UNIT – 2

RURAL BANKING PRODUCTS

RURAL CREDIT

Rural credit is provision of financial services and funds to individuals, farmers, and
businesses in rural areas to support agricultural activities, promote rural entrepreneurship, and
address the unique financial needs of rural communities. This type of credit is essential for
sustaining agricultural production, improving rural livelihoods, and fostering economic
development in remote and less urbanized regions.

Institutional Sources of Rural Credit

Institutional sources of rural credit refer to the various organizations and entities that provide
financial services and funds to individuals, farmers, and businesses in rural areas. These
institutions play a crucial role in supporting agricultural activities, promoting rural
entrepreneurship, and addressing the specific financial needs of rural communities. Here are
some key institutional sources of rural credit:

o Commercial Banks: Commercial banks often have rural and agricultural lending
departments that offer a range of financial products such as crop loans, farm
equipment loans, and working capital to farmers and rural businesses.

o Regional Rural Banks (RRBs): RRBs are financial institutions created with the
specific mandate of providing credit and other financial services to rural areas. They
operate at the regional level and are sponsored by commercial banks.

o Cooperative Credit Institutions: Cooperative banks and credit societies are

community-based financial institutions formed by individuals with common economic
interests. They provide credit to members, including farmers, based on the
cooperative principle of mutual assistance.

o Microfinance Institutions (MFIs): MFIs focus on providing financial services,

including small loans, to individuals in rural and underserved areas. They often target
micro-entrepreneurs and smallholder farmers who may not have access to traditional
banking services.

o National Bank for Agriculture and Rural Development (NABARD): NABARD is a

specialized development bank in India that focuses on promoting rural credit and
 agricultural development. It refinances and provides support to various financial
institutions operating in rural areas.

o Government Agricultural Credit Programs: Many governments implement specific

credit programs aimed at supporting agriculture and rural development. These
programs may include subsidized interest rates, credit guarantee schemes, and direct
lending initiatives.

o Non-Banking Financial Companies (NBFCs): Some NBFCs specialize in rural and

agricultural financing, providing loans for agricultural activities, livestock, and rural
businesses.

o Development Finance Institutions: Institutions like the Rural Development Banks and
other development finance institutions in different countries contribute to rural credit
by providing financial resources for agricultural and rural development projects.

o Agricultural Cooperatives: Farmers' cooperatives often serve as institutional sources

of credit, pooling resources from members to provide loans and other financial
services for agricultural purposes.

Objectives of Rural Credit

The objectives have been stated below.

Economic Stability and Development of Rural Areas

Rural credit serves several key objectives, each aimed at enhancing the overall economic
growth and development of rural areas. Firstly, one of the primary objectives of rural credit is
to support agricultural productivity. By providing farmers with the necessary financial
resources to purchase seeds, fertilizers, pesticides, and modern equipment, rural credit helps
in boosting crop yields and ensuring food security. This financial support is also vital for land
improvement activities such as soil enhancement, irrigation development, and infrastructure
building, which collectively contribute to sustained agricultural growth and increased farm
income.

Foster Economic Diversification

Secondly, rural credit aims to foster economic diversification within rural economies. While
agriculture remains a significant occupation, many rural households also engage in non-farm
activities such as dairy farming, poultry, handicrafts, and small-scale industries. Access to
credit facilitates the establishment and expansion of these non-farm enterprises, providing
families with additional income sources and reducing their reliance solely on agriculture.
This economic diversification is crucial for building more resilient rural economies and
creating job opportunities, which can help in mitigating the impacts of agricultural
uncertainties and seasonal fluctuations.

Managing and Mitigating Risks

Thirdly, managing and mitigating risks associated with agriculture and rural livelihoods is a
fundamental objective of rural credit. Rural areas are particularly vulnerable to natural
disasters such as droughts, floods, and cyclones, which can devastate crops and livelihoods.
Through accessible credit, farmers and rural entrepreneurs can invest in risk reduction
measures such as crop insurance, resilient infrastructure, and diversified income-generating
activities. Credit also provides essential funds for emergency relief and recovery efforts in the
aftermath of disasters, helping communities to rebuild and restore their economic activities
more quickly and effectively.

Promote Social Development

Another important objective of rural credit is to promote social development and improve the
quality of life in rural areas. Families often use credit to invest in education, healthcare, and
housing, which are essential for human capital development and social well-being. For
instance, educational loans help children from rural families pursue higher education,
healthcare loans enable access to necessary medical treatments, and housing loans improve
living conditions by supporting the construction or renovation of homes. These investments
in social infrastructure enhance the overall standard of living, reduce poverty, and contribute
to a more equitable and stable rural society.

Modernization and Sustainability of Agricultural Practices

Lastly, rural credit aims to facilitate the modernization and sustainability of agricultural
practices. By providing the necessary funds, rural credit supports the adoption of advanced
farming technologies and sustainable agricultural practices. This includes the use of precision
agriculture, integrated pest management, organic farming, and efficient irrigation systems, all
of which lead to higher productivity and reduced environmental impact. Promoting
sustainable agricultural practices through credit is essential not only for meeting the food
demands of a growing population but also for ensuring the long-term viability of rural
economies and the preservation of natural resources. Thus, rural credit is a pivotal tool in
advancing both immediate and strategic agricultural development goals.

All India Rural Credit Survey Committee

The All India Rural Credit Survey Committee, often referred to as the Rural Credit Survey
Committee, was a landmark initiative in India's post-independence era aimed at
understanding and addressing the critical issues surrounding rural credit. Established in 1951
by the Reserve Bank of India, the committee was tasked with conducting a comprehensive
survey of the rural credit system to assess the effectiveness of existing financial institutions
and practices in meeting the credit needs of rural populations. The committee's objective was
to provide a detailed analysis of the credit requirements of India's vast rural sector, which
largely depended on agriculture, and to propose concrete measures to improve the availability
and accessibility of credit for farmers and other rural inhabitants.

The committee undertook an exhaustive investigation, involving extensive fieldwork and data
collection across various regions of the country, to assess the mechanisms through which
rural credit was being dispensed and the challenges faced by borrowers. The findings of the
survey were published in a seminal report in 1954, known as the "All India Rural Credit
Survey Report." This comprehensive report highlighted the stark inadequacies in the existing
rural credit system, revealing that a significant portion of rural credit was being provided by
informal moneylenders who charged exorbitant interest rates, leading to widespread
indebtedness and exploitation among farmers.

One of the major revelations of the survey was the limited role of institutional credit sources,
such as cooperatives and commercial banks, in rural areas. The report pointed out that these
institutions were not effectively reaching the rural populace and that their coverage was
insufficient to meet the vast and varied credit needs of rural individuals. The committee
recommended a multi-pronged approach to reform the rural credit system, emphasizing the
need for a robust and widespread network of cooperative credit institutions. It argued for the
establishment of primary agricultural credit societies (PACS) at the grassroots level,
supported by a strong framework of district and state-level cooperative banks, to ensure the
provision of timely and adequate credit to farmers.

The recommendations of the All India Rural Credit Survey Committee led to significant
policy changes and initiatives aimed at strengthening the rural credit infrastructure in India.
One of the most notable outcomes was the establishment of the National Bank for Agriculture
and Rural Development (NABARD) in 1982, which has since played a pivotal role in
promoting and regulating rural financial institutions. The committee's emphasis on
cooperative banks also led to the expansion and restructuring of the cooperative credit
system, making it more responsive to the needs of rural borrowers.

The report’s influence extended beyond immediate policy changes, setting the stage for future
rural credit policies and reforms. It underscored the importance of institutional credit in
fostering agricultural development and rural prosperity, influencing subsequent rural credit
surveys and policy frameworks. Overall, the work of the All India Rural Credit Survey
Committee marked a turning point in India's approach to rural finance, laying a strong
foundation for the development of a more inclusive and equitable rural credit system that
continues to evolve to this day.

REFINANCE

Department of Refinance

The Reserve Bank of India (RBI) set up the Agricultural Refinance Corporation (ARC) in
1963 to work as a refinancing agency in providing medium-term and long-term agricultural
credit to support investment credit needs for agricultural development. In 1975, ARC was
renamed as Agriculture Refinance and Development Corporation (ARDC) to give focussed
attention to credit offtake, development and promotion of the agricultural sector.

