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Business Economy

Banking Challenges in Rural India


Farming households in rural areas earn about ₹1,07,172 on an annual basis, which is around 23% more than non-farming households. Yet, 47% of rural households report the occurrence of tremendous debt. Ever wondered why the agriculture sector is still underprivileged than the other sectors?


Priya Kumari

India is an agronomist country. It employs nearly 42.39% of labor force in India. This means that nearly half of the total population of India depends on agriculture as its livelihood. Moreover, around 88% of rural households in India are considered to have a saving account at an authorised Financial Institution. 

Farming households in rural areas earn about ₹1,07,172 on an annual basis, which is around 23% more than non-farming households. Yet, 47% of rural households report the occurrence of tremendous debt. Ever wondered why the agriculture sector is still underprivileged than the other sectors? 

The main reason behind this drawback is a lack of villagers or farmers’ investment in the banking sectors. Even after 73 years of independence, the literacy rate in the rural area is only 73% compared to that in the urban area. A recent government study shows that 27% of the Indian rural population is illiterate. This percentage may be higher for farmers. 

The National Bank for Agriculture and Rural Development (NABARD) says that most of the commercial banks are urban population oriented. Except for the SBI, UCO Bank, Union Bank of India, Indian Overseas Bank and Bank of India, no other banks have any type of substantial presence in the rural areas. On the other hand, the Regional Rural Banks, which have a good number of rural branches, are not in powerful financial health.

When one dwells deeper, multiple problems come up to the surface that are faced by the rural population. Things like lack of co-ordination, difficulties while submitting a form, lack of direct financial assistance, staff shortage, space crunch, outdated systems, no specialised staff, etc have led to a significant disadvantage for such a massive population. 

Given the comparatively lesser literacy rate in rural areas, filling forms and understanding about banking procedures is usually more challenging. Most of the times, the villagers give their ATM card number to some known person who does the transaction on their behalf and they are often unaware of mobile SMS for transactions. Repayment of loans is another problem since it is tough in the initial stages to make them repay the loan through the right form into their account. Villagers mostly use their thumb impressions for identity verification that usually leads to some delay.

However, all hope is not lost. In order to mitigate so many challenges faced, the key lies in empowering the millions of small producers and landless farmers who form the backbone of rural economies in most developing countries to grow their income and improve their livelihood by raising agriculture productivity and engaging in the market. With an increase in the income and more accessibility, literacy levels will go up and will lead to increased investments and ease of business through the banking infrastructure.

Note: Digital Dialogues holds the right to use this piece of content as authorised by the owner. If you wish to use material from this article for purposes of your own that go beyond ‘fair use’ you must obtain permission from the copyright owner. The views expressed in the article are personal. Also, there might be references taken from various sources on the internet. The main intent is to share across information to the reader!

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