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were also a phase of strengthening of banking regulations and consolidation
of the commercial banking system, which paved the way for a bigger role for
commercial banks in the development process
vis a vis
cooperatives. But, that
was not enough; the socio-political impatience of the later 1960s with increasing
rural poverty brought about the most radical step of bank nationalisation in
1969 and 1980 and associated public policies which rapidly expanded the
spread of commercial banking in rural areas, mobilising savings and promoting
large increases in borrowings from institutional agencies by different classes
of farmers, small-scale entrepreneurs and generally persons of small means.
This banking expansion, in terms of geographical spread and functional reach,
has been unprecedented in the economic history of any country in the world.
Third, with a view to concretising the above public policies, the 1970 saw
the introduction of the Lead Bank Scheme and the regulatory prescription of
priority sector lending – “two landmark development policies that survive even
today”.
Fourth, with a view to providing more focused attention to the rural
areas, particularly in underdeveloped and under-banked regions, Regional
Rural Banks (RRBs) were set up in 1976. The RBI set up in 1963, Agricultural
Refinance Corporation (ARC) to support investment credit needs of the
agricultural sector. Subsequent to the expansion of ARC with developmental
and promotional functions, ARC was renamed as Agricultural Refinance
and Development Corporation (ARDC) in 1972. Finally, the RBI appointed
a Committee to Review Arrangements for Institutional Credit for Agriculture
and Development (CRAFICARD). CRAFICARD thought that with its onerous
responsibilities in respect of basic functions of central banking in monetary
and credit regulations, the RBI was not in a position to devote the needed
undivided attention to the operational details of the emerging complex rural
credit structure. Therefore, it recommended the establishment of a separate
institution – NABARD (National Bank for Agriculture and Rural Development)
– which would also help integrate short-term, medium term and long-term
credit structure for the agriculture sector and other economic activities in rural
areas. NABARD thus got established on July 12, 1982 as an apex body for
the rural credit institutions to undertake supervisory functions in respect of
cooperative banks (other than urban/primary cooperative banks) and Regional
Rural Banks.
Fifth, the radical economic reforms of the 1990s produced a powerful
impact on banking policies. Two Narasimham Committee reports (1991
and 1998) emphasized financial soundness and operational efficiency of the
