The following points highlight the three main role of commercial banks in India. The roles are: 1. Resource Mobilisation 2. Supply of Rural Credit 3. Supply of Credit to Small Scale Industries.
Role # 1. Resource Mobilisation:
Indian commercial banks are playing an important role in mobilising adequate volume of resources from different parts of the country. Commercial banks are rendering valuable services in mobilising untapped small savings and other financial resources from different areas and specially from rural areas of the country through its branch expansion programme.
Moreover, banks have been contributing greatly towards developing banking habits among the people through its extensive branch banking, prompt services and sustained publicity. With the same objective, the Commercial banks have been playing again another important role in setting up Regional Rural Banks (RRBs) so as to collect huge untapped rural small savings in the country.
As the Indian Commercial banks failed to mobilise the savings of the people of the country in an effective manner thus the Government of India nationalized 14 major Indian Commercial banks by promulgating an ordinance on July 19, 1969. This had led to the quantum jump in the volume of resource mobilisation by the banks.
In this manner, total volume of accumulated deposits mobilised by all scheduled commercial banks in India has increased from a mere Rs 820 crore in 1950-51 to Rs 5,910 crore in 1970-71 and then to Rs 4,92,221 crore in 1996-97 and finally to Rs 83,36,175 crore as on December 28, 2014.
Thus from the aforesaid analysis, it is observed that the Indian commercial banks are playing important role in mobilising resources particularly after the nationalisation of commercial banks. Total volume of deposits mobilised by these nationalized commercial banks has also increased from Rs 3,896 crore in June 1969 to Rs 59,51,241 crore in March 2014 showing an increase by more than 1,527 times.
In March 2014, nationalized banks including SBI contributed 71.2 per cent of aggregate bank deposits. Even after so much of branch expansion, there are at present nearly 5 lakh villages which are not yet covered by the network of banking services. Moreover, in the banked areas, new depositors have to be included and the existing depositors must be motivated so as to increase their deposits further.
Role # 2. Supply of Rural Credit:
Initially, the commercial banks of our country have played marginal role in advancing rural credit. In 1950-51, commercial banks supplied only 1 per cent of the total agricultural credit of the country. But after the nationalisation of banks in 1969, these commercial banks have been advancing directly and indirectly financial assistance and short-term and medium term loan to the rural sector.
With the introduction of village adoption scheme and the service area approach, the commercial banks started to consider needs of the agriculturists. The commercial banks again protected the small and marginal farmers from the clutches of village moneylenders by sponsoring regional rural banks in different states of the country.
Till 1969, the agricultural loans advanced by the commercial banks were only to the extent of Rs 44 crore. But in March 1998, the amount of such loan advanced to agricultural sector has increased to Rs 14,808 crore. During 1994-95, commercial banks along with Regional Rural Banks extended nearly 41.0 per cent of the total farm credit in our country.
Again in 1996-97, disbursements of agricultural advances by public sector banks under Special Agricultural Credit Plan (SACP) was Rs 5,433.8 crore and the amount further increased to Rs 19,755 crore in 1999-2000.
The commercial banks are finding difficulty in advancing loans to the farmers particularly in respect of lending techniques, security, recovery etc. and are expected to overcome these gradually. But the commercial banks are not very much interested to advance loan to small and marginal farmers and as on March, 1990 their farm credit restricted to only 16.5 per cent of total bank credit.
Since 1975, the Regional Rural Banks (RRBs) are advancing direct loans to small and marginal farmers, agricultural labourers, rural artisans, etc. for productive purposes. Till June 1996, in total 196 RRBs have been lending annually nearly Rs 1,500 crore to the rural people and more than 90 per cent of these loans were also advanced to the weaker section.
At the end of 1988 these RRBs jointly advanced loan to the extent of Rs 2,804 crore among 11 million persons lying below the poverty line. The loans and advances stood at Rs 7,853 crore at the end of 1996.
