Correct Option
The correct option is 2 and 3 only.
Explanation
The critical appraisal of rural banking in India involves evaluating the reach of formal credit systems, the health of loan assets, and the policy shifts occurring before and after the economic reforms of 1991. While the nationalization of banks in 1969 emphasized social banking, the 1991 reforms shifted the focus toward profitability and financial viability.
Statement-wise Analysis
- Statement 1 is Incorrect. While the expansion of the banking system improved rural access to credit, formal institutions have not successfully mobilized deposits from every rural household. A significant portion of the rural population remains outside the formal banking net or continues to rely on informal sources like moneylenders. Furthermore, critics argue that banks have failed to cultivate a strong culture of deposit mobilization among the rural populace.
- Statement 2 is Correct. Agriculture loan default rates in India have been chronically high. This phenomenon is attributed to various factors, including the inherent risks of rain-fed agriculture, lack of collateral, and frequent farm loan waivers, which often disrupt credit discipline and lead to high Non-Performing Assets (NPAs).
- Statement 3 is Correct. The financial sector reforms initiated after 1991 (largely based on the Narasimham Committee recommendations) aimed to improve the efficiency, profitability, and financial viability of banking institutions. Consequently, the policy focus shifted away from the expansionist "social banking" approach of the pre-1991 era toward strengthening the balance sheets of banks.
Key Takeaway
Key Takeaway: The post-1991 banking reforms prioritized the financial viability of institutions over the earlier goal of aggressive social banking expansion. Despite improvements, challenges such as high agricultural loan defaults and incomplete deposit mobilization persist in the rural banking sector.