Upon its formation in 1982, NABARD took over the functions of the erstwhile Agricultural
Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of RBI and ARDC.

The Department of Refinance (DOR) deals with short-term and long-term refinance functions
of NABARD.

Core Functions of the DOR

DOR mainly deals with

 Short-term refinance for production credit activities contributing to food security

 Medium–term and long-term refinance for investment credit activities for giving a
boost to private capital formation in agriculture

 DOR also acts as a subsidy channelizing agency for various Government of India
schemes
A. Short-term Refinance (ST)

NABARD provides Co-operative Banks and Regional Rural Banks loans and advances,
repayable on demand or on the expiry of fixed periods not exceeding 12 months, by way of
refinance for production, marketing and procurement activities. The basic objective of short-
term refinance provision is to supplement the resources of banks and to improve credit flow
at the ground level. These activities include:

 Short Term refinance for Seasonal Agriculture Operations - ST(SAO): Under this
product, concessional refinance is available to State Cooperative Banks and RRBs
through STCRCF (Short Term Cooperative Rural Credit Fund) and STRRBF (Short
Term Regional Rural Bank (Refinance) fund) respectively, received from RBI, from
the shortfall of the Priority Sector Lending of Scheduled Commercial Banks.

 Additional ST(SAO): Additional Short Term Refinance for Seasonal Agriculture

Operations, over and above the normal ST(SAO) limit is provided to StCBs,
SCARDBs, RRBs and SFBs, through market borrowings to tide over the liquidity
constraints arising due to increased ground level demand for credit, low accretion of
deposits, and offset the delay in receipt of STCRC/ STRRB funds allocated by
RBI/GoI, etc. From 2020-21 SFBs are also eligible to avail refinance under additional
ST(SAO).

 ST(Others): Under this scheme, short-term refinance is provided to State Co-operative

Banks, Regional Rural Banks and Small Finance Banks, for purposes other than
seasonal agricultural operations such as rural marketing, fisheries sector, working
capital for MSME, social infrastructure projects, etc. Refinance is also extended to
StCBs in respect to advances made to State and Apex Level Agencies engaged in
wholesale procurement, stocking and distribution of fertilizers/ agricultural inputs,
financing Bonafide Commercial or Trade transactions.

 SFBs are also eligible to avail refinance under ST(Others) from the year 2020-21

 ST(Weavers)-Short-term refinance to Scheduled Commercial Banks, State Co-

operative Banks and Regional Rural Banks for lending to weavers

B. Long-term Refinance
NABARD’s long-term refinance lays emphasis on investment credit which leads to capital
formation through asset creation and promotes alternate employment opportunities in rural
and semi urban areas by supporting to farm and off-farm sector activities.

NABARD provides long-term refinance to the following institutions to supplement their

resources for providing adequate credit for supporting investment activities of farmers and
rural artisans, etc.

 Scheduled Commercial Banks

 Regional Rural Banks

 State Cooperative Banks

 District Central Cooperative Banks

 State Cooperative Agriculture and Rural Development Banks

 Primary Urban Cooperative Banks

 NABARD Subsidiaries

 Non-Banking Financial Companies (NBFCs)

 Non-Banking Financial Company- micro finance institutions (NBFC- mFIs)

 Small Finance Banks (SFBs)

The activities cover both farm sector as well as off-farm sector activities. The tenure of
refinance is in the range of 18 months and above.

In order to give the investment credit in agriculture a boost, the Government of India set up
‘Long Term Rural Credit Fund’ created out of the shortfall of priority sector lending of
scheduled commercial banks with NABARD for providing long term refinance support to
Rural Cooperative Banks and RRBs at concessional rate against their term loans for
agriculture activities.

C. Medium-term Conversion

NABARD provides medium-term credit limits for conversion of short-term crop loans
advanced for financing seasonal agricultural operations (SAO) to State Co-operative Banks
and Regional Rural Banks for providing relief to the farmers whose crops have been damaged
due to natural calamities.
D. Long-term loans to State Government

NABARD provides long-term (LT) loans to State Governments to contribute to the share
capital of cooperative credit institutions. This reimbursement-based support is intended to
encourage larger lending programmes by these cooperatives to meet the agricultural credit
requirements.

E. Kisan Credit Card

GoI introduced Kisan Credit Card Scheme during 1998-99 to meet the production credit
requirement of farmers in a timely and hassle-free manner. The scheme was further extended
for the investment credit requirements of farmers viz. allied and non-farm activities in the
year 2004.

The Kisan Credit Card scheme, as revised in 2013, aims at providing adequate and timely
credit support from the banking system under a single window with flexible and simplified
procedure to the farmers for their cultivation and other needs as indicated below:

a. To meet the short-term credit requirements for cultivation of crops

b. Post-harvest expenses

c. Produce marketing loan

d. Consumption requirements of farmer household

e. Working capital for maintenance of farm assets and activities allied to agriculture

f. Investment credit requirement for agriculture and allied activities

The aggregate of components 'a'; to 'e' above, will form the short-term credit limit portion and
the aggregate of components under 'f' will form the long-term credit limit portion.

From the year 2018-19, GoI has introduced KCC scheme for Animal Husbandry and
Fisheries in order to provide short-term working capital loans to Animal Husbandry and
Fisheries farmers.

Further, Government of India has extended the KCC benefits to farmers engaged in Lac
cultivation, Mulberry cultivation, Sericulture and Bee keeping from the year 2021-22.

The scheme is under implementation in the entire country through the institutional credit
framework involving Commercial Banks, Regional Rural Banks and Co-operatives. RBI
monitors the scheme for Commercial Banks and NABARD for Regional Rural Banks and
Cooperatives.

KCC Saturation Drive

Department of Agriculture, Cooperation and Farmers' Welfare, Ministry of Agriculture and

Farmers' Welfare, Govt. of India, has launched a campaign from 08.02.2020 to cover all PM
Kisan Samman Scheme beneficiaries under Kisan Credit Cards. Adequate publicity and
awareness campaigns were conducted under the campaign to ensure maximum coverage.

Phase-II of KCC Saturation

As a part of the Aatmanirbhar Bharat Package, the Government has announced to cover 2.5
crore farmers under the Kisan Credit Card (KCC) scheme with a credit boost of Rs.2 lakh
crore through a special saturation drive. Department of Animal Husbandry and Dairying,
Govt. of India also decided to simultaneously launch a special drive to provide KCC to 1.5
crore dairy farmers belonging to milk unions and milk producing companies and 1 crore fish
farmers. All stakeholders are making concerted and sustained efforts to provide access to
concessional credit, to the farmers.

Further on 08 November 2021, GoI had launched District Level Special KCC campaign for
providing 1.37 crore KCC to Animal husbandry and Fisheries farmers.

F. Interfacing for GoI Schemes

As the nodal agency for a number of schemes sponsored by the GoI, NABARD has acted/acts
as an interface between various stakeholders. The following schemes are currently under
implementation

(i) Capital Investment Subsidy Schemes

1. Agri-Clinics and Agri-Business Centers

2. Agricultural Marketing Infrastructure Scheme a sub-scheme of ISAM

(ii) Interest Subvention Schemes of GoI

 Interest Subvention Scheme for Crop Loans

 Interest Subvention to Small and Marginal farmers against negotiable warehouse

receipt
  Interest subvention on working capital to Animal Husbandry and Fisheries

 Interest subvention to women SHGs under DAY-NRLM

 Interest subvention schemes for sugar mills

Refinancing is a crucial mechanism for providing liquidity and support to rural credit
institutions in India. It involves providing financial assistance to these institutions so they can
continue lending to rural borrowers. The government, through various agencies, offers
various refinancing schemes to support rural credit.

Key refinancing agencies and schemes:

1. National Bank for Agriculture and Rural Development (NABARD):

o Refinance facilities: NABARD provides refinance facilities to various rural

credit institutions, including Regional Rural Banks (RRBs), Cooperative
Banks, and Rural Cooperative Credit Societies (RCCSs).

o Specialized schemes: NABARD has launched specialized refinancing

schemes to address specific needs, such as refinancing for agriculture,
microfinance, and renewable energy.

