Answer:
Rural banking system has created a positive effect on rural farm and non-farm output, income and employment. It helps farmers to avail services and credit facilities and a variety of loans for meeting their production needs. With the help of credit facilities provided through rural banking system, India has achieved food security which is reflected in the abundant buffer stocks of grains.
(i) However, our banking system is not completely free from shortcomings. Except commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation by lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high as farmers have failed to pay back loans .either due to poor economic condition or lack of willigness to pay back loans.
(ii) Thus, the expansion and promotion of the rural banking sector has not proceeded at line desired pace after reforms. Banks need to change their approach from just being lenders to building up relationship banking with the borrowers in order to improve the situation. Farmers should be encouraged to inculcating the habit of thrift and to utilise financial resources efficiently for productive purposes.
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