government came out with the nationalization of banks in 1969 and Nationalized banks were exhorted to increase the credit flows to agriculture and other priority sectors. State Bank of India and other associate banks also took up the lending to agriculture and priority sectors on a large scale. Several innovative experiments like service area approach, lead bank scheme were also introduced, mainly with a view to ensure that the rural financing systems grows in strength. The establishment of NABARD on July 12 th, 1982 is a land mark in the field of rural finance. This new significant statutory, financial institution was conceived as the official agency to meet 76

3 the exclusive demands of the Integrated Rural Development Programme (IRDP), and exercises a considerable influence on the economy. The Reserve Bank, as the central bank of the country, is the kernel of the Indian Financial and Monitory System, apart from performing the traditional central banking and regulatory functions for securing monitory stability, the bank has over the years taken on an active developmental and promotional role especially in the area of meeting the needs of rural economic development. The rural banking structure constitutes the following segments, viz., 1. Rural Money Lenders, 2. Co-operative Banks, 3. Land Development Banks, 4. Regional Rural Banks, 5. Commercial Banks and 6. National Bank for Agricultural and Rural Development. 4.2 Regional Rural Banks RRB in India are an integral part of the rural credit structure of the country. RRBs were established under the provisions of an ordinance promulgated on 26 th Sept and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. The RRBs mobilize financial resources for rural / semi-urban areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans. The area of operation of RRBs is limited to the area as notified by Govt. of India covering one or more districts in the state. RRBs are jointly owned by Govt. of India, the concerned State Government and sponsor banks (i.e., 27 scheduled commercial banks and one state co-operative bank) of this 50% shall be subscribed by the central government, 15% by the concerned state government and 35% by the sponsor bank. Objectives The objectives of the act are clearly mentioned in the preamble to the act, as under; 1. To provide cheap credit and other facilities to small and marginal farmers, land less labourers, artisans and small entrepreneurs engaged in productive activities. 77

4 2. To develop the rural economy of the country by providing liberal financial assistance to agriculture, trade and commerce, industries and other productive enterprises in rural areas. 3. To inculcate banking habit among the people and mobilize their savings for accentuating the economic growth of the rural areas. 4. To provide employment to the educated youth of the rural areas. 5. To bring down the cost of rural banking. Table 4.1 RRBs in India Sr Name of RRB State Sponsor Bank Dist Branches No Cov Andhra Pradesh, GVB Andhra Pradesh State Bank of India Andhra Pragathi GB Andhra Pradesh Syndicate Bank Chaitanya Godavari GB Andhra Pradesh Andhra Bank Deccan GB Andhra Pradesh State Bank of Hyderabad 5 Saptagiri GB Andhra Pradesh Indian Bank Arunachal Pradesh RB Arunachal Pradesh State Bank of India Assam GVB Assam Union Bank of India Langpai Dehangi GB Assam State Bank of India Bihar Kshetriya GB Bihar UCO Bank Madhya Bihar GB Bihar Punjab National Bank Samastipur KGB Bihar State Bank of India Uttar Bihar GB Bihar Central Bank of India Durg Rajnandgaon GB Chhattisgarh Dena Bank Sarguja Kshetriya GB Chhattisgarh Central Bank of India Chhattisgarh GB Chhattisgarh State Bank of India Baroda Gujarat GB Gujarat Bank of Baroda Dena Gujarat GB Gujarat Dena Bank Saurashtra GB Gujarat SB State Bank of Saurashtra 19 Gurgaon GB Haryana Syndicate Bank Haryana GB Haryana Punjab National Bank Himachal GB Himachal Pradesh Punjab National Bank Parvatiya GB, Chamba Himachal Pradesh State Bank of India Ellaquai Dehati Bank J & K State Bank of India J & K GB J & K Jammu & Kashmir Bank

5 25 Jharkhand GB Jharkhand Bank of India Vananchal GB Jharkhand State Bank of India Cauvery Kalpatharu GB Karnataka State Bank of Mysore Chikmangalur Kodagu Karnataka Corporation Bank Karnataka Vikas GB Karnataka Syndicate Bank Krishna GB Karnataka State Bank of India Pragathi GB Karnataka Canara Bank Visveshvaraya GB Karnataka Vijaya Bank North Malabar GB Kerala Syndicate Bank South Malabar GB Kerala Canara Bank Jhabua Dhar K GB Madhya Pradesh Bank of Baroda Madhya Bharat GB Madhya Pradesh State Bank of India Mahakaushal KGB Madhya Pradesh UCO Bank Narmada Malwa GB Madhya Pradesh Bank of India Rewa Sidhi GB Madhya Pradesh Union Bank of India Satpura Narmada KGB Madhya Pradesh Central Bank of India Sharda GB Madhya Pradesh Allahabad Bank Vidisha Bhopal KGB Madhya Pradesh State Bank of Indore Maharashtra GB Maharashtra Bank of Maharashtra Vidharbha KGB Maharashtra Central Bank of India Wainganga KGB Maharashtra Bank of India Manipur Rural Bank Manipur Union Bank of India Meghalaya Rural Bank Meghalaya State Bank of India Mizoram Rural Bank Mizoram State Bank of India Nagaland Rural Bank Nagaland State Bank of India Baitarani Gramya Bank Odisha Bank of India Kalinga Gramya Odisha UCO Bank Neelachal Gramya Odisha Indian Overseas Rushikulya Gramya Odisha Andhra Bank Utkal Gramya Bank Odisha State Bank of India Puduvai Bharathiar GB Puducherry Indian Bank Malwa GB Punjab State Bank of Patiala Punjab GB Punjab Punjab National Bank Sutlej GB Punjab Punjab & Sind Bank Mewar Aanchalik GB Rajasthan Indian Bank Baroda Rajasthan GB Rajasthan Bank of Baroda Hadoti GB Rajasthan Central Bank of India

