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And there are many more recommendations for expanding the co-
operatives’ role in agricultural credit:
“The Committee noted with concern that these PACS and CCBs
were not performing the role for which they were constituted.
The Committee therefore recommends that CCBs should strive to
provide at least 70% of their loan portfolio for agriculture” (p.15).
Coming back to the new policy of branch banking, it has of late dawned
on the authorities that the policy of “financial inclusion” cannot be successful
unless more brick and mortal branches are opened by commercial banks.
Therefore, the RBI policy circular of July 15, 2011 laid down that at least 25%
of the total number of branches proposed to be opened during a year by a bank
are to be allocated to unbanked rural (tier-5 and tier -6) centres. But, as in the
case of doubling of bank credit, the Government has now gone to the other
extreme of pushing the banks to open more rural branches rather rapidly. The
Union Finance Minister inaugurated on March 29, 2013, the opening of 300
branches in UP on a single day; on that occasion he emphasized that bank
branches were important for financial inclusion and increase in credit-deposit
ratio, deposit mobilisation and credit growth. He also said that by March 2014,
2,700 bank branches could be opened in UP, belonging to 30 banks and spread
over 75 districts.
Therefore, at least from now on attempts should be made to resurrect
the entire institutional structure in terms of its geographical spread as
well as organisational strengthening, if necessary and wherever feasible in
combination with ‘agency banking’. Only such a structure will be able to achieve
a steady and healthy delivery of credit for agriculture and rural enterprises.
As recommended by the Rangarajan Committee on Financial Inclusion, the
scheduled commercial banks have to re-introduce a definitive programme of
branch expansion in rural areas, the policy initiative for which has to come from
the RBI. The presence of bank branches in rural areas helps to build forward
and backward linkages between the rural economy and the credit system,
as the past experience has shown. There is thus a strong case for expanding
branch network which can be achieved by operating a rural branch licensing
policy with a system of incentives and disincentives for the banks as in the
past. The policy planners in this respect have to recognise the experience so
far shown of the basic economic doctrine, that supply creates its own demand,
provided of course infrastructural facilities, in bank branches are created to
take advantage of the opportunities.
