Regional Rural Banks

Regional Rural Banks (RRBs)

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RRBs Rural banking in India started since the establishment of banking sector in India. RRBs were set up after nationalizations of banks in 1969 when emphasis shifted to providing more credit to weaker sections. Regional Rural Banks were established under the provisions of an Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. Rural Banks in those days mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country.

Objectives of RRBs The importance of the rural banking in the economic development of a country cannot be overlooked. As Gandhiji said “Real India lies in Villages,” and village economy is the backbone of Indian economy. Without the upliftment of the rural economy as well as the rural people of our country, the objectives of economic planning cannot be achieved. In fact, the real growth of Indian economy lied in the freeing of rural masses from acute poverty, unemployment, and socio-economic backwardness.

Objectives of RRBs

contd……

RRBs are oriented towards meeting the needs of the weaker sections of the rural population consisting of: - Small and marginal farmers, - Agricultural labourers, - Artisans, - Small entrepreneurs, - Mobalise deposits from rural households RRBs are expected to make credit available to rural households besides inspiring carefulness. Put it simple to ensure sufficient institutional credit for agriculture and other rural sectors.

Credit Delivery System • Grant of credit at cheap or concessional rates • Lending to individuals belonging to weaker sections without checking the viability of the activity proposed to be undertaken.

Operational Area of RRB The area of operation of RRBs is limited to the area as notified by GoI covering one or more districts in the State.

Ownership of RRBs RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks (27 scheduled commercial banks and one State Cooperative Bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively.

Reform Process - RRBs In order to provide access to low-cost banking facilities to the poor, the Narasimham Working Group (1975) proposed the establishment of a new set of banks, as institutions which "combine the local feel and the familiarity with rural problems which the cooperatives possess and the degree of business organization, ability to mobilize deposits, access to central money markets and modernized outlook which the commercial banks have". RRBs started their development process on 2nd October 1975 with the formation of a single bank (Prathama Grameen Bank). As on 31 March 2006, there were 133 RRBs (post-merger) covering 525 districts with a network of 14,494 branches.

RBI Assistance - With a view to facilitate RRBs operations, the RBI gave RRBs direct access to refinance assistance at a concessional rate of three per cent below the bank rate. - Allowed to maintain a lower level of SLR than commercial banks. - Allowed to pay half per cent more interest on all deposits except those of three years and above. - Sponsor banks IDBI, NABARD, SIDBI, and other FIs are statutorily required under the RRBs Act to provide managerial and financial assistance to RRBs.

Key Performance Indicators : RRBs (Rs. Crore) Indicator No. of RRBs No. of districts covered No. of branches No. of Staff Owned funds Deposits Borrowings Investments Loans outstanding Credit-deposit (CD) ratio Loans issued No. of RRBs having accumulated losses Accumulated losses No. of RRBs in profit Net NPA (%) Recovery (%) (as on 30 June) Per branch productivity Per staff productivity

31.03.2004 31.03.2005 31.03.2006 196 196 133 518 523 525 14446 14484 14494 69249 68912 68629 5438 6181 6647 56350 62143 71329 4595 5524 7303 36135 36761 41182 26114 32870 39713 46% 53% 56% 15579 21082 25427 90 83 58 2725 2715 2637 163 166 111 8.55% 4.84% 3.99% 73% 78% 80% 5.71 6.56 7.66 1.19 1.38 1.62

The following trends can be highlighted • 111 RRBs out of total 133 registered profit in the year 2005-06. • CD Ratio has been increasing from 46% on 31 March 2004 to 53% on 31 March 2005 and further to 56% on 31 March 2006. • Recovery percentage has been improving from 73% during 2003-04 to 80% during 2005-06. • Net NPAs have declined from 8.55% on 31 March 2004 to 3.99% on 31 March 2006. • Loans disbursement registered an impressive 35% annual growth in 2004-05 and 21% in 2005-06. • Per branch productivity has increased from Rs. 5.71 crore on 31 March 2004 to Rs. 7.66 crore on 31 March 2006. • Per staff productivity has increased from Rs.1.19 crore on 31 March 2004 to Rs.1.62 crore on 31 March 2006. • There has been a decline in the total number of staff.

Population Group and Bank Group-wise (March 2005) Bank Group

Rural Offices

Semi-urban Offices

Urban / Metro Offices

Total

No

% to Total

No

% to Total

No

% to Total

No

% to Total

RRBs

11824

37

2284

15

537

02

14645

21

SCBs other than RRBs

20143

63

13335

85

21846

98

55324

79

Total

31967

100

15619

100

22383

100

69969

100

Evaluation of RRBs The Committee constituted by the RBI in June 1977 to valuate the performance of RRBs concluded that with some modifications in their organisation and structure. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development which inter alia examined the role of RRBs in the rural development work, suggested the following: • Preference for opening bank branches than commercial banks • The eligible business of commercial banks’ rural branches may be transferred to RRBs. • The losses in initial years of RRBs may be met by shareholders and equity capital should also be raised. • The various facilities provided by sponsor banks should continue for 10 yrs in each case • Concessionary refinance by RBI should be continued • The control, regulation, and promotional responsibilities should be transferred from the GOI to RBI or NABARD.

Regulatory Control RRBs are allowed up to December 31, 2000 to maintain cash reserves at 3 per cent of their demand and time liabilities A number of measures were taken since 1995 not only to make RRBs viable but also to enable them to function effectively. Apart from recapitalisation and infusion of equity, the measures include: Deregulation of interest rates on advance and deposits of above one year maturity; rationalization of branches; and relaxation of norms relating to investments by RRBs. In 1998-99 NABARD introduced several policy measures for improving overall performance. They are: - Quarterly / half yearly review of RRBs especially weak ones by the sponsor banks - Merger of RRBs coming under a sponsor bank and operating in contiguous areas - Off-site surveillance - Framing of Appointment and Promotion rules (1998) for the staff of RRBs - Introduction of Kissan Credit Cards for provision of credit to farmers.