6 62 Jaipur Thar GB Rajasthan UCO Bank MGB GB Rajasthan State Bank of Bikaner & Jaipur 64 Rajasthan GB Rajasthan Punjab National Bank Pallavan Grama Bank Tamil Nadu Indian Bank Pandyan Grama Bank Tamil Nadu Indian Overseas Tripura GB Tripura Union Bank of India Allahabad UP GB Uttar Pradesh Allahabad Bank Aryavart GB Uttar Pradesh Bank of India Ballia-Etawah GB Uttar Pradesh Central Bank of India Baroda UP GB Uttar Pradesh Bank of Baroda Kashi Gomti Samyut Uttar Pradesh Union Bank of India Kshetriya Kisan GB Uttar Pradesh Corporation Bank Prathama GB Uttar Pradesh Syndicate Bank Purvanchal GB Uttar Pradesh State Bank of India Sarva UP GB Uttar Pradesh Punjab National Bank Shreyas GB Uttar Pradesh Canara Bank Nainatal Almora KGB Uttaranchal Bank of Baroda Uttaranchal GB Uttaranchal State Bank of India Bangiya GVB West Bengal Union Bank of India Paschim Banga GB West Bengal UCO Bank Uttar Banga KGB West Bengal Central Bank of India All India Total (Source: Reports of NABARD and RBI.) From the above table, we can clearly analyze that after amalgamation, RRBs have become quite large covering most parts of the states. As on , the number districts covered by RRBs stands at 620. Assam Gramina Vikas Bank, an amalgamated RRB, covers 25 districts, the highest in the country. While 23 other amalgamated RRBs cover 10 or more districts each, 54 other amalgamated RRBs cover 2 districts or more and 4 RRBs cover a single district. Increased coverage of districts by RRBs make them an important segment of the Rural Financial Institutions (RFI) for financial inclusion. The branch network of 82 amalgamated RRBs as on is quite large and diverse varying from 20 to 884 branches. The Uttar Bihar Gramina Bank has 884 branches, followed by Baroda Uttar Pradesh Gramina Bank with 673 branches. The branch network of standalone RRBs varies between 8 and 553 branches. 80

7 4.3 Reform Process of RRBs RRBs started their development process in the year 1975, the first five RRBs were setup in five states in Haryana, West Bengal, Rajasthan, with one each and two in Uttar Pradesh, which were sponsored by different commercial banks. These banks covered 11 districts of these five states. The first five regional rural banks are; 1.Prathima Gramina Bank and Gorakhpur Kshetriya Gramina Bank in Uttar Pradesh, 2.Haryana Krishi Gramina Bank in Haryana, 3.Gour Gramina Bank in West Bengal, and 4.Jaipur-Nagpur Anchalik Gramina Bank, Rajasthan. RRBs were originally conceived as low cost institutions having rural ethos, local feel and pro-poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. When the reform process in the banking sector was initiated, RRBs were taken for a close look. The GOI in consultation with RBI and NABARD started the reform process through a comprehensive package for RRBs including cleansing their balance sheets and recapitalizing them. Lending restrictions were removed and investment of their surplus funds was expanded. Simultaneously, a number of human resource development programmes and organization development initiatives (ODI) were taken up by NABARD, with the tools of training and exposure visits, technology support and use of information technology, computerization, and system development for business development and productivity improvement. By the year 2008, there was a remarkable improvement in the financial performance of RRBs as compared to the position prevailing in the year The GOI initiated the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a state as per the recommendations of the Vyas Committee in the year The amalgamated RRBs were expected to provide better customer service due to better infrastructure, computerization of branches, pooling of experienced workforce, publicity - marketing efforts and also derive the benefits of a large area of operation, enhanced credit exposure limits and diverse banking activities. As a result of amalgamation the number of RRBs was reduced 196 to 96 as on 30 th April 2007 and as on 31 st March, 2011 there are 82 RRBs functioning in India. 81

