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A report submitted by partial fulfillment of

The requirement of



Table 1: Expansion of Regional Rural Banks ««««««««««««««««««««8

Table 2: RRB¶s performance from 1995 - 2004 ..........................................................................13

Table 3: State and Sponsor Bank wise Distribution of RRB¶s «««««««««««««.14

Table 4: Performance and Sponsor Banks across regions«««««««««««««««.15

Table 5: Performance of RRB¶s in 2005, 2006 and 2009«..««««««««««««««17

Table 6: Performance Indicators««««««««««««««««««««««««...20

Chart 1: Comparison of Income and Investment in 2010«««««««««««««««..21

Chart 2: Comparison of Income and Investment in 2009«««««««««««««««..21


RRB ± Regional Rural Bank

GOI ± Government of India

NPA ± Nonperforming assets

NITA=Net Income to Assets

LOTA = Loan as a proportion of Total Assets.

INTA =Investment as a proportion of Total assets.

LIQ=Cash in Hand as a proportion of Total Assets

OE= Operating Expenses as a proportion of Total Expenditure



RRB µs were established in 1995.Since their inception, regional rural banks (RRBs) have
taken deep roots and have become a sort of inseparable part of the rural credit structure in India.
The financial viability of the RRBs has, however, been a matter of concern since the 1980s, just
five years after their existence. A number of committees have gone into the issue of their
financial viability and possible restructuring. This study follows the introduction of RRB¶s.
Subsequently, an attempt is made to enquire as to factors that influence the performance of the
RRBs . The empirical analysis has been taken five RRB and compared their performance with
the previous years and made suggestions


Introduction...................................................................................................................... 6
Formation ............................................................................................................................ 6
Objectives ............................................................................................................................ 6
Capital Structure .................................................................................................................. 7
Organizational structure ....................................................................................................... 7
Functions ............................................................................................................................. 7
Expansion of RRB¶s ............................................................................................................ 8
RRB's Potential Role in Financial Inclusion ......................................................................... 8
Performance of RRB¶s (1995 -2004) .................................................................................. 11
Performance of RRB¶s in 2005 and 2009 ........................................................................... 15
REVIEW OF LITERATURE ......................................................................................... 18
EMPERICAL ANALYSIS ............................................................................................. 19
CONCLUSION .............................................................................................................. 22
REFERENCES .............................................................................................................. 24



Regional Rural Banks (RRBs) were established under the provisions of an Ordinance
promulgated on the 26th September 1975 and the RRB Act, 1976.The objective of these banks is
to ensure sufficient institutional credit for agriculture and other rural sectors.

The institution of Regional Rural Banks (RRBs) was created to meet the excess demand
for institutional credit in the rural areas, particularly among the economically and marginalized
sections. Although the cooperative banks and the commercial banks had socially reasonable
records in terms of geographical coverage and disbursement of credit, in terms of population
groups the cooperative banks were dominated by the rural rich, while the commercial banks had
a clear urban bias.

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"

The RRBs mobilize financial resources from rural / semi-urban areas and grant loans.
Their advances are mostly to small and marginal farmers, agricultural laborers and rural artisans.
The area of operation of RRBs is limited to the area as notified by Government of India (GOI)
covering one or more districts in the State.

Recently these are in news that because the Reserve Bank of India in its discussion paper
on grant of bank licenses to corporate houses said that if corporate were keen on improving
financial inclusions, they could look at taking over some of the weaker RRBs and strengthen
them through capital and technology infusion.


The Govt. of India, in July 1975, appointed a Working Group to study in depth the
problem of devising alternative agencies to provide institutional credit to the rural people in the
context of steps then initiated under the 20 Point Economic Programme. The Narsimham
committee conceptualized the creation of RRBs in 1975 as a new set of regionally oriented rural
banks, which would combine the local feel and familiarity of rural problems characteristic of
cooperatives with the professionalism and large resource base of commercial banks. The
Government of India promulgated the Regional Rural Banks Ordinance on 26th September 1975,
which was later replaced by the Regional Rural Bank Act 1976.


The RRBs have following objectives

ë to develop rural economy
ë to provide credit for agriculture and allied activities;

ë to encourage village industries, artisans, carpenters, craftsmen, etc.;
ë to reduce dependence of weaker sections on money-lenders;
ë to identify a specific and functional gap in the present institutional structure;
ë to supplement the other institutional agencies in credit delivery to rural areas
ë to make backward and tribal areas economically better by opening new branches.


