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A PRESENTATION ON 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 nonbanking 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 Banks

The Government thought of instituting rural banks as part of its TwentyPoint 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 villages. 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 Committees Report, the Government of India instituted Regional Rural Banks Ordinance, 1975, promulgated by the President of India on September 26, 1975.

Subsequently, on February 9, 1976, the Government of India passed the Regional Rural Banks Act, 1976, with clarification on some issues.

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 Accepting deposits

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 7,84,145 accounts.

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 the NABARD.

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 and people. 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

1) Haste and lack of Co-ordination in Branch Expansion:- Haste 2)
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



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