8 4.4 Key Performance Indicators of RRBs in India. Table 4.2 presents the key performance indicators and growth of RRBs from year to , Chart 4.1 presents key performance indicators and Chart 4.2 presents growth rate of RRBs. Table 4.2 Key Performance Indicators of RRBs in India (Rs. in Crore) Parameters Growth No. of RRBs Profit/Loss Making 81/15 83/8 80/6 79/3 75/7 --- No. of Branches Districts covered Staff Owned Fund Deposit Borrowings Investments Gross Loan (O/s) Loan Issued CD Ratio Accumulated Losses Profit (Before Tax) Loss Tax Paid to Govt Gross NPA Gross NPA % Net NPA Amount Net NPA % Recovery % Net Worth Branch Productivity Staff Productivity (Source: Reports of NABARD and RBI) 82

9 Chart 4.1 Key Performance Indicators of RRBs in India (Source: Reports of NABARD and RBI) Chart 4.2 Growth Rate of RRBs in India (Source: Compiled from Reports of NABARD and RBI) 4.5 Sources of Funds The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank. 83

10 1. Owned Funds The owned funds of RRBs comprising of share capital, share capital deposits received from the shareholders and the reserves stood at crore as on 31 March 2011 as against crore as on 31 March 2010; registering a growth of 13.0%. The increase in owned funds to the tune of crore was mainly on account of accretion to reserves by the profit making RRBs. The share capital and share capital deposits together amounted to 4273 crore of total owned fund while the balance amount of 9566 crore represented reserves. 2. Deposits Deposits of RRBs increased from crore to crore during the year registering growth rate of 14.60%. Gurgaon GB reported the highest deposit growth rate of 37%. There are Sixteen (16) RRBs having deposits of more than 3000 crore each. 3. Borrowings Borrowings of RRBs increased from crore as on 31 March 2010 to crore as on 31 March 2011 registering an increase of 41.10%. Borrowings viz-a-viz the gross loan outstanding constituted 26.8% as against 22.7% in the previous year. 4.6 Use of Funds The use of funds of RRBs comprise of investments and loans and advances. 1. Investments The investment of RRBs increased from crore as on 31 March 2010 to crore as on 31 March 2011 registering an increase of 8.98%. SLR investments amounted to crore where as non-slr investments stood at crore. The Investment Deposit Ratio (IDR) of RRBs progressively declined over the years from 72% as on to % as on 31 March Loans & Advances During the year the loans outstanding increased by crore to crore as on 31 March 2011 registering a growth rate of 19.4% over the previous year. Meghalaya Rural Bank recorded the highest growth rate of 35% during the year

11 3. Loans Issued Total loans issued by RRBs during the year increased to crore from crore during the previous year registering a growth of 27.90%. Samastipur KGB reported highest growth rate of 123% during followed by Andhra Pradesh GVB at 112%. 4.7 Working Results 1. Profitability 75 RRBs (out of 82 RRBs) have earned profit (before tax) to the extent of crore during the year The profit was marginally lower than the previous year. After payment of Income Tax of crore, the net profit aggregated to crore. The remaining 7 RRBs incurred loss to the tune of crore. 2. Accumulated Losses As on 31 March 2011, 23 of the 82 RRBs continued to have accumulated losses to the tune of crore as against crore (27 RRBs) as on 31 March The accumulated loss decreased by crore during the year under review. 3. Non-performing Assets (NPA) The Gross NPA of RRBs stood at 3712 crore as on (i.e.3.75%). The percentage of Net NPA of RRBs has shown an increase from 1.8% to 2.05% during the year. The data revealed that 15 RRBs had gross NPA percentage of less than 2%, whereas 33 RRBs had it above 5%. 4. Recovery Performance There has been an improvement in the recovery percentage during from 80.09% as on 30 June 2009 to 81.18% as on 30 June The aggregate overdue, however, increased by 934 crore to 9805 crore as on 30 June Credit Deposit Ratio The aggregate CDR of RRBs increased over the years from 57.10% as on 31 March 2010 to 59.51% as on 31 March Eight of the RRBs reported CDR of more than 100%. 85