RRB¶s equity is held by the Central Government, concerned State Government and the
Sponsor Bank in the proportion of 50:15:35. A Regional Rural Bank is jointly owned by the
Govt. of India, the Government of concerned state and public sector bank, which sponsored it.
Each bank carries the banking business within the local limits specified by the Govt. notification.

For example Syndicate Bank (Sponsor Bank), Andhra Pradesh Government and Central
Government are providing equity to the Andhra Pragathi Grameena Bank (A Regional Rural
Bank (RRB) in Andhra Pradesh) in the ratio of 50:15:35.


The management of a RRB is vested in a nine-member Board of Directors headed by

ë Chairman who is an officer deputed by a sponsor bank but appointed by the Govt. of
ë Three directors to be nominated the Central Govt.
ë Two directors to be nominated by the concerned State Govt.
ë Three directors to be nominated by the sponsor bank.

The sponsor bank, besides subscribing to the capital and deputing one of its officials as
chairman, provides assistance to RRB in several ways such as financial accommodation,
deputing managerial and other staff and arranging the recruitment of staff and their training.

Regional rural banks in India penetrated every corner of the country and extended a
helping hand in the growth process of the country. 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.

Every RRB may undertake the following types of functions:

The granting of loans and advances particularly to small and marginal farmers and
agricultural laborers individually or to a group, co-operative societies, agricultural processing
societies, co-operative farming societies, etc.


The Reserve Bank of India has brought RRB's under the ambit of priority sector lending
on par with the commercial banks. They have to ensure that forty percent of their advances are
accounted for the priority sector. Within the 40% priority target, 25% should go to weaker
section or 10% of their total advances to go to weaker section.

RRBs started their development process on 2nd October 1975 with the formation of a
Prathama Grameen Bank. From a modest beginning of 6 RRBs with 17 branches covering 12
districts in December 1975, the numbers have grown into 196 RRBs with 14,446 branches
working in 518 districts across the country in March 2004.

      ! "! ! #$$% #$$! #$$

Number of RRB¶s 6 188 196 196 196 86
Number of Branches 17 12206 14509 14446 14484 15235
Number of Districts 12 - 425 518 523 525

Table 1: Expansion of Regional Rural Banks

RRBs have a large branch network in the rural area forming around 43 per cent of the
total rural branches of commercial banks. The rural orientation of RRBs is formidable with rural
and semi urban branches constituting over 97 per cent of their branch network. The growth in the
branch network has enabled the RRBs to expand banking activities in the unbanked areas and
mobilize rural savings.


Post-merger RRBs represent a powerful instrument for financial inclusion. Their outreach
vis-à-vis other scheduled commercial banks particularly in regions and across population groups
facing the brunt of financial exclusion is impressive, as observed from an analysis of Basic
Statistical Returns of the RBI and indicated in the following paragraphs. With merger infusing
the much needed financial strength in RRBs coupled with the local feel and familiarity they
command, RRBs are in a unique position to play a decisive role in financial inclusion.


In rural areas, RRBs account for a substantial 37% of total offices of all scheduled
commercial banks. In semi-urban areas, their share comes to 15%. It goes without saying that
exclusion is more severe in rural areas.

Êanpower Deployment


91% of the total workforce in RRBs is posted in rural and semi-urban areas as compared
to 38% for other scheduled commercial banks (table below). Even in absolute terms, out of a
total workforce of 179,423 deployed by all scheduled commercial banks in rural areas, RRBs
share is 25% (45,062). This is significant considering that at all India level, manpower of RRBs
constitute only 7% of the total manpower of all scheduled commercial banks.

ñavings Êobilization

At all India level, RRBs account for 12% of all deposit accounts of scheduled
commercial banks and a meager 3.5% of deposit amount. However, in rural areas, RRBs share in
deposit accounts is a significant 31% and that in deposit amount 19%.This shows that the
average deposit amount is lower in RRBs than other commercial banks, thereby implying RRBs'
better reach to small depositors.

If we include semi-urban areas for both RRBs and scheduled commercial banks, RRBs'
share in deposit accounts and amount stands at 21% and 11% respectively.

Credit Disbursed

At all India level, RRBs account for 18% of loan accounts of all scheduled commercial banks
and 3% of loans outstanding. However, in rural areas the share of RRBs in loan accounts is an
impressive 38%. More significantly, despite having 38% of all loan accounts, RRBs account for only
21% of total credit outstanding in rural areas, implying thereby their better reach to small borrowers.


If semi-urban branches are included, the share of RRBs in credit accounts and amount
outstanding is of the order of 29% and 13% respectively.