2. Reserve Bank of India (RBI):

o Liquidity support: The RBI provides liquidity support to rural credit

institutions through various mechanisms, such as repo operations and
refinance facilities.

o Policy measures: The RBI also implements monetary policy measures to

influence the cost and availability of credit for rural borrowers.

3. State Governments:

o State-level refinancing agencies: Many state governments have established

state-level refinancing agencies to provide financial support to rural credit
institutions within their respective states.

o Subsidies and incentives: State governments may also offer subsidies and
incentives to encourage lending to specific sectors or regions.

Other forms of support for rural credit:

  Interest subsidy schemes: The government offers interest subsidy schemes to reduce
the cost of credit for rural borrowers, particularly for priority sectors like agriculture
and microfinance.

 Credit guarantee schemes: Credit guarantee schemes provide guarantees to lenders

against the risk of default by rural borrowers, encouraging them to lend to these
segments.

 Infrastructure development: The government invests in infrastructure development

in rural areas to enhance the productivity and income of rural households, thereby
improving their creditworthiness.

 Financial literacy programs: Financial literacy programs are conducted to educate

rural borrowers about financial products and services, enabling them to make
informed decisions and manage their credit effectively.

Challenges and future outlook:

 Non-performing assets (NPAs): The issue of NPAs in rural credit remains a

significant challenge. Government and regulatory bodies are working to address this
through various measures, including debt restructuring and asset recovery.

 Digitalization: The adoption of digital technologies in rural credit can enhance

efficiency, transparency, and access to credit. The government is promoting
digitalization initiatives in this sector.

 Climate change: Climate change poses risks to rural livelihoods and agricultural
production. Government initiatives are needed to support rural credit institutions in
adapting to these challenges.

NEW INITIATIVES IN RURAL BANKING

1. Digital Banking Services

 State Bank of India (SBI): Launched the YONO (You Only Need One) app, which
provides a wide range of services including loans, investments, and insurance, tailored
for rural customers.

 Baroda Uttar Pradesh Gramin Bank: Offers mobile banking services and USSD-
based banking to enhance accessibility in rural areas.
2. Financial Literacy Programs

 HDFC Bank: Conducts “HDFC Bank's Parivartan”, a financial literacy initiative

aimed at educating rural populations about savings, loans, and financial planning.

 Madhyanchal Gramin Bank: Runs financial literacy workshops in villages to

improve understanding of banking services and digital finance.

3. Kisan Credit Card (KCC) Scheme

 Punjab National Bank (PNB): Actively promotes the KCC scheme, helping farmers
access credit for agricultural activities without complicated procedures.

 Prathama UP Gramin Bank: Offers KCCs with simplified documentation to support

local farmers in Uttar Pradesh.

4. Microfinance and Self-Help Groups (SHGs)

 Saraswat Bank: Collaborates with SHGs to provide microcredit, enabling women to

start small businesses and enhance their livelihoods.

 Chaitanya Godavari Grameena Bank: Actively supports SHGs and provides them
with credit and training, focusing on empowering women in rural Andhra Pradesh.

5. Public-Private Partnerships (PPPs)

 Kerala Gramin Bank: Engages in partnerships with local governments and NGOs to
improve infrastructure and expand banking services to remote areas.

 Bank of Baroda: Partners with state governments to enhance rural banking

infrastructure, focusing on accessibility and service delivery.

6. Agritech Solutions

 Axis Bank: Collaborates with agritech startups to offer innovative financial products
and services tailored for farmers, such as crop insurance and loan products based on
agricultural data.

 Andhra Pradesh Grameena Vikas Bank: Implements technology-driven solutions

to provide timely agricultural credit based on real-time data.

7. Rural Payment Banks

  Paytm Payments Bank: Focuses on providing essential banking services in rural
areas, facilitating easy access to payments and savings accounts for underserved
populations.

 Fino Payments Bank: Operates in rural regions, offering services such as cash
withdrawal, remittance, and microloans to enhance financial inclusion.

8. Customer-Centric Initiatives

 Panjab Gramin Bank: Implements doorstep banking services to cater to elderly and
differently-abled customers in rural areas.

 Uttarakhand Gramin Bank: Offers personalized services by setting up customer

service points in remote villages to assist with banking needs.

9. Insurance and Pension Schemes

 Indian Bank: Promotes insurance products tailored for rural customers, along with
pension schemes to secure financial futures for the elderly.

 Odisha Gramya Bank: Introduces micro-insurance products aimed at protecting

small farmers and their families against unforeseen events.

10. Incentives for Banks:

 Canara Bank: Actively participates in government schemes that incentivize banks to

extend services to rural areas, including setting up branches and ATMs in underserved
locations.

DEPOSITS & ANCILLARY SERVICES

Deposit Services

1. Savings Accounts:

o Indian Bank: Offers basic savings accounts with no minimum balance

requirement, encouraging rural customers to save.

o Prathama UP Gramin Bank: Provides savings accounts with competitive

interest rates, promoting savings among farmers and rural households.

2. Recurring Deposit Accounts:

 o Saraswat Bank: Offers recurring deposit schemes that allow customers to
save a fixed amount regularly, fostering a habit of savings.

o Madhyanchal Gramin Bank: Provides recurring deposits to help customers

accumulate funds for future needs, such as education or medical expenses.

3. Fixed Deposit Accounts:

o Punjab National Bank (PNB): Offers fixed deposits with flexible tenures and
attractive interest rates, helping rural customers grow their savings.

o Andhra Pradesh Grameena Vikas Bank: Allows farmers and rural

businesses to invest their surplus funds in fixed deposits for better returns.

4. Kisan Vikas Patra:

o Kerala Gramin Bank: Offers Kisan Vikas Patra, a savings scheme that
doubles the investment over a fixed period, encouraging long-term savings
among farmers.

Ancillary Services

1. Loan Products:

o Kisan Credit Card (KCC): Widely offered by banks like Indian Bank and
Chaitanya Godavari Grameena Bank, this card provides farmers with easy
access to credit for agricultural expenses.

o Microfinance: RRBs such as Prathama UP Gramin Bank facilitate

microloans for small businesses and farmers, enhancing local
entrepreneurship.

2. Insurance Services:

o Life and Crop Insurance: Banks like HDFC Bank and Odisha Gramya
Bank offer insurance products to protect farmers against crop failure and
provide life insurance coverage for their families.

3. Financial Literacy and Advisory Services:

 o Madhyanchal Gramin Bank: Conducts workshops and training sessions to
educate rural customers about managing finances, savings, and investment
options.

o Indian Bank: Provides advisory services for farmers on best practices in

agriculture and financial management.

4. Remittance Services:

o Baroda Uttar Pradesh Gramin Bank: Offers remittance services to facilitate

money transfers from urban to rural areas, helping families support their
relatives in rural settings.

o Fino Payments Bank: Provides digital remittance services to ensure rural

customers can easily receive money from family members working in cities.

5. Payment Services:

o Digital Wallets and UPI: Banks like Paytm Payments Bank and Axis Bank
enable rural customers to make payments digitally, enhancing convenience
and reducing reliance on cash.

6. Business Correspondent Services:

o Panjab Gramin Bank: Utilizes business correspondents to reach remote

areas, offering banking services like account opening, deposits, and
withdrawals at the doorstep.

BANKER-CUSTOMER RELATIONSHIP

The main relationship between bank and a customer is that of debtor -creditor in the case of
deposit account and creditor-debtor in the case of overdraft or loan account. The bank acts
trustee in case of valuables entrusted with the bank branch and as agent or bailee in other
kinds of transactions. These kinds of relationships enjoy different rights and duties on the
bank, involving different degrees of care and diligence as below: The Relationship between
banker and customer can be in the form of

1. Debtor - Creditor

2. Trustee - Beneficiary
3. Agent - Principal

4. Bailor - Bailee

5. Assignor - Assignee

Debtor-Creditor

A debtor is an entity that owes a debt to another entity. The entity may be an individual, a
firm, a government, a company or other legal person. The counterparty a creditor. When the
counterpart of this debt arrangement is a bank, the debtor is more often referred to as a
borrower.

a) Bank as debtor: The principal relationship of bank-customer is that of debtor-creditor in

case of deposit accounts like Savings Bank account, Current account, Fixed Deposit account
and Recurring Deposit account.

b) Bank as creditor: The relationship between bank-customer becomes that of creditor-debtor,

when customer has borrowed money from the bank by way of OD(Overdraft), CC(Cash
credit), Demand loan, Term loan, Bills discount or any other kind of loan or advance, either
on secured or unsecured basis.