12 6. Credit Flow to Agriculture RRBs are actively participating in the credit flow to agriculture sector. Disbursement of agriculture credit with reference to the total credit for the last 5 years revealed as under: Table 4.3 Credit Flow to Agriculture (Rs. In Crore) Year Total Credit % of Agri % Growth in Agricultural Credit to Agricultural Credit Total Credit total credit Credit , , , , , , , , , , (Source: Annual Report of PGB) It may be observed from the above table that the share of agriculture credit to total credit has hovered around 60-62% during the last five years but in absolute terms, the agriculture credit has been doubled in from the year Agriculture credit growth rate has kept pace with the total credit deployment. 7. Productivity of Branch and Staff The branch productivity increased to crore in from crore in with a growth of 12.57%. Similarly, staff productivity in increased to 3.78 crore from 3.70 crore in with a growth of 2.16%. 4.8 Policy Initiatives 1. Capital Infusion for improving CRAR Consequent upon the decision taken in the Finance Minister s Review Meeting of RRBs dated , a Committee was constituted by Government of India, Ministry of Finance, Department of Financial Services under the Chairmanship of Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, to examine the financials of RRBs with reference to CRAR and suggest a roadmap for achieving a CRAR of 9% by March As per Dr. K.C. Chakarbarty Committee Report recapitalization to 40 selected RRBs in 21 states was started in The recapitalization amount is to be shared by the stake holders in proportion of their shareholding i.e. 50%, 35% and 15% by Central Government, concerned sponsor banks and State Government. As 86

13 per approved scheme, the release of Central Government share is subject to proportionate share by the Central Government, concerned sponsor banks and State Government. A sum of crore was released to 5 RRBs during Accepting the recommendations of the committee, the GOI along with other shareholders decided to recapitalize the RRBs by infusing funds to the extent of 2200 Crore. The implementation is already underway and is expected to be completed during Technology Innovation through Core Banking Solutions (CBS) The RRBs were required to ensure that their branches are put on CBS platform so that they can provide hassle free and any where banking services to their clients. 80 RRBs have since been fully migrated to CBS as on 30m September NABARD is providing financial assistance to identified 28 weak RRBs to the extent of 40% for core banking solution from Financial Inclusion Technology Funds (FITF) and rest of the cost will be shared by the Sponsor Bank (50%) and the RRB (10%) 3. Financial Inclusion As envisaged by the Government of India, RRBs as a group have become a strong intermediary for financial inclusion in rural areas by opening a large number of No frills accounts and by financing under General Credit Card (GCC), as per RBI guidelines. Total number of accounts stood at lakhs in March 2011 which was lakhs in March Year Deposit Accounts Total No frills Table 4.4 Status of Financial Inclusion Total loan a/cs Of Total, to the Loan Accounts under Priority GCC SHG KCC Tena nt SSI/arti san/ SCC & retail traders. (Rs. In lakh) Grand total of business a/c (Col.2+4) (Source:2011 Annual Report of PGB) 87

14 Financial Inclusion Fund (FIF) Sanction of Research and Development Project on Financial Inclusion with ICT based solutions by RRBs A pilot project on Financial Inclusion with ICT based solution was launched in year 2009 in 13 selected RRBs, in the country in different regions. The project envisaged educating and motivating the rural people to use the banking services at their doorstep. The objective of the project was to ensure timely and adequate credit to low income groups at an affordable cost, increasing the reach of the banking services to the excluded segments, and providing the best suited financial services to the small value customers with an overall reduction of transaction costs. NABARD s assistance is extended as back end incentive from the Financial Inclusion Technology Fund. The deliverable under the project were ; 1. Provide Hardware: Client device, Laptop for enrollment 2. Client Software License: ESE Server Software for Financial Inclusion for 6 months. 3. Server Software License: ESE Server Software for Financial Inclusion for 6 months. 4. Prior to deployment, each RRB to sign the STS Software License and equipment Sale Agreement to allow for use of each RRB of the client Software for up to 6 months on the purchased Hardware. 5. Smart Cards: STS to provide to each RRB i client Smart Cards ii. 20 Operator Smart Cards 6. Impact study, report drafting and final reporting & publications 7. Sharing of learning with suggestions for adopting appropriate model for further expansion. The project has been completed and an interim assessment of the project shows that the ICT based initiative can accelerate the pace of financial inclusion if the physical connectivity, educating the people on financial literacy and making technology compatible with the local condition. 4. Village Adoption and Debt Swap The RRBs were given the target of adopting at least one village per branch, for financing the indebted farmers to swap the debt taken from moneylenders. RRBs had 88

15 adopted villages as at the end of March 2011 and issued loans to the tune of crore to 2.08 lakh indebted farmers. 5. Interest Subvention to RRBs The continuance of the interest subvention scheme was announced in the Union budget Interest subvention of 1.5% per annum was available to RRBs for deploying their own funds for crop loan upto Rs.3 lakh per farmer, provided the ultimate borrower get such loans at 7% interest per annum. An additional subvention of 2% was announced during the year to those farmers who repaid crop loans promptly within one year of disbursement. Thus, the interest paid on crop loans by such farmers was effectively at the rate of 5%. Suitable interest subvention was given to NABARD for providing concessional refinance to RRBs at 4.5 interest rates. 6. Scheduling of RRBs Of the 82 RRBs, 80 RRBs now stand scheduled by RBI. The case of remaining two RRBs will be reviewed after their inspection by NABARD. 7. Interest Subvention to RRBs The continuance of the interest subvention scheme was announced in the Union budget Interest subvention of 1.5% per annum was available to RRBs for deploying their own funds for crop loan up to 3 lakhs per farmer, provided the ultimate borrower get such loans at 7% interest per annum. An additional subvention of 2% was announced during the year to those farmers who repaid crop loans promptly within one year of disbursement. Thus, the interest paid on crop loans by such farmers was effectively at the rate of 5%. 8. Human Resource Development (Including Training of Officers and Staff of RRBs) Consequent upon the amalgamation of RRBs, training requirement of RRB staff has undergone a change. The banks are now undertaking larger and diversified lending activities and the volume of their investments has increased significantly. With the introduction of technology and also the CBS (Core Banking Solutions) they need training support for adoption of the same so that the customers of RRBs can get quicker and quality services. 89