The extension of credit to small borrowers in the hitherto neglected sectors of the economy has been accepted as key tasks assigned to the public sector banks.
Public sector banks have drawn up schemes to extend credit to small borrowers in sectors such as agriculture, small scale and village industry, retail trade and small business, handicrafts and sericulture centres which traditionally had very little share in the credit extended by banks.
Amount outstanding under priority sector lending, by public sector banks during the period June 1969 to March 2012 increased from Rs 441 crore to Rs 16,06,680 crore and accounted for 35.0 per cent of net bank credit as on the last reporting Friday of March, 2014.
Total amount of outstanding credit advanced to the priority sectors by all SCBs increased from Rs 440 crore in June, 1969 to Rs 12,39,386 crore in 2010-11. Thus the share of priority sector in total bank credit increased from 12 per cent in June 1969 to 33.20 per cent in 2010-11.
With a view to increase the credit flow to rural sector, commercial banks were advised by the RBI to provide at least 10 per cent of their net bank credit or 25 per cent of their priority sector advances to weaker sections comprising of small and marginal farmers, landless labourers, tenant farmers and share croppers, artisans, village and cottage industries and beneficiaries of Integrated Rural Development Programme, scheduled castes and scheduled tribes and beneficiaries of Differential Rate of Interest (DRI) Scheme.
As at the end of March 2006, the amount of outstanding advances to these weaker sections of rural areas amounted to Rs 78,374 crore and accounted for 7.7 per cent of their net bank credit and 19.1 per cent of the aggregate priority sector advances.
Banks were initially given a target of extending 15 per cent of the total advance as direct finance to the agriculture sector to be achieved by March 1985. The target was subsequently raised to 18 per cent to be achieved by March 1990. As at the end of March 2006, public sector banks extended Rs 1,55,219 crore to the agriculture sector which constituted nearly 15.2 per cent of the net bank credit.
Role # 3. Supply of Credit to Small Scale Industries:
Before nationalisation, commercial banks did not show much interest in the development of small scale industries of the country, till March 1969, the commercial banks of the country jointly extended loan to the tune of only Rs 90 crore to the small scales industries of the country.
But after the nationalisation of 14 commercial banks in July 1969, these banks have taken some steps to extend credit to the small scale industries to some extent.
At the end of May, 2011, all the commercial banks advanced loan to the extent of Rs 4,54,995 crore. In recent years, the amount of loan extended by the commercial banks to the small scale industries of the country has increased in considerable proportion. After nationalisation, the public sector banks started to extend liberal credit facilities to the priority sectors which include agriculture, small scale industry and exporters.
Total amount of credit advanced to the priority sectors increased from Rs 440 crore in June 1969 to Rs 16,06,680 crore in March 2014. Thus the share of priority sectors in total bank credit increased from 12 per cent in June 1969 to 35.0 per cent in March 2014.
In recent years the Central Government appointed the Nayak Committee to examine the problems of credit, sickness and other related issues in the SSI sector. The committee submitted its report in September 1992. The Reserve Bank of India vide its circulars dated April 17, 1993 and July 3, 1993 announced a special package of measures to ensure adequate and timely credit to SSI sector.
The salient features of this package are:
(a) Banks should give preference to village industries, tiny industries and other small scale units in that order, while meeting the credit requirement of the small scale sector;
(b) The banks should step up the credit flow to meet the legitimate requirements of the SSI sector in full during the Eighth Five Year Plan;
(c) An effective grievance, redressal machinery be introduced within each bank which can be approached by the SSI in case of difficulties; and
(d) Banks should adopt the single window clearance scheme of SIDBI for meeting credit requirements of small scale units.
All these package of measures, introduced by the banks has been providing much assistance to the small scale industries, particularly in its credit front.
Thus we have seen that the Indian commercial Banks have started to play an important and effective role gradually in the areas like resource mobilisation, supply of rural credit and also in respect of supply of credit to small scale industries of the country.
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