According to Sir John Paget, “the relationship between banker and customer is primarily that
of a debtor-creditor and the respective position is determined by the state of the account”.
This means when a banker receives deposit from a customer, if the deposit is to the credit of
the customer, the banker becomes a debtor and the customer creditor. Thus, in all savings
account where the customer's account is in credit balance, the banker is the debtor and the
customer, creditor.

Trustee – Beneficiary

Trustee is an individual who is responsible for a property or an organization on behalf of

some other individual or a third party. Trustee is supposed to make profitable decision for the
entity under its authorization. It is a legal relationship between the trustee and the party,
where the trustee is totally responsible for the maintenance, performance, and profitability of
the trust under his guidance. A beneficiary is any person who gains an advantage and/or
profits from something.

This relation works out when the,

 Customer deposits money for a specific purpose, the banker is a trustee and the customer
beneficiary. As such, the banker has to employ the funds for a specific purpose for which it is
meant.

 Banker becomes a trustee whenever he undertakes to collect cheques on behalf of

customers. After realizing, banker has to credit the proceeds to the account of the customer.
When the amount is credited to the account of the customer, the relationship changes wherein
the banker becomes a debtor and the customer creditor.

 Customer deposits securities and valuables for safe custody with the banker. The banker in
such a case is a trustee and so, whenever the customer demands the securities, the banker has
to return them to the customer who is a beneficiary.

 In the case of companies, when they receive debenture amount from the public, the banker
acts as one of the trustees of the company and so has a responsibility to review the value of
the assets against which the debentures are issued. Hence, the banker has a responsibility to
supervise the property of the company for which he is a trustee.

Agent – Principal

An agent is a person who acts for or represents another. The principal is the person who gives
authority to another, called an agent, to act on his or her behalf. Banker acts as an agent of a
customer, when

 Purchasing and selling securities on behalf of the customers

 Collecting dividend warrants and interest warrants

 Paying club subscription, insurance premium, rent and other bills, as per instruction of the
customer.

Here again, the relationship cannot be called in the true sense as agent - principal. In the case
of a normal agent-principal relationship, the agent has to render accounts to the principal and
should also inform the principal how the amount given to him by the principal has been spent
or invested. In other words, the agent has to render accounts to the principal while dealing
with the funds of the principal.

However, in the case of a banker- customer relationship, though the banker is dealing with
the money belonging to the customer, he need not render accounts to the customer or inform
the customer as to how the money is lent or invested. Though the money invested or lent,
belong to the customers the banker need not tell them the extent of profit or return he made
from such investment or loan. But in the case of normal agent- principal relationship, it is the
duty of the agent to render accounts to the principal and also inform the return earned on the
investment. Thus, though a banker may act as an agent of customer, in the true legal sense, he
is not an agent and so he need not render account for the money deposited with him.

Bailor – Bailee

A bailor is a person who entrusts a piece of his or her property to another person (the bailee).
A bailee does not have ownership of the property. When a customer borrows from a bank
against the security under pledge, the bank is regarded not only a pledgee but also a bailee
and so the bank has to take care of the security until it is returned to the customer. But the
goods kept in the safe deposit vault will not come under bailment. The customer is keeping
the goods in the safe deposit vault secretly and hence the banker will not be a bailee. As a
bailee, the goods coming into his custody will be protected and the banker is totally aware of
the nature of the goods. Thus, the banker will act as a bailee only when goods are entrusted to
him for a specific purpose. Any expenses incurred towards maintenance of the security or
goods have to be borne by the customer.

Assignor – Assignee

An assignor is a person who transfers property rights or powers to another. An assignee is a

person or entity to which property rights or powers are transferred. An assignee is the one to
whom assignments are made. Whenever a bank gives loan against life insurance policy or
book debts or supply bills, the banker is the assignee and the customer the assignor. Under
assignment, the actionable claim of the customer is transferred to the bank as security for
loan. Thus, assignment is done by customers whenever they take loan against insurance
policy or book debts. Even contractors after undertaking public works for the government,
obtain loan from the bank by assigning the supply bills in favour of the bank.

RIGHTS OF BANKER

1. Right of set-off

A debtor can recover any debt due from a creditor before settlement of debt with the creditor.
This is called “Right of set-off”

 When a bank accepts deposit from customer, he is a Debtor

 When a bank lends money to the customer, the banker is a creditor and customer becomes
Debtor.

 In this situation, if the customer approaches the bank for closing his deposit account, the
bank will allow the customer to close the account only after recovering the loan taken by the
customer, from his deposit money.

Three conditions are to be fulfilled to exercise right of set-off

a) The same customer should have the deposit account and loan account

b) The loan must be outstanding and overdue when the loan amount is not overdue, the right
of set-off can not be exercised.

c) There should not be any agreement between the banker and customer, by which the banker
is prevented from exercising right of set-off.

Right of set-off can be exercised when a partner’s individual account has a credit balance and
the firm’s account has a debit balance, due to loan taken from bank. But vice-versa can not be
done.

Right of Lien

Lien is a right of a banker, by which he can retain any security coming to his possession for
the purpose of any loan due by customer.

Banker's right of general lien

One of the important rights enjoyed by a banker is the right of general lien. Lien means the
right of the creditor to retain goods and securities owned by the debtor until the debt due from
him is paid. It may either be general or particular. Bankers most undoubtedly have a general
lien on all securities deposited with them as bankers unless there is an express or implied
contract inconsistent with lien. In India sec 171 of the Indian Contract Act confers general
lien upon bankers as follows - Bankers may in absence of a contract to the contrary, retain as
security for a general balance of account, any goods bailed to them.

Circumstances for exercising general lien

1) No agreement inconsistent with the right of lien.

2) Property must be possessed in his capacity as a banker.

3) Possession should be lawfully obtained.

4) Property should not be entrusted to the banker for a specific purpose.

Incidents of lien- lien attaches to

1) Bills of exchange or cheques deposited for collection or pending discount.

2) Dividend warrants and interest warrants paid to the banker under mandates issued by the
customer.

3) Securities deposited to secure specific loan but left in banker's hand after loan is repaid.

4) Securities, negotiable or not, which the banker has purchased or taken up, at the request of
customer, for the amount paid.

Exceptions- banker has no general lien

1) On safe custody deposits.

2) On securities or bills of exchange entrusted for specific purpose.

3) On articles left by mistake or negligence.

4) On deposit account

5) On stolen bond.

6) Until due date of the loan.

7) On trust account.

8) On title deeds of immovable properties.

Right of appropriation: is a right exercised by a creditor upon his debtor for the purpose of
settling loan account. Sec. 59 to 61 of the Indian contract Act deal with the provisions of the
right of appropriation of payments. In right of appropriation, we find how a debtor who has
three or four debit account settler by making payments to the credits.

Condition Applying:

a) When making payment to a creditors debtor has right to inform the creditor, that as
towards which loan he is making. (Sect 59).
b) When a debtor has not exercised his right, the creditor has the right to appropriate the
payment made by debtor towards any loan, according to his discrete (sec. 60).

c) When neither the debtor nor the creditor exercises their right for appropriation, then it is
the chronological order in which the debit entries have arisen, the credit entries will go to
discharge the debit entries.

Right to charge, interest, commission and brokerage

A banker grants loan and advances to customers and charges interest on the same banker
usually debit the customer’s account when the customer fails to pay the interest amount every
month. After three months the interest will be added to the principal amount. Interest will be
then charged on the new principal amount.

 Similarly for collecting cheques, dividends and interest warrants, the banker can
commission and brokerage charges

Right to close the account of undesirable customer

Undesireable customer is one who has been frequently issuing cheques which are bouncing
or which are getting dishonoured. Due to this, the reputation of the banker is affected. In such
situation, the banker after giving due notice to the customer, can close the account.