16 NABARD has recognized the capacity building requirement of RRB officials and conducted 280 programmes in its training establishments for 4832 RRBs officers on their subject specific necessity with regard to investments, Risk Management, NPA Management, Credit Appraisal, Business Development, Profit Planning, Internal Control Systems, Treasury Management etc., In addition to NABARD, Sponsor Banks also provide training support to RRB officers and staff on a continuous basis through their Regional Training Centers to ensure that the training requirement of the officers/staff of RRBs is adequately met. 4.9 Conclusion RRBs play a key role as an important vehicle of credit delivery in rural areas with the objective of credit dispersal to small, marginal farmers & socio economically weaker section of population for the development of agriculture, trade and industry. But still its commercial viability has been questioned due to its limited business flexibility, smaller size of loan & high risk in loans & advances. Rural banks need to remove lack of transparency in their operation which leads to unequal relationship between banker and customer, the banking staff should interact more with their customers to overcome this problem and should open their branches in areas where customers are not able to avail banking facilities. In this competitive era, RRBs have to concentrate on speedy, qualitative and secure banking services to retain existing and attract potential customers. Therefore, the rapid expansion of RRB has helped in reducing substantially the regional disparities in respect of banking facilities in India. The efforts made by RRB in branch expansion, deposit mobilization, rural development and credit deployment in weaker section of rural areas are appreciable. RRB has successfully achieved its objectives by taking banking to door steps of rural households, particularly in banking deprived rural areas, to avail easy and cheaper credit to weaker rural section who are dependent on private lenders, to encourage rural savings for productive activities, to generate employment and to bring down the cost of purveying credit in rural areas. Thus, RRBs are providing the strongest banking network and the Government should take effective remedial steps to make rural banks viable. 90

17 Pragathi Gramina Bank 4.10 Introduction Rural credit policy in India has had at its core the twin goals of bringing an increasing number of people within the formal financial system and using credit as an instrument of poverty alleviation. Several measures have been taken by Government of India and Reserve Bank of India, from time to time to achieve these goals. Even after commercial banks were brought into the field of rural banking in the post nationalization scenario, a large segment of the rural population remained outside the fold of banking services. Therefore, the Govt. of India took a decision to establish a new set up regionally oriented rural banks, which would combine the local feel, familiarity characteristic of co-operatives and professionalism and resource base of commercial banks. Following the recommendations of the committee, Regional Rural banks (RRBs) were set up first on 2nd October, Their number went up to 196 by the year As enshrined in the Preamble to the RRBs Act, 1976, The RRBs were established with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected there with and incidental there to. It was in the year 2004, the GOI, decided to consolidate the RRBs into statelevel entities sponsored by same commercial bank and the amalgamation process began in September, Origin of Pragathi Gramin Bank The first RRB in South India was established by Canara Bank on , by name Tungabhadra Gramin Bank (TGB). Subsequently, Canara Bank established and sponsored Chitradurga Gramin Bank (CGB), Kolar Gramin Bank (KGB) and Sahyadri Gramin Bank (SGB) in Karnataka State. All the above mentioned four RRBs were amalgamated and Pragathi Gramin Bank came into existence on

18 Particulars Table 4.5 Share Holding Pattern of Pragathi Gramin Bank (Rs. in Crores) Govt. of India Canara Bank Govt. of Karnataka Total Share Capital Share Deposit Capital Total Capital % Holding 50% 35% 15% 100% (Source: 2005 PGB Annual Report) The above table indicates, that the total share capital amounts to Rs.4 crore, share capital deposit amounts to Rs.40 crores approximately and the percentage of holding comprises of 50% by GOI, 35% by Canara Bank and the rest by the State Government. Table 4.6 Bank's Business Position (Rs. in Crores) SN Particulars As on As on Total business Aggregate deposits Advances o/s Branches (Nos.) Owned fund Borrowings Investments Priority sector advances o/s Agricultural advances o/s NPA (Source: PGB Annual Report) From the above table, we can clearly analyze that the owned funds has increased to crore during the year 2011 from crores during year The total aggregate deposits of the bank has increased to crores from crores. The advances outstanding increased to crores during the year 2011 from crores during the year 2005 and the non-performing assets also increased to crores in the year 2011 from crores during the year

