Banking Awareness 08: Regional Rural Banks.

Are you willing to know the detailed information about the Regional Rural Banks? This article provides you the detailed information about it. Regional Rural Banks(RRBs) are Indian Scheduled Commercial Banks which are operating at the regional level in the different States of India. They have been created with a view of serving primarily the rural areas of India with basic banking and financial services. RRBs also perform a variety of different functions. The Nationalization of the banks in 1969 which were boosted the confidence of the public in the banking system of the country. However, in the early 1970s, there was a feeling that even after Nationalization, their culture issues which made it difficult for the commercial banks, even under government ownership, to lend to farmers. this issue was taken up by the government and it set up Narasimham Working Group in 1975. On the basis of this committee recommendations, a Regional Rural Banks Ordinance was Promulgated in Sep-1975, which was replaced by the Regional Rural Banks Act 1976.

Genesis Of Regional Rural Banks:- 

It came to Existence on Gandhi Jayanthi in 1975, with the formation of the Prathama Grameen Bank. The rural banks had the legislative backing of the Regional Rural Banks Act 1976. This act was allowed the government to set up the banks from time to time whenever it considered necessary.

Every bank was to be sponsored by a “Public Sector Bank”, however, they were planned as the self-sustaining credit institution, which was able to refinance their internal resources in themselves and was excepted from the statutory pre-emptions.

Problems with Regional Rural Banks:- 

But the original assumptions were belied as within a very short time, most banks were making losses. The RRB concept was based upon the policy that they would lend only to the weaker sections of rural society, charging lower interest rates, opening branches in remote and rural areas and keep a low-cost profile.

But the commercial motivation was absent. Initially, the banks expanded and by the end of the year 1985, RRBS had opened 12606 branches. During this period their credit-deposit Ratio (C.D.R) expanded very fast. In 1976 it was 165% and gradually declined to 104 % in December 1986. The Credit Deposit Ratio continuously declined thereafter. But by that time, the branch network had expanded so large that it would be politically unwise for the government to merge the RRBs with sponsor Banks.

Recommendations of Narsimham Committee on RRBs:-

In the year 1990s, it reiterated that the RRBs should be merged with the sponsor banks. By 1993,172 of the 196 RRbs were Recorded Unprofitable. The paid up Capital which was about 25 Lakhs at that time was not able to absorb the loan losses of most of the RRBs. The loan recovery was around 40%. The Narasimham Committee recommended that the RRBs should also be permitted to engage in all types of banking business and should not be forced to restrict their operations to the target groups.

Some efforts were done by NABARD with the funding support of the Swiss Development Corporation (SDC). It took a number of HR and Organizational Development in those banks.

Turnarounds of RRBs:- 

The above discussions make it clear that most RRB was making a loss and had deviated from the original idea that had created by them. But there were some profit-making RRBs also. Some reforms led this rise in the number of the profit-making RRBs but most of them were having a low credit deposits ratio. In 2005, based upon the recommendation of an internal working group the RRBs were asked to maintain a capital to risk-weighted asset ratio at 5% and over the period of time, they were expected to align themselves to Basel I standards. However, the major reform was to merge the RRBs with the sponsor banks.

Here were are mentioning the Number of Regional Rural Banks in India, they are:- 

Currently, there is a bill pending to amend the RRB Act which aims at increasing the pool of investors to tap capital for RRBs.

Regulations of RRBs:- 

These are Regulated by the National Bank for Agriculture and Rural Development. Here that the currently seven states like Tripura, Nagaland, Manipur, Mizoram, Arunachal Pradesh, Meghalaya, and Puducherry. these are the states which have state-level RRBs. Gujarat and Karnataka to have demanded the formation of the state level RRB.