RESPONSIBILITIES OF A BANKER

Duties of Banker

1. Duty to honour cheque

It is the duty of the banker to honour cheque of customer which are drawn properly and
presented during the working hours of the bank. However, the Bank has the right to
dishonour the cheques under the following situations

Date  Post dated - a date yet to come  Stale - more than 3 months Post dated cheques are
those which carry a date which is yet to come. If a banker honours a post dated cheque, he
will not only lose statutory protection but will be sued by the customer. In the case of a stale
cheque, when the cheque is more than three months old, it is no more a cheque.

Payee  Not clear  Wrong person When the payee is not clear or when the payee is a wrong
person, the banker will not pay and has every right to dishonour.
Amount - In words and figures differ. When the amount given in words and stated in figure
differs, the banker will dishonour.

Signature - If the signature is not according to the specimen signature or differs from the
specimen, the banker should dishonour.

Endorsements - The endorsements appearing on the cheque should be proper and if there is
any defect in endorsements, the cheque will be dishonoured.

Insufficient funds - If there are insufficient funds in the account and the cheque presented is
for a higher amount, the bank will dishonour the cheque and mention the reason as
“insufficient funds”.

Mutilated Cheque - Where the cheques are torn and are beyond recognition.

Smudged Cheque - Where the writing on cheque is unclear or smudged because of sweat or
water, the banker will dishonour such cheques.

Material Alteration - When a cheque contains alterations which are made without the
knowledge of the drawer or the banker, with an intention to defraud both parties, the cheque
will be dishonoured. If overwriting or cancellation which are not approved by the drawer,
with his full signature on the cheque, at the place of overwriting. The cheque will be
dishonoured.

Duty to Maintain Secrecy of Customer’s Account

The banker has an obligation towards customer to maintain secrecy about the status of
account. He should not reveal the secrecy of customer’s account in the normal course of
business. However, in the following conditions the secrecy of the customer’s account will be
disclosed.

i) Express or Implied condition

ii) Under compulsion of law

iii) In the course of banking business

iv) Disclosure in the public interest

v) Bankers among themselves.

i) Express or implied condition

 When customer has given in writing to the banker to reveal the secrecy of customer, the
banker may do so. This is Expressed condition

 When the customer acts as a guarantor for a principal Debtor, the banker has to reveal the
secrecy of the customer’s account to the guarantor. It is implied condition

ii) Under Compulsion of Law

 Under Income Tax Act 1961, when the Income-Tax authorities demand for the details of the
customer’s account, the banker has to reveal.

 Under Foreign Exchange Regulation Act.

 Under Indian Penal Code, when any police official makes an enquiry.

 Under Gift Tax Act.

 Under RBI Act.

 Enquiries by Government, both State and Central.

 Under Banking Companies Act, the Central Government and Reserve Bank of India can ask
the banker about status of any account.

 Under Indian companies Act sec. 235, 237 and 251.

 Under sec. 4 of Banker’s Book Evidence Act. A banker can produce for any investigation,
the books, documents belonging to the customer.

iii) In the course of Banking Business A bank, in order to protect its own interest, may have to
reveal the secrecy of the customer’s account. The banker may disclose the state of his
customer’s account in order to legally protect his own interest. For, example- if the banker
has to recover the dues from the customer or the guarantor, disclosure of necessary facts to
the guarantor or the solicitor becomes necessary and is justified.

iv) Disclosure in the Public Interest

When a customer is amassing wealth by cheating the public and increasing the deposit
account with the banker it is the duty of the bank to reveal the same to the public. Otherwise
the banker will be held liable for abetting the crime.

v) Bankers among themselves can share information

Between the bankers as per the trade custom, information can be shared in their own business
interests. This is as per the custom of the trade. It is an established banking practice to
provide credit information about their customers by one bank to another. The customer gives
implied consent to this practice at the time of opening the account.

Duty to render proper account of deposits made and withdrawn by customer

 It is the duty of the banker to render proper account of deposits and withdrawals by the
customer by making entries in passbook and statement of account of customers.

 It is the duty of the customer to verify the entries in the pass book then and there and inform
the banker about the discrepancies, if any, shown in the pass book.

Banker-Customer Relationship in Rural Banking

1. Personalized Service

 Trust-Based Relationship: In rural areas, the relationship between the banker and the
customer is often based on trust. The customer may rely heavily on the banker for
advice and guidance in managing finances.

 Closer Interactions: Bankers in rural settings may have more frequent, personal
contact with customers. This closeness helps bankers better understand the unique
needs and financial behaviors of rural customers.

2. Community Engagement

 Local Knowledge: Bankers in rural areas often have a deep understanding of the
local economy, agricultural cycles, and specific community needs. This insight
enables them to tailor products and services more effectively.

 Support for Agriculture: Since agriculture is the backbone of many rural

communities, bankers often focus on providing agricultural loans, crop insurance, and
other services that help farmers manage seasonal cash flows and crop cycles.

3. Challenges of Accessibility

 Limited Access to Financial Institutions: In rural areas, there may be fewer banks,
and customers may face difficulties in accessing branches. This makes the
relationship more dependent on local branch managers or mobile banking services.
  Financial Literacy: Many rural customers may not be fully aware of the banking
products available to them. Bankers often take on the role of educating customers
about savings schemes, loan products, and digital banking services.

4. Financial Inclusion

 Microfinance and SHGs (Self-Help Groups): In rural banking, microfinance

institutions and SHGs play a crucial role in extending credit and financial services to
small borrowers who may not qualify for traditional loans. The banker’s role often
includes facilitating access to these schemes and building trust with these groups.

 Government Schemes: Bankers are also responsible for facilitating government

schemes like Pradhan Mantri Jan Dhan Yojana (PMJDY), which aims at financial
inclusion by offering no-frills accounts, and Kisan Credit Cards (KCC) for farmers.

5. Risk Management

 Loan Recovery Challenges: In rural banking, the risk of loan defaults can be higher
due to the uncertainties of agricultural income, climate conditions, or market
fluctuations. Bankers must maintain a delicate balance between offering flexible
repayment options and ensuring loan recovery.

 Collateral: Many rural customers may not have traditional forms of collateral, like
property or formal assets. Bankers often need to use alternative assessments of
creditworthiness, such as social standing or group guarantees.

6. Digital and Technological Integration

 Mobile and Digital Banking: As banking evolves, digital tools are being introduced
to rural areas, but there may be slower adoption due to lower levels of digital literacy
or internet connectivity issues. Bankers in rural areas are key in encouraging the
adoption of mobile banking and ATMs.

 Financial Inclusion Through Technology: Fintech companies and rural banks are
increasingly collaborating to offer low-cost, tech-driven solutions such as mobile
wallets, direct benefit transfers (DBT), and biometric-based banking.

MANDATES, INDEMNITY, GARNISHEE/ATTACHMENT ORDERS

1. Mandates
  Definition: A mandate is a legal document or instruction that authorizes a bank to
perform a specific action on behalf of a customer. It is essentially the customer’s
consent for the bank to act in a particular way, such as making payments or transfers
from their account.

 Application in Rural Banking:

o Rural customers may provide mandates to authorize third parties (like family
members or farm managers) to operate their bank accounts. This can be crucial
in areas where mobility or literacy is limited, or when the account holder is not
always available (e.g., during agricultural work or migration).

o Mandates are also used in rural banking for automatic loan repayment or
setting up recurring payments, such as for utility bills, agricultural supplies, or
microfinance payments.

2. Indemnity

 Definition: An indemnity is a contractual obligation in which one party agrees to

compensate the other for any loss or damage that may occur. In the context of
banking, a bank may require an indemnity from a customer before performing certain
transactions to protect itself from potential losses.

 Application in Rural Banking:

o When banks provide services like issuing duplicate fixed deposit receipts,
processing lost or stolen checks, or releasing pledged collateral, they may
require customers to sign an indemnity form. This protects the bank from any
claims or disputes that may arise later.

o For rural customers, particularly those less familiar with formal banking,
indemnity clauses may need to be explained in detail to ensure they
understand the liabilities they are assuming.

o Indemnities are also commonly used in microfinance and group lending

structures, where group members indemnify each other or the bank for
defaults within the group.