19 ORGANIZATION STRUCTURE HEAD OFFICE BOARD OF DIRECTORS CHAIRMAN General Manager (1) General Manager (2) General Manager (3) General Manager (4) Personnel Wing Recovery and Risk Management Wing Vigilance Cell Credit Wing Financial Inclusion Wing PS and IT Wing Planning and Development Wing Funds Management Wing IC and I Wing DIT HO Annexe at Chitradurga Overseeing ROs Davangere Raichur Overseeing ROs Bellary Shimoga Overseeing ROs Kolar Koppal Overseeing ROs Chitradurga Fig.4.1 Organization Structure The structure of Head Office of PGB at Bellary as shown in the above organizational chart clearly indicates that the bank is headed by the Chairman and is assisted by four staff functionaries (General Managers) i.e., a. General Manager (1) takes care of the Personnel Wing, Recovery and Risk Management Wing and Vigilance Cell and also oversees the Regional Offices at Davangere and Raichur Districts. b. General Manager (2) takes care of the Credit Wing Financial Inclusion Wing PS and IT Wing and also oversees the Regional Offices at Overseeing ROs Bellary and Shimoga Districts. c. General Manager (3) takes care of the Planning and Development Wing Funds Management Wing, IC&I Wing and also oversees the Regional Offices at Kolar and Koppal Districts. d. General Manager (4) takes care of the DIT HO Annexe at Chitradurga and also oversees the Regional Offices at Chitradurga District. Here, all the four functionaries report directly to the Chairman and are independently responsible for matters relating to their respective departments and staff. 93

20 Table 4.7 BOARD OF DIRECTORS SN Name of The Director Position Nominee Of 1 Sri. M.G. Bhat Chairman, Pragathi Gramin Bank, Head Office, No. 32, Sangankal Road, Gandhinagar, BELLARY Dr. M. Reddaiah, Asst. General Manager, RRB & Lead Bank Wing, Canara Bank, Head Office, 112, J.C. Road, BENGALURU Sri. B. Jayaramareddy, Asst. General Manager, Canara Bank, Circle Office, IMA House, B N Nagar, HUBLI Sri. V. Challadurai, Deputy General Manager, NABARD Karnataka Regional Office, Jeevan Prakash Annexe, 113/1, J.C.Road, BENGALURU Sri. V.Srinivas, Asst. General Manager, Reserve Bank of India R.P.C.D. Nrupathunga Road, BENGALURU Sri. K Raghuram Bhandary Special Officer (Banking), Finance Department (Institutional Finance) Karnataka Government Secretariat, M S Building, 5th Stage, BANGALORE Sri. M. Manjunatha Naik, Chief Executive Officer, Zilla Panchayath, BELLARY 8 Sri. K Shiva Murthy M-136, 9th Main, 11th Sector, LIC Housing Colony, Jeevan Bima Nagar, BENGALURU Sri. Babar Pasha Badibase, SINDHANUR, Raichur District (Source:2011 PGB Annual Report) Chairman Director Director Director Director Director Director Director Director Canara Bank Canara Bank Canara Bank NABARD Reserve Bank of India Govt. Of Karnataka Govt. Of Karnataka Govt. Of India Govt. Of India 4.12 Technology Initiatives in PGB As per the directions of Government of India and Reserve Bank of India, PGB has implemented CORE Banking Solutions (CBS) under the guidance of Sponsor Bank (Canara Bank). The bank is running on 100% core banking platform, and the technologies adopted in the bank are; 94

21 ATM The branch is popularizing among the customers regarding the best services that could be availed by Pragathi RuPay ATM/Debit card. ATM's offer the convenience of withdrawing cash, and performing other banking transaction without having to visit the branch during prefixed business hours and the services offered through these ATMs are * Cash Withdrawal * Balance enquiry * Mini statement * PIN Change RuPay ATM Debit Cards The ATM debit cards facility i.e., Issue of RuPay ATM Debit cards in coordination with Canara Bank is provided to all the customers and they can enjoy the equal status as compared to any other banks with regard to ATM cards. SMS Alerts SMS Alerts facility is also available to the customers and they have to walk in to their respective base branch to register themselves to avail this facility. The customer will receive regular alerts whenever customer account has been credited or debited or any other activity according to the customer set specifications directly from the bank. SMS Alert services; * For credit & debit transaction where amount is Rs 5000/- and more. * For providing daily EOD balance (only when EOD balance changes during the day). * To generate alerts when the balance in the account goes below the specified amount. * Term Deposit maturity alerts will be sent 5 days in advance. * Alerts on loan overdue 5 days in advance. NEFT National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this scheme, individuals can 95

