Regional Rural Bank
The proposal for instituting a kind of ‘rural banks’ was first mooted by the Banking Commission in its Report published in 1972.
To strengthen the field of co-operative banking in the rural sector, the commission in proposed the creation of a new category of ‘rural banks’ in one of the three possible ways:
Conversion of selected viable or potentially viable primary agricultural societies (PACS) into ‘rural co-operative banks’ which would provide a full range of banking facilities, together with certain closely allied non-banking services.
Restructuring a sound primary agricultural credit society as a subsidiary of a commercial bank. It is to be called ‘rural subsidiary bank’.
Commercial banks may also set-up their own rural subsidiary banks with local participation in capital and management, where suitable primary societies are not available.
Functions of Rural Banks
According to the Banking Commission, the rural banks should
render the following functions:
To accept deposits
To grant advances
To provide ancillary banking services
To supply inputs and equipments to farmers
To provide asssistance in the marketing of their products
To maintain godowns
To help in the overall development of villages in its area
To extend credit and all other banking services
The scheme of Regional Rural
The Government thought of instituting rural banks as part of its Twenty-Point Programme, also referred to as the New Economic Programme, in 1975, inspired by considerations of lowering the costs of rural banking and operating such banks with local staff in a homely atmosphere of the
The Government of India then appointed a Working Group on Rural Banks, headed by Shri M. Narasimah, to examine in detail the issues involved in the establishment of new rural banks as subsidiaries of the public sector banks to deal with the problem of rural finance. The Working Group submitted its report on July30,1975.
The Working Group, howevere, conceieved a grossly different idea from the concept of ‘rural banks’ advocated by the banking Commission. The Group recommended the establishment of state-sponsored regionally based and rural oriented commercial banks called Regional Rural banks.
Based on the recommendation and after due consideration of the
scheme suggested by the Narasimah Committee’s Report, the
Government of India instituted Regional Rural Banks Ordinance,
1975, promulgated by the President of India on September 26,
Subsequently, on February 9, 1976, the Government of India
passed the Regional Rural Banks Act, 1976, with clarification on
The Organisation and Functions of
the Regional Rural Banks
The Regional Rural Banks (RRB) aimed at providing credit and other
facilities to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas.
Structure and Organisation of the RRB
The authorised capital of an RRB is fixed at Rs.1 crore and its issued capital at Rs. 2 lakhs. Of the issued capital, 50 percent is to be subscribed by the Central Government, 15 percent by the concerned State Govrnment and the rest 35 percent by the sponsoring bank.
The working and affairs of the RRB are directed and managed by a Board of Directors consists of a Chairman, three directors to be nominated by the central Government concerned, and not more than two directors to be nominated by the State Government concerned, and not more than 3 directors to be nominated by the sponsoring bank. The chairman is appointed by the Central Government and his term of office does not exceed five years.
Functions of the RRB
Granting of loans and advances to small and marginal farmers
and agricultural labourers, whether individually or in groups,
and to co-operative societies, agricultural processing societies,
co-operative farming societies.
Granting of loans and advances to artisans, small
entrepreneurs and persons of small means engaged in trade,
commerce and industry or other productive activities within its
area of co-operation
Operations of RRBs
In December 1989, 196 reporting RRBs
have aggregate deposits of Rs. 3,644 crores
and advances of Rs. 3,155 crores. Over 92
percent of the total advances are made by
the RRBs to the weaker sections. Their
advances under IRDP during 1986
amounted to Rs. 200 crores relating to
Finance from NABARD
In December 1986, the RRBs obtained
refinance amounting to Rs. 246.9 crores
from the sponsor banks. They borrowed
Rs. 226.9 crores of short-term loans and
Rs. 80.3 crores of medium-term loans from
Working Group on RRBs
The Reserve Bank of India had constituted
a Working Group on RRBs, under the
chairmanship of Shri S. M. Kelkar, to
review the various aspects of the working
of the RRBs. The Group submitted its
Report in June 1986.
Following are the major recommendations
of the Kelkar Group:
1) The RRBs should be permitted to increase their authorised
share capital from Rs.1 crore to Rs.5 crores and issued capital
from Rs.25 lakhs to Rs.1 crore.
2) The sponsor banks should, on behalf of RRBs, invest the
deposits kept by them in current account for SLR requirement
in government securities.
3) The sponsor banks should lower the rate of interest on
refinance from 8.5 percent to 7 percent.
4) New RRBs should be established only in consideration of the
genuine need to serve a neglected area, especially tribal areas
5) The coverage of RRBs be restricted to 2 districts in order to
have a better supervision ad control of their branches.
Major Problems Faced By RRBs
Haste and lack of Co-ordination in Branch Expansion:-Haste in branch expansion programme in many cases have resulted in lopsidedness due to lack of co-ordination.
Difficulties in Deposit Mobilization:-On account of their restrictive lending policy which excludes richer sections of the village society, these potential depositors show least interest in depositing their money with these banks.
Constraints in Deposit Mobilisation:-State and local Governments and their agencies also have not co-operated much by maintaining their
deposits accounts with the RRBs.
Slow Progress in Lending Activity:-The RRBs pace of growth in loan business is slow.
Urban-Orientation of Staff:-There is no true local involvement of the bank staff in the village where they serve.
Procedural Rigidities:-The RRBs follow the procedures of the
scheduled commercial banks in the matter of deposits and advancing loans which are highly complicated and time-consuming from the villagers’ point of view