Banking for Rural Transformation: Issues for "90s"

Banking for rural transformation in nineties will face many challenges that require hard choices. Challenges from demand side include (a) declining profitability and sustainability of agriculture, (b) continued stagnation in rural employment, marginalization of land holdings and thus need for self employment for large rural masses not likely to find productive avenues in far or industrial sector in the near future, (c) rising aspirations of rural disadvantaged people expecting speedy redressal of their historical deprivation, (d) increasing regional imbalances and worsening ecological imbalance in high risk environments triggering in some cases social conflicts and (e) diversification of skills and resource use options requiring flexible eco-specific institutional response. On supply side, the key complexities are : (a) increasing budget deficit and reduced ability of state to subsidise the growth and distribution oriented policies, (b) increasing cost of lending with declining profitability of banking system as a whole, (c) manpower constraints with banks to provide adequate follow up of loans and reduced ability to discriminate between genuine and willful defaulter, (d) weakening of relationship between rural borrowers and bank staff due to very large and wide coverage, and ‘lightening of lines of control and weakening of housekeeping’, (e) insufficient upgradation of skills of bank officials to deal with group or common property based investments or other means of reducing transaction costs, (f) mismatch between banking technology and work load, (g) lack of suitability of ‘standardised organizational design for highly variable environmental needs’ etc. We have tried to capture only some of the major trends in the banking and development policies so that pointers for future can be properly identified. The paper is divided into three parts. Part I deals with the major transitions that banking system has experienced. In Part II we list the challenges in agricultural technology system, emerging organizational constraints including the problem of viability, overdues, banking non farm sector and backward regions. Inventory of issues that we have to face in the nineties is given in Part III along with some possible alternatives to overcome the emerging constraints. It is hoped that a wider national debate on these issues will help liberate the banking system from myopic bureaucratic strangleholds and at the same time increase its social accountability. It is also hoped that the unions in the organized sector will rise to the occasion and recognize their historic responsibility towards the rural unorganized sector