Both deposit and credit data indicate that RRB branches in rural areas have performed better
in relation to other scheduled commercial bank branches. However, RRBs¶ share comes down
significantly when data for both rural and semi-urban areas are considered. This could be due to the
fact that branches of other scheduled commercial banks located in semi-urban areas disburse
considerable loans in rural areas also. This is significant from the point of view of financial inclusion
as rural branches are closer and more active in extending outreach to remote and interior villages.
Viewed from this angle RRBs are particularly well placed to achieve the goal of financial inclusion.

Outreach across Regions

The table below points to RRBs¶ significant presence in North-Eastern, Eastern and Central
Regions which manifest financial exclusion of a high order. Of all the scheduled commercial banks,
RRBs account for 34% of branches in North-Eastern, 30% in Eastern and 32% in Central Regions
whereas their presence is significantly lower (9% to 17%) in other regions. The data points to the fact
that as an institutional group, RRBs are best suited to take up the leadership role in financial
inclusion across priority areas in States of North Eastern, Eastern and Central Regions featuring high
levels of exclusion.

ñavings Êobilization across Regions

Although RRBs account for only 12% of total number of deposit accounts at all India level,
their share is significantly higher (18% to 29%) in the North-Eastern, Eastern and Central Regions
where major interventions are required for financial inclusion. Further, the share of RRBs in a region


in terms of no. of accounts is significantly higher than in terms of amount of deposits in the same
region. These points to the fact that they basically cater to small depositors or the small depositors
are more inclined towards RRBs.

Credit Disbursed across Regions

RRBs account for about one third of total number of credit accounts in North- Eastern,
Eastern and Central Regions as against only 18% at all India level as detailed in the Table below.
Further, the average loan amount disbursed by RRBs is significantly less than by other scheduled
commercial banks. In North-Eastern Region, RRBs account for 36% of loan accounts but only 13%
of the outstanding loan amount. For Eastern Region, the respective shares are 35% and 6% and for
Central Region they are 31% and 10%. It is obvious; RRBs command better outreach and level of
comfort for small borrowers.


The viability of the RRBs could not be the same as other business ventures. A business
unit has all the freedom to take decisions on many matters such as opening branches, deploying
its resources, staff recruitment, its purchases, methods of rendering services etc. But the RRBs
could not be flexible in many of their affairs; even their clientele was specific, scattered, remote
and not assisted by anyone.

The mandate of promoting banking with a rural focus, however, would be an enduring
phenomenon only when the financial health of the RRBs is sound. With built-in restrictions on


their operations (as mentioned above), it is common to expect that the financial health of the
RRBs itself would be a matter of concern.

As regards their financial status, during the year 2003-04, 163 RRBs earned profits
amounting to Rs.953 crore while 33 RRBs incurred losses to the tune of Rs.184 crore. Ninety
RRBs had accumulated losses as on March 31, 2004. Aggregate accumulated loss of RRBs
amounted to Rs. 2,725 crore during the year 2003-04. Of the 90 RRBs having accumulated loss,
53 RRBs had eroded their entire owned funds as also a part of their deposits.

Furthermore, non-performing assets (NPAs) of the RRBs in absolute terms stood at Rs.3,
299 crore as on March 31, 2004. The percentage of gross NPAs was 12.6 during the year ending
March 31, 2004. While 103 RRBs had gross NPAs less than the national average, 93 had NPAs
more than it.

Table 2: RRB¶s performance form 1995 -2004

From the above table the observations are

Deposits & Advances

ë Have grown by 18 times and advances by 13 times between 1980 and 1990.
ë Between 1990 and 2004, deposits and advances grew by 14 times and 7 times

ë Between the year 2000 and 2004, loans disbursed by RRBs more than doubled
(It is reflecting the efforts taken by the banks to improve credit flow to the rural sector).

ë The average per branch advances also increased from Rs.25 lakh in March1990 to Rs.154
lakh in March 2003.


Credit ± Deposit (C-D) Ratio

When one considers the deployment of credit relative to the mobilization of resources,
ë It is more than 100 per cent during the first decade of their operations up to 1987.
ë It has shown an improvement and went up from around 39 per cent in March 2000 to
44.5 per cent in March 2004

The presence of RRBs shows wide variation both across States and sponsor banks. These
can be explained by following table.

Table 3: State and Sponsor Bank wise Distribution of RRB¶s

Although RRBs are spread over twenty-six States, they have most of their presence in
seven States, i.e., Andhra Pradesh, Bihar, Karnataka, Madhya Pradesh, Maharashtra, Rajasthan
and Uttar Pradesh.