3. Garnishee Order / Attachment Order

  Garnishee Order:

o Definition: A garnishee order is a legal directive issued by a court instructing

a bank to seize the funds of a customer who owes money to a creditor. The
funds are "garnished" from the customer’s account and directed to the creditor.

o Application in Rural Banking:

 In rural banking, garnishee orders are often applied when rural

customers or businesses fail to repay loans, and creditors (including the
bank) seek legal action to recover debts.

 This may occur in cases of agricultural loans, microloans, or other

forms of rural credit, where the borrower defaults, and legal action is
taken to recover the outstanding amount from their account.

 The bank, acting as the garnishee, is required to comply with the court
order by freezing the account and releasing the specified funds.

 Attachment Order:

o Definition: An attachment order is a court-issued directive to seize a debtor’s

property or assets to settle outstanding debts. In banking, it usually pertains to
funds in a bank account being "attached" to settle a debt.

o Application in Rural Banking:

 When a rural customer defaults on a loan, creditors can approach the

court to issue an attachment order. This order allows the bank to seize
funds from the debtor’s account to settle the debt.

 Banks may also enforce attachment orders for loans made to

agricultural businesses, rural entrepreneurs, or individuals who have
pledged assets as collateral. In cases of default, the pledged assets or
account balances may be seized through legal processes.

Key Considerations in Rural Banking:

 Financial Literacy: In rural areas, customers may not be fully aware of the
implications of indemnity agreements or legal processes like garnishee orders.
 Bankers play a crucial role in educating customers about their rights and
responsibilities.

 Social and Economic Impact: Since rural banking often deals with customers whose
livelihoods depend on agriculture or small-scale businesses, garnishee and attachment
orders can have significant social and economic consequences. Loss of funds due to
these orders could affect not only the individual but also their family or community.

 Community-Based Lending: In rural settings, many customers rely on informal

lending circles or group guarantees for loans. Garnishee or attachment orders issued
against one member of the group can impact the entire group if there are shared
liabilities.

VARIOUS DEPOSIT SCHEMES IN INDIA

Rural banking in India, including Regional Rural Banks (RRBs) and other public and private
sector banks, offers a range of deposit schemes tailored to the needs of rural customers. These
deposit schemes aim to encourage savings, promote financial inclusion, and support the rural
economy. Below are some of the various deposit schemes in rural banking in India, with
specific reference to Indian banks, including RRBs:

1. Savings Account

 Basic Savings Bank Deposit Account (BSBDA):

o Features: This is a no-frills savings account that can be opened with minimal
documentation. It is designed to promote financial inclusion, particularly for
the rural poor. There is no minimum balance requirement.

o Offered by: Most public sector banks, private sector banks, and RRBs,
including banks like State Bank of India (SBI), Punjab National Bank
(PNB), and RRBs such as Prathama Bank, Baroda Uttar Pradesh Gramin
Bank, and others.

o Target Audience: Rural households, small farmers, daily wage earners, and
self-help groups (SHGs).

 Regular Savings Account:

 o Features: This account provides rural customers with basic banking facilities,
including withdrawals, deposits, passbooks, and access to other services like
checkbooks. It generally requires a low minimum balance.

o Offered by: RRBs like Kerala Gramin Bank, Karnataka Vikas Grameen
Bank, Andhra Pragathi Grameena Bank, and commercial banks.

o Target Audience: Individuals, small traders, and agricultural workers.

2. Fixed Deposit (FD)

 Features: Fixed Deposits allow customers to deposit a lump sum amount for a fixed
tenure, earning a higher interest rate compared to savings accounts. Interest rates vary
depending on the tenure and the bank.

 Special Rural FD Schemes:

o Some banks offer tailored FD schemes for rural customers, allowing flexibility
in tenure and partial withdrawals without penalty.

o Offered by: RRBs such as Sarva Haryana Gramin Bank, Saptagiri

Grameena Bank, and public sector banks like Canara Bank and Bank of
Baroda.

o Target Audience: Farmers, small business owners, and rural professionals

looking for secure savings options.

3. Recurring Deposit (RD)

 Features: In a recurring deposit, customers deposit a fixed amount every month for a
predetermined period. It helps inculcate regular saving habits among rural customers.
Interest rates are similar to FDs.

 Flexible RD Schemes: Some banks provide flexibility in deposit amounts, allowing

rural customers to adjust their savings according to seasonal income fluctuations (e.g.,
after crop sales).

 Offered by: RRBs such as Madhyanchal Gramin Bank, Odisha Gramya Bank,
and commercial banks like SBI, ICICI Bank, and HDFC Bank.
  Target Audience: Small farmers, wage laborers, and rural shopkeepers who prefer
small but regular savings.

4. Kisan Vikas Patra (KVP)

 Features: Kisan Vikas Patra is a government-backed small savings scheme that

encourages long-term investment among rural customers. The amount deposited
doubles in around 115 months (9 years and 7 months) at the current interest rate.

 Offered by: India Post and selected banks, including rural branches of commercial
banks like Punjab National Bank (PNB), SBI, and RRBs.

 Target Audience: Small farmers and rural individuals looking for safe and
guaranteed returns.

5. Pradhan Mantri Jan Dhan Yojana (PMJDY) Accounts

 Features: PMJDY is a flagship financial inclusion scheme introduced by the

Government of India. Under this scheme, zero-balance savings accounts can be
opened, offering a RuPay debit card, accidental insurance cover, and overdraft
facilities.

 Offered by: Almost all public sector banks and RRBs, including Aryavart Bank,
Chaitanya Godavari Grameena Bank, and commercial banks like SBI, PNB, and
Axis Bank.

 Target Audience: Rural unbanked households, migrant workers, and women.

6. Post Office Savings Scheme

 Features: The Post Office Savings Account is a popular and trusted savings option in
rural India. It offers a regular interest rate and is highly accessible in rural areas where
banks may have limited reach.

 Other Postal Savings Schemes: Schemes like National Savings Certificates (NSC),
Public Provident Fund (PPF), and Senior Citizens’ Savings Scheme (SCSS) are
available through post offices, which are commonly used by rural populations.

 Offered by: India Post, which has a wide reach in rural India.

 Target Audience: Farmers, rural individuals, pensioners, and small savers.

7. Sukanya Samriddhi Yojana (SSY)

 Features: This is a government-backed savings scheme for the girl child, aimed at
promoting long-term savings for her education and marriage. It offers a higher interest
rate compared to regular savings accounts.

 Offered by: Post offices and most public sector banks, including RRBs like Kaveri
Grameena Bank, Madhya Pradesh Gramin Bank, and banks like SBI and Canara
Bank.

 Target Audience: Rural families with girl children, especially those focused on
saving for education and future needs.

8. Self-Help Group (SHG) Savings Accounts

 Features: Self-Help Groups, especially in rural areas, are encouraged to open savings
accounts with banks. SHGs pool savings from members and can later access loans for
group-based activities. Many SHG accounts offer simplified procedures and minimal
balance requirements.

 Offered by: All RRBs, public sector banks like SBI, Bank of India (BoI), and
cooperative banks.

 Target Audience: Rural women’s groups, farming collectives, and small business
groups.

9. Jeevan Suraksha Deposit Scheme

 Features: This is a unique deposit scheme that combines savings with life insurance
benefits. The scheme is designed to offer security to rural depositors by combining
guaranteed returns with insurance coverage.

 Offered by: Some banks like SBI, along with their rural branches, and certain RRBs.

 Target Audience: Rural individuals looking for savings options with added life
insurance protection.

10. Agricultural Term Deposits

 Features: These are deposit schemes designed specifically for farmers and
agricultural workers. They are typically linked to agricultural cycles, offering
flexibility in deposits and withdrawals, along with attractive interest rates.
  Offered by: Banks with a strong rural focus, like SBI, NABARD-affiliated RRBs
such as Uttar Bihar Gramin Bank, and others.

 Target Audience: Farmers and agricultural entrepreneurs seeking flexible deposit

products aligned with their seasonal income.

