Direction (Qs.1 to 6): Read the following passage and answer the questions that follow it. Some words are highlighted to help you answer some of the questions.

A large number of branches of banks have been set up in the villages. The main purpose of setting up these branches is to develop the habit of saving among the villagers and also to giving loans to farmers for boosting production in one way or the other. So far banks had been concentrated in the bigger cities and Indian villagers did not have faith in them. The new banks also intend to re-channel bank credit from the big industries to the small sectors. With the intention of promoting Rural banking, Regional Rural Banks were established. These aligned the local field with the rural problems. These banks are not to replace the other credit-giving bodies but to supplement them.

The Steering Committee of the Regional Rural Banks considered some structural changes. First of all, they gave thought to the staffing spectrum; then to effective coordination among banks – rural cooperatives and commercial – and the possibility of bringing credit within the access of weaker sections. They wanted to recruit staff for the rural banks at lower salaries. But this type of discrimination would have been unfruitful. So it was given up.

Another problem with regard to the rural banks is the creditworthiness of the poor. The Indian farmers are so poor that they cannot pay back their loans. The rural Indian surveys make it quite clear that practically the farmers have no creditworthiness. Their socio-economic mobility is almost zero. That is why banks fear that their credit will never be paid back.

Another difficulty for the rural banks is that loans cannot be processed so easily. Processing loans will also entails heavy expenditure. This is also going to affect their financial position. Still the establishment of the rural banks was decided because the social advantages were more important than the commercial consideration.

Rural banks definitely encourage savings. No doubt the villagers do not have to pay income tax and they get many other concessions, yet their savings is not significant. Despite all the hurdles, the rural banking system will boost up the economy of villages, and thereby the economy of the country.