The impact of banking and financial sector reforms on rurl credit: a study with special focus on Kerala

Abstract

Rural development has always remained the focal point of economic development since the beginning of the planning era. Eradication of rural poverty depends largely on the availability of adequate credit. So banks have a crucial role to play in the development process of rural economy. But the banking sector reforms (BSRs) introduced in India since 1990s have changed the attitude of banks and they now provide top priority for profitability and wealth accumulation. Their participation in rural areas in the form of number of branches, growth of deposits and credits, priority sector and agriculture advances and credit deposit ratios declined during the post reform period as compared to the pre reform period. Because of the enhanced focus on profit, banks find it less attractive to maintain their rural branches. Although the reduction of statutory liquidity reserve ratio and cash reserve ratio has resulted in large supply of money with in the banking system, actually the rate of growth in advances drastically declined, especially in priority sector advances (PSA). Agriculture is not getting its due share in the bank credit. In this context, the impact of BSRs on rural credit of SCBs is analysed. The study was both empirical and analytical. The period of study is from 1981 to 2004. The period from 1981 to 1991 is taken as pre reform and from 1992 to 2004 as post reform period for the study. Both primary and secondary data were used. Primary data were collected with a structured questionnaire from the branch managers of scheduled commercial banks in Ernakulam and Idukki districts. A multi stage sampling technique was designed for the study. The performance of priority sector advance of bank branches of respondent managers was analysed. The attitude of branch managers towards PSA and the intensity of problems in PSA and government schemes lending of their branches were also evaluated. Further the attitude of managers towards BSRs and their level of support towards BSRs were assessed.