Structural transformation of rural finance in India: A critical review

Abstract

Over the past two decades the Indian economy has been experiencing service-led growth. However, more than half the Indians still depend on agriculture for their livelihood. The agricultural sector still occupies the center stage of rural economy. The rural population is an important contributor to the growth of the Indian economy. The primary sources of rural finance are nationalized banks, private banks, credit societies, cooperative banks, and moneylenders. As far as penetration of these institutions in rural markets are concerned, regional rural bank and credit societies contribute a major portion (66 %) in terms of number of branches, whereas in terms of volume their contribution is just 5.6 %. Nationalized banks are contributing a major portion of their business (72 %) in the rural financial market. The largest branch expansion in rural areas was undertaken between bank nationalization (1969) and financial liberalization (1990).