A large number of the branches of banks have been set up in the villages. The main purpose of setting up these banks is to develop the habit of saving among the villagers and to gives loans to the farmers for boosting the production in one or the other way. So far, banks had been concentrated in the big cities and Indian villagers had no faith in them.
The new banks also intend re- channel bank credit from the big industries to small sectors. With the intention to promote 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, 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 the staff for the rural banks at lower salaries. But this type of discrimination would have been dangerous. Therefore, it was given up.
Another problem with regard to the rural banks is the credit worthiness of the poor. Indian farmers are so poor that they cannot pay back their loans. The rural Indian surveys it quite clear that practically they have no credit worthiness. Their socio-economic mobility is almost zero. Long age in Ranchi the Government experimented with the idea of advancing loan but the experiment failed, That is why the banks used to fear that their credit would never be paid back.
Another difficulty for the rural banks is that loans cannot be processed so easily. Processing loans will also entail heavy expenditure. This is also going to affect their financial position. Still the establishment of the rural banks has been decided because the social advantages are more important than the commercial consideration.
Rural banks will definitely encourage savings. No doubt villages do not have to pay income tax and they get many other concessions, yet their saving is not significant. Despite all these hurdles rural banking system will boost up the economy of villages, and so the economy of the country.
​​​​​​​Q. Which of the following is/are purpose/s of setting up banks in rural areas
I. Replacing other credit-giving body
II. Giving loans to farmers
III. Increase the amount of savings of villagers.
  1. Only II
  2. Only I and III
  3. Only II and III
  4. Only I
  5. I II and III


The correct option is C Only II and III
Only II and III

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