DIFFERENT TYPES OF CUSTOMERS

In rural banking in India, the customer base is diverse, reflecting the socio-economic and
occupational landscape of rural areas. These customers have unique financial needs, ranging
from basic banking services to specialized agricultural finance. Banks, especially Regional
Rural Banks (RRBs) and other rural branches of commercial banks, provide services tailored
to these different types of customers. Below are the major categories of customers in rural
banking:

1. Farmers

 Small and Marginal Farmers:

o These are farmers who own less than 2 hectares of land. They form the largest
group of customers in rural banking and primarily need credit for agricultural
inputs such as seeds, fertilizers, and irrigation.

o Financial Needs: Short-term loans (crop loans), Kisan Credit Cards (KCC),
subsidies, and insurance products like crop insurance.

o Banking Products: Savings accounts, agricultural loans, and government

schemes like Pradhan Mantri Fasal Bima Yojana (PMFBY).

 Large Farmers:

o Farmers with larger landholdings, who require substantial financing for

commercial farming, machinery, and high-input agriculture.

o Financial Needs: Long-term loans for farm equipment, warehouse facilities,

and investment in high-yield crops or livestock.

o Banking Products: Agricultural term loans, rural FDs, and insurance.

2. Agricultural Laborers
  Features: These are landless workers who depend on daily wages from farming
activities. Their incomes are typically low and irregular, often depending on seasonal
work.

 Financial Needs: Basic banking services like savings accounts, small credit facilities,
and remittance services for sending money to family members.

 Banking Products: Basic Savings Bank Deposit Accounts (BSBDA), recurring

deposit schemes, and microfinance loans.

3. Artisans and Handicraft Workers

 Features: Many rural regions have traditional industries like pottery, weaving,
woodcraft, and other artisanal trades. These workers may run small businesses or
work in family enterprises.

 Financial Needs: Credit for raw materials, working capital loans, and market access
for their products.

 Banking Products: Artisanal loans, microloans, savings accounts, and schemes like
MUDRA (Micro Units Development and Refinance Agency).

4. Rural Entrepreneurs and Small Traders

 Features: This category includes small business owners like shopkeepers, service
providers, and small-scale manufacturers operating in rural markets. They often
require financing for working capital and expansion.

 Financial Needs: Short-term and medium-term credit, savings accounts, and business
insurance.

 Banking Products: MSME loans (under schemes like Stand-Up India), current
accounts, overdraft facilities, and POS (Point of Sale) machines.

5. Self-Help Groups (SHGs)

 Features: SHGs are small groups of individuals (often women) who pool savings and
provide loans to group members. SHGs often seek banking services to formalize their
savings and access credit from banks.

 Financial Needs: Savings accounts, group loans, financial literacy training, and
micro-insurance.
  Banking Products: SHG savings accounts, SHG loans, and credit-linked government
schemes like the Deendayal Antyodaya Yojana (DAY-NRLM).

6. Micro, Small, and Medium Enterprises (MSMEs)

 Features: Rural MSMEs include small manufacturing units, agro-based industries,

food processing units, and service providers. These enterprises are crucial for
generating rural employment and diversifying the rural economy.

 Financial Needs: Working capital, machinery loans, and infrastructure development.

 Banking Products: MSME loans, overdraft facilities, rural credit cards, and schemes
like MUDRA, Stand-Up India, and the Credit Guarantee Fund Scheme for Micro and
Small Enterprises (CGTMSE).

7. Rural Women

 Features: Women in rural areas often participate in household management, farming,

or small enterprises. Rural banking increasingly targets women through initiatives
aimed at financial inclusion and empowerment.

 Financial Needs: Microloans, savings accounts, and insurance for family and health
needs.

 Banking Products: Women-centric schemes like Sukanya Samriddhi Yojana, savings

accounts, microfinance loans (often through SHGs), and insurance products.

8. Fishermen and Dairy Farmers

 Features: This group includes those involved in rural aquaculture and dairy farming.
They contribute significantly to the rural economy, and their banking needs revolve
around financing for boats, nets, dairy equipment, and working capital.

 Financial Needs: Credit for equipment, working capital, and insurance for livestock
and fishing boats.

 Banking Products: Loans under Dairy Entrepreneurship Development Scheme

(DEDS), Kisan Credit Cards (for fisheries and dairy), and savings accounts.

9. Migrant Workers
  Features: Many rural workers migrate to urban areas for employment but maintain
strong financial ties to their rural homes. They rely on rural banks for remittance
services and to manage savings for family members.

 Financial Needs: Savings accounts, remittance services, and small loans for family
needs in rural areas.

 Banking Products: Basic savings accounts, mobile banking, and remittance services.

10. Pensioners

 Features: Pensioners, including former agricultural workers, government employees,

or veterans living in rural areas, require reliable banking services to manage their
pensions and savings.

 Financial Needs: Pension deposit accounts, financial planning services, and health
insurance.

 Banking Products: Pension accounts, senior citizen savings schemes (like Pradhan
Mantri Vaya Vandana Yojana), and fixed deposits.

11. Landless Laborers and Marginalized Communities

 Features: These groups are economically vulnerable and often rely on casual or
seasonal employment. They are typically the focus of financial inclusion programs.

 Financial Needs: Basic savings facilities, small loans for consumption needs, and
access to government subsidies.

 Banking Products: No-frills accounts like PMJDY, microloans, microinsurance, and

social security schemes (e.g., Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan
Mantri Suraksha Bima Yojana).

12. Students and Young Adults

 Features: Rural students often need financial support for education and related
expenses. Rural banking institutions provide accounts and loans aimed at helping
students pursue higher education.

 Financial Needs: Education loans, savings accounts, and scholarships.

  Banking Products: Education loans, student savings accounts, and youth-oriented
schemes like Pradhan Mantri Vidya Lakshmi Karyakram for student loans.

In rural banking in India, safety deposit lockers and the safe custody of articles are important
services provided by banks to cater to the needs of rural customers who may not have secure
storage options at home. These services ensure the safekeeping of valuables such as
documents, jewelry, and other personal items. Regional Rural Banks (RRBs) and branches of
public sector and private sector banks operating in rural areas offer these facilities, albeit on a
limited scale due to infrastructural challenges.

SAFETY DEPOSIT LOCKERS

Features:

Safety deposit lockers are secure storage facilities offered by banks where customers can
store valuable items like jewelry, important documents (land deeds, property papers), and
other precious possessions. These lockers are available in various sizes, and customers pay an
annual fee for renting them.

 Availability in Rural Areas:

o Many rural branches of commercial banks and RRBs offer safety deposit
lockers, although the availability may be limited compared to urban branches
due to lower demand and infrastructure constraints.

o Banks with stronger rural penetration like State Bank of India (SBI), Punjab
National Bank (PNB), and RRBs like Karnataka Gramin Bank and Kerala
Gramin Bank provide locker services in key rural branches.

 Security Features:

o Lockers are housed in strong rooms or vaults with advanced security systems
such as dual control (bank staff and customer both have separate keys), CCTV
surveillance, and biometric access in some branches.

o Each customer is provided with a unique key, and access to lockers is only
granted after proper identification and authorization.

Target Audience:
  Farmers who store important documents such as land ownership records, sale deeds,
and personal savings in the form of jewelry.

 Rural entrepreneurs and small traders who need to safeguard business-related

documents or valuable assets.

 Self-Help Groups (SHGs) that may want to store collective savings or important
documents in a secure place.

Charges:

 Lockers are available in various sizes (small, medium, large) and the rental fees vary
accordingly. The charges are generally lower in rural areas compared to urban centers
to make the service affordable.

 Banks may offer discounted rates for priority customers or long-term renters, and
some banks charge additional fees for lost keys or delayed payments.

Important Considerations:

 Availability of Lockers: Due to the high demand and limited availability in rural
areas, banks may have waiting lists for locker services.

 Nomination Facility: Customers can nominate a family member or a trusted

individual to access the locker in case of death or incapacitation. This facility is
important in rural areas where awareness of legal processes may be limited.

RBI Guidelines for Safe Deposit Lockers

The Reserve Bank of India (RBI) issued updated guidelines on safe deposit lockers through
circular DOR.LEG.REC/40/09.07.005/2021-22 dated August 18, 2021. Banks were required
to renew contracts with current locker holders by January 1, 2023. However, due to
incomplete compliance, the deadline was extended to December 31, 2023, through
notification RBI/2022-23/168 dated January 23, 2023. Customers should contact their banks
to renew locker agreements.