22 electronically transfer funds from any bank to any individual having an account with any other bank branch in the country. The customers make can best use of NEFT, with maximum limit of Rs 50,000/- and the facility is available in all the branches. RTGS Real Time Gross Settlement (RTGS), is the continuous (real time) settlement of funds transfer individually on an order by order basis (without netting). The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is Rs 2 lakhs and there is no maximum limit for the same. Inter Branch Transaction The customers can make a best use of inter-branch transaction to remit/ withdraw cash at any of the PGB branches without any charges Products & Services Deposit Schemes Savings Bank Account * An account for individuals, non-trading organizations and permitted institutions. * Minimum amount: Rs.100/- without cheque book facility (Rs.500/- with Cheque Book facility) No Frill Account (Savings Bank Account) * Basic bank account to all house holds * Savings account with basic facilities can be opened with an initial deposit of Rs.10/- or nil balance. * The objective is to enable under privileged house-holds to have access to financial, insurance and extension schemes for socio-economic development. New Nitya Nidhi Deposit * A Scheme which suits poor and rich alike. * Collection of daily savings at the door steps. * No restrictions/ceilings for daily savings. 96

23 Fixed Deposit When the customer wants to invest his hard earned money for a longer period of time and get a regular income, the Fixed Deposit Scheme is ideal with a minimum investment of Rs.100/- and no ceiling limit on the deposits. The period of deposit would be for a minimum period of 15 days and to a maximum of 120 months, and the interest are paid at attractive rates as applicable from time to time either Monthly, Quarterly, Half-yearly and Yearly depending on the depositor's choice. Pragathi Tax Saver Deposit (Term Deposit Account) * Investment upto Rs.1.00 Lakh deductable from Income under Section 80C of the I.T. Act * Scheme is available to individuals/firms/institutions. * Fixed period of 5 years and no closure before maturity. * No loans against the pledge of deposit. * Not accepted as security/collateral security to any loan. Kamadhenu Deposit It is a re-investment plan for the customers who wants to multiply their money. Apart from safety and liquidity, it offers the customer the highest growth option, with a minimum investment of Rs.100/- and no ceiling limit on the investment. The period of deposit would be for minimum period of 05 months and to a maximum of 120 months, and the interest are paid at attractive rates as applicable from time to time either Monthly, Quarterly, Half-yearly and Yearly depending on the depositor's choice. The highlight of this scheme is that the customer can close the account before maturity and he can avail loan against the deposit made in the bank. Deposit Scheme for Senior Citizens Fixed Deposits and Kamadhenu Deposits Bank offers 0.5% more interest to the customers on the above deposit schemes. The scheme is meant for senior citizens, who wants to invest their hard earned money and get a regular income, the Fixed Deposit Scheme is ideal with a minimum investment of Rs.50/- and multiples of Rs.50/- and no ceiling limit on the deposits 97

24 with high returns applicable from time to time. The customer can close the account before maturity and can avail loan against the deposits that is permissible. Agriculture - Investment Finance Horticulture / Plantation Loan The Purpose of the said loan is to grow/maintain horticulture crops & develop plantation crop and is eligible to those land holders having sufficient knowledge and interest in horticulture, with irrigation facility. Minor Irrigation and Pump Set Loan The Purpose of the said loan is for installation of pump sets, submersible pump sets, pipe lines and generators and the person eligible should have minimum 2 acres of compact land. Vehicle Loans to Agriculturists The Purpose of this loan is for purchases of new, two wheelers, three wheelers, jeep and agriculture produce carriers. Loans to Purchase Tractor, Power Tillers, Thresher and Agricultural Implements The purpose of the loan is to purchase tractors, power tillers, crop and grains threshers, and pesticide sprinklers and other machines / implements useful to agriculture. Sericulture Loan The purpose of the loan is for mulberry crop, cocoon rearing, construction of sericulture rearing house and purchase of equipments. Dairy Loans The purpose of this loan is to purchase cross breed cows, buffaloes, construction of cow shed and grass cutting machines. Agriculture Godown Loans The purpose of the said loan is for storing agricultural produce in scientific manner and to store the produce till the farmer gets good price for the produce. 98

25 Loan for Purchase of Agriculture Land The purpose of this loan is; * to make the small and marginal holdings economically viable. * to bring fallow lands and wastelands under cultivation. * to set-up agricultural production and productivity. * to finance share croppers / tenant farmers to purchase land to enable them to increase their income. Agriculture - Production & Marketing Finance It is meant for all farmers i.e., Individuals / Joint borrowers who are owner cultivators, Tenant Farmers, Oral Lessees & Share Croppers. Gold Loans against Pledge of Gold Jewellery jewellery. Gold loans will be given to the customers (farmers) against pledging of gold Pledge Loans / Loans on Ware House Receipt The loans will be provided to farmers to store their agricultural produce till they get good price for the produce and to avoid distress sale. MSME - Investment & Working Capital PRAGATHI UDYAM The Individual professionals, proprietorship/partnership firms and / or companies floated by the professionals like Chartered Accounts, Engineers, Construction Contractors, Surveyors, cost Accountants, Lawyers or Solicitors, management Consultants, Journalists, cameramen, Beauty Parlors or a person trained in any other art or craft, advances could be considered for the purpose of purchasing equipment, machinery repairing or renovating the existing equipment and/or acquiring and repairing business premises or for purchasing tools, vehicles, durable utility articles/and/or working capital requirements, relating to the profession / activity only. a) The scheme is more customer friendly. b) The scheme gives special consideration to those retailers and SSI units, who are not in a position to maintain detailed stock books and submit stock statements on monthly basis. 99

