Critically evaluate the role of the rural banking system in the process of rural development in India.

Rapid expansion of the banking system has a positive effect on rural farm and non-farm output, income and employment, especially after the green revolution. It has helped the farmers to avail services and credit facilities and a variety of loans for meeting their production needs. However, there still exists a number of problems with Indian banking system in meeting rural credit requirements because of the chronic under-performance of formal credit institutions and high incidence of overdue instalments by the farmers. Agricultural loan default rates have been chronically high. Except commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation. Moreover, about 50% of the defaulters have been categorised as 'Wilful defaulters' which poses hurdles in the smooth functioning of the banking system. Hence, the banking system is required to change its outlook from just being lenders to building up relationship banking with the borrowers.