Model Locker Agreement

At the time of locker allotment, banks must enter into a stamped agreement with customers. A
copy of the agreement, signed by both parties, must be provided to the customer, detailing
their rights and responsibilities.

Term Deposits as Security

Banks can ask for a Term Deposit to cover three years of locker rent and the cost of breaking
open the locker in case of non-payment. This is not mandatory for existing or well-
performing locker holders.

Nomination Facility

Customers should nominate a person who can access the locker in case of the customer’s
death. If the nominee is a minor, banks will follow the same procedures as for bank accounts.

Insurance of Locker Contents

Banks are not liable for insuring locker contents. Customers are advised to obtain their own
insurance coverage for valuables stored in lockers.

Bank’s Limited Liability

In case of events like fire, theft, or fraud by bank employees, the bank's liability is limited to
100 times the annual locker rent. The bank is not liable for natural calamities or losses caused
by the customer’s negligence.

Prohibited Items

Illegal or hazardous items like cash, weapons, or narcotics are not permitted in lockers. Banks
can take action if such substances are suspected.

Non-Payment of Locker Rent

If locker rent is unpaid for three consecutive years, the bank may break open the locker after
notifying the customer, allowing time to withdraw items.

Lost Key Procedures

If a customer loses the locker key, they must inform the bank immediately. The cost of
opening the locker, changing the lock, and replacing the key will be charged to the customer.

Settlement of Claims for Deceased Locker Holders

Banks must settle claims and release locker contents to nominees or survivors within 15 days
of receiving the death certificate and valid identification.

SAFE CUSTODY OF ARTICLES IN RURAL BANKING

Features:

Safe custody services are offered by banks to safeguard smaller items like important
documents, bonds, share certificates, or other valuables that do not require a full-fledged
locker. The items are stored in sealed envelopes or packages in the bank’s secure vault.

 Difference from Safety Deposit Lockers:

o In safe custody, the bank takes full responsibility for storing the item in its
secure vault, whereas in a safety deposit locker, the customer has direct access
to their belongings.

o Safe custody is usually cheaper than a locker service, as it is limited to smaller

items and documents.

Types of Items Stored:

 Documents: Sale deeds, property papers, insurance documents, loan agreements, etc.

 Small Valuables: Jewelry or small, precious items that do not need frequent access.

 Financial Instruments: Fixed deposit receipts, share certificates, debentures, etc.

Target Audience:

 Farmers and Rural Landowners: Safe custody is popular among farmers who may
need to store land ownership documents, especially in cases where multiple family
members or generations share ownership.

 Small Traders: They often use this service to store business contracts, receipts, or
important business-related documents.

 Pensioners and Retirees: Safe custody services are also used by older people to store
pension documents, savings instruments, and bonds.

Security Features:
  Safe custody items are stored in the bank’s vault, which is secured with locks and
monitored round the clock. Banks provide a sealed receipt for the items deposited,
and customers can retrieve their items by presenting this receipt.

Charges:

 Banks charge an annual fee for safe custody services. The charges are typically lower
than safety deposit locker rentals since the service is limited to smaller items.

Advantages for Rural Customers:

 Low-Cost Security: Safe custody is an affordable option for rural customers who
may not need or afford full-fledged lockers but still need to store important
documents or items securely.

 Reduced Risk: Storing valuables in banks reduces the risk of theft or damage,
especially for rural customers who may not have strong security at home.

 Access to Formal Banking Channels: These services help increase trust in formal
banking, encouraging rural populations to adopt banking services more widely.

3. Challenges and Solutions in Offering Safety Deposit Lockers and Safe Custody in
Rural Areas

Challenges:

 Limited Infrastructure: Many rural bank branches do not have the physical space or
security systems needed to house strong rooms or locker facilities.

 Low Demand: In smaller, remote rural areas, the demand for locker services is
relatively low due to the lower prevalence of liquid wealth (like jewelry or high-value
assets).

 Security Concerns: Ensuring adequate security (CCTV, guards, strong vaults) in

rural branches may be more challenging due to budget constraints or logistical issues.

Solutions:

 Expansion of Services: Banks are gradually expanding these services to more rural
branches where there is demand, especially in semi-urban or more economically
active rural areas.
  Mobile Banking Units: Some banks, especially RRBs, have introduced mobile
banking units with basic safety deposit services, bringing the service closer to rural
customers.

 Tie-Ups with Post Offices: In areas where banks are not present, post offices (which
have a wide rural reach) may offer safe custody or similar secure storage solutions.

CLOSURE OF ACCOUNTS

 Regional Rural Banks (RRBs) must close and balance their books as on 31st March
each year, or any other date specified by the Central Government via notification.

 The Central Government can issue orders in the Official Gazette to facilitate the
transition from one accounting period to another.

Appointment of Auditors

 RRBs must appoint auditors approved by the Central Government to audit their
accounts.

 The auditors must be qualified under Section 226 of the Companies Act, 1956, and
their remuneration is set by the RRBs with Central Government approval.

Auditor's Duties and Access

 Auditors are supplied with the annual balance sheet, profit and loss account, and a list
of all books kept by the RRB.

 Auditors must examine the balance sheet and supporting vouchers and have:

o Access to RRB books, accounts, and documents at all reasonable times.

o The ability to hire accountants or assistants, at the RRB's expense, to

investigate accounts.

o The authority to question the Chairman or employees of the RRB in relation to

accounts.

Audit Report

Auditors must report to the RRB on the annual balance sheet and accounts, addressing the
following:
  Whether the balance sheet is full, fair, and gives a true and fair view of the RRB’s
affairs.

 Whether any requested information or explanation was satisfactorily provided.

 Whether the RRB's transactions were within its legal powers.

 Whether the returns from branches and offices were adequate for the audit.

 Whether the profit and loss account shows a true balance of profit or loss for the
period.

 Any other significant matter that the auditor deems necessary to bring to the RRB's
attention.

Closure of Accounts in Rural Banking

In rural banking, the closure of accounts refers to the process of finalizing the financial
statements at the end of the financial year, ensuring all transactions are recorded and
accounted for. This practice is vital for accurate reporting, transparency, and regulatory
compliance.

Key Aspects of Account Closure in Rural Banks:

1. End of Financial Year:

o For most rural banks, including Regional Rural Banks (RRBs), the financial
year ends on 31st March. At this time, all books are closed, and accounts are
balanced.

o This is required to prepare financial statements like the balance sheet, profit
and loss account, and other necessary reports.

2. Audit and Reporting Requirements:

o Rural banks, especially RRBs, must appoint auditors approved by the Central
Government to audit their financial statements.

o The audit ensures that the financial statements present a true and fair view of
the bank’s financial position.

o The auditors' report is crucial to identify whether the accounts have been
managed in line with banking regulations and standards.
 3. Auditor's Access to Records:

o During the closure of accounts, auditors are granted full access to the bank’s
books, records, and supporting documents to verify the accuracy of the
financial data.

4. Special Provisions by the Central Government:

o In certain cases, the Central Government can issue specific notifications or

orders to facilitate smooth transitions between accounting periods, especially
if there are changes in regulations or policies.

5. Finalization and Reporting:

o Once the accounts are closed and audited, rural banks prepare their annual
reports which include the balance sheet, profit and loss statement, and
other disclosures required by law.

o These reports are then submitted to the regulatory authorities, including the
Reserve Bank of India (RBI) and NABARD (National Bank for
Agriculture and Rural Development), ensuring compliance with the banking
regulations.

Importance of Account Closure in Rural Banking:

 Transparency: Ensures the bank's financial activities are transparent and properly
accounted for.

 Compliance: Helps in meeting the regulatory requirements set by RBI and other
regulatory bodies.

 Operational Efficiency: Regular account closure helps banks manage their finances
better and take corrective actions where needed.

 Audit and Accountability: Auditors verify that the bank’s accounts reflect its actual
financial position and that no discrepancies or unauthorized transactions have
occurred.

By adhering to these procedures, rural banks maintain trust and credibility with regulators,
stakeholders, and customers.