26 c) Secured overdraft up to Rs.3.00 lakh against the combined security of stock, collateral securities and mortgage of land property is permitted and d) Relaxation given for submission of stock statements/verification of stocks at longer intervals. Pragathi Vyapar The Individuals, Businessmen, Traders, including SSI units, Proprietorship/ Partnership Firms, Companies floated by the persons / group of persons, commission agents and business enterprises established mainly for the purpose of providing any other services other than professional services. The purpose is to meet working capital requirements of Trading and Business Enterprises, including SSI units. Pragathi Doctor s Choice The said loan will be provided to the qualified medical practitioners to meet the working capital and term loan requirements. Personal Banking Gold Loans against Pledge of Gold Jewellery The purpose of the said loan is for the Business and consumption. Vidyasagar Education Loan The Purpose of loan is for pursuing professional, graduation and higher education within as well as outside India. The said loan is granted only to Indian Nationals, the parent/guardian of the student should be a permanent resident of the area of operation of the Bank and for study abroad, only graduate and higher level studies in colleges/universities/ educational institutions outside India are eligible. Pragathi Sneha This loan is availed by all confirmed employees of reputed Public Sector Undertakings, Central/ State / Semi-Government bodies, Corporations, Private Companies, whose salary is being disbursed through the bank or against undertaking by the employer to remit the loan installments of their employees in a single cheque who avail loans by deducting the installment amount out of their monthly salary for the credit of loan account of the concerned employee. 100

27 Pragathi Mobile This loan is meant for purchase of brand new/used four wheelers and all individual borrowers including professionals and reputed firms/ company are eligible. Pragathi Chaya The individuals who are engaged in income generating productive activities like trading, business, agriculture, salaried individuals confirmed in the service, self employed persons like Medical Practitioners, Engineers, Architects, Chartered Accountants and others, and the age of the borrower should not be more than 55 years at the time of availing the loan. Pragathi Mortgage Loan The purpose is to provide loans against the security of mortgage of residential & commercial building to the professionals, businessmen, salaried persons, agriculturists, individuals for meeting genuine needs like marriage, education and hospitalization expenses. Loans against approved Securities a. Loans against LIC Policies The policies standing in the name of the borrower and policies with fixed maturity and are assignable. b. Loans against National Savings Certificates / Kisan Vikas Patra. The NSCs / KVPs standing in the name of applicant only will be considered. Individuals, Firms & Companies are also eligible. 1 AGRICULTURE PRIORITY 1 KCC / PKSCC ( Crop production) 2. Gold Loan AGL / AGLOD A) For Crop Production B) Allied Activities & other purposes 3. Farm Mechanization a) Tractors/ Power Tillers (Brand new) b) Combine Harvesters/Power Threshers / Sprayers 101

28 4. Agri. Term Loan 5. ALHV (Two /Four wheelers / Heavy vehicles Except Cars) 6. Kisan OD 7. Pledge Loan- Agriculturists (Commodities stored in state /Central Ware houses ) 8. Pledge Loan-Agriculturists (Other than above - Sl. No. 7of I) II NON-AGRICULTURE PRIORITY 1 Short Term Loan / Term Loan 2 Gold Loan for Business purpose 3 DIR 4 Education Loan 5 Pledge Loan Traders (Commodities stored in State / Central Ware houses) 6 Pledge Loan-Traders (other than above- Sl. No 5 of II) 7 Self Help Group (SHG) 8 E-Halli scheme Women SHGs Women Beneficiaries 9 Swarojgar Credit Cards (SCCs) 10 General Credit Cards (GCCs) 11 Handloom weavers Group (HWGs) 12 Pragathi Saral Suvidha 13 Rajiv Gandhi Rural Housing 14 Pragathi Chhaya ( Housing Finance) 15 Solar Lighting III LENDING SCHEMES OF THE BANK 1 Pragathi Sneha - (For salaried class including Teachers / Non teaching profession) 2 Pragathi Udyam 3 Vehicle Loan (LHV - 2 wheelers) (For personal use) 4 Pragathi Mobile (PMBL - 4 wheelers) (For personal use) 6 Pragathi Doctors Choice 7 Pragathi Mortgage Loan 8 Loans against approved securities 9 Pragathi Carry/ DUAL to customers 10 Pragathi site 102