Uttar Pradesh has the highest number of RRBs, i.e., thirty six and Kerala has got only two
amongst the major States of the country (Table 3).

The north-eastern States like Manipur, Meghalaya, Mizoram and Nagaland have got only
one RRB.

Like-wise, seven sponsor banks amongst twenty-eight, viz., Bank of Baroda, Bank of
India, Central Bank of India, Punjab National Bank, State Bank of India, United Bank of India
and UCO bank has more than three fifths of the RRBs.

Table 4: Performance and Sponsor Banks across regions

More than 160 RRBs earned profit in March 2004 while 150 RRBs were found to be
earning profits for three consecutive years beginning with the year 2000-01.


More than half of these loss-making RRBs are found to be operating in four States, i.e.,
Bihar, Madhya Pradesh, Maharashtra and Orissa.

Seen at the level of sponsor banks, three banks, i.e., Bank of India, Central Bank of India
and State Bank of India accounted for more than half of the loss making RRBs sponsored by the
Central Bank of India and one each by the Punjab National Bank, SBI and the UCO bank.

Of the five-loss making RRBs found in Madhya Pradesh, two are sponsored by Bank of
Baroda and one each by the Bank of India, the Central Bank of India and the UCO Bank.

Likewise, of the five-loss making RRBs found in Maharashtra, three are sponsored by
Bank of India and two by Bank of Maharashtra.

From the sponsor bank¶s perspective one finds that the RRBs in which they have a stake
and which are not earning profits, are not confined to a single State. It is spread across the States
in which they have a presence. For instance, the eight loss making RRBs for which the Central
Bank of India is the sponsor bank, are spread over Bihar, Madhya Pradesh, Uttar Pradesh and
West Bengal.

Similarly, the twelve loss making RRBs sponsored by the SBI are spread across Andhra
Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand, Nagaland and Orissa. The
same is the case with the RRBs sponsored by Bank of India and UCO bank.

Hence, one finds no strong systematic pattern so as to infer whether or not the
peculiarities of any particular sponsor bank or a specific State in which they operate drives the
performance of RRBs.

In such a situation, financial performance of the RRBs has been modeled based on
balance sheet information of the RRBs for a ten-year period to decipher, what all factors that
contribute to their financial health.


The position RRB¶s improved during 2008-09 when 81 of the 86 banks turning
profitable. RRBs, as a system have attained a landmark business level of Rs.180, 157 crore and
earned a net profit of Rs.1712 crore. The loan outstanding was Rs.65, 840 crore. There has been
spectacular achievement in loan recovery performance, NPA management, and branch and staff

Further, State-wise consolidation of banks has the potential to unleash considerable

synergies in terms of manpower redeployment and fund resources maneuverability, initiation to
new product launches, especially those driven by technologies like internet banking, remittance
transaction, debit/credit cards and anywhere banking services, transaction cost savings, etc. in the
long term.


The larger area of operations consequential to consolidation also provides considerable
leverage in profit and viability prospects of RRBs due to their ability for cross-transfer of
business risks across different regions of operational areas and sectors. Consolidation can lead to
creation of a number of modest and medium sized banks, which will no longer remain tiny banks
with little means.

RBI's recent policy prescription for the financial sector reforms also laid considerable
emphasis on banking consolidation and self-reliance.

     #$$! #$$* #$$
Number of RRB¶s 196 196 86
Number of Branches 14484 14494 15235
Number of Districts covered 523 523 525
Staff 68219 68629 68629
Deposits 62143 71329 114317
Borrowings 5224 7303 12250
Investments 36762 41182 51159
Loans outstanding 32870 39713 65481
No. of RRBs having 83 58 35
accumulated losses
No. of RRBs in profit 166 111 81
Recovery (%) 78% 80% 78%
Owned funds 6181 6647 10318
No. of RRB¶s in losses 30 85 5

Table 5: Performance of RRB¶s in 2005, 2006 and 2009
Source: NABARD Annual Report

The number of RRB¶s which are making profits out of the total number of RRB¶s are
increased in 2005, 2006 and 2009.


6  6+,P6P•P 

The performance of RRBs is postulated to depend upon two broad sets of factors, internal
to the RRBs as well as external to them. The internal factors are represented through the balance
sheet information of the individual RRBs

Net income as a percentage to total assets (NITA) is taken to be the indicator of financial
performance of the RRBs. NITA measures how profitably and efficiently the RRB are making
use of its total assets.

RRBs are scheduled commercial banks whose source of income arises primarily from
lending and investment. Loans and advances of each RRB as a percentage of total assets is
(LOTA).Investments in securities of each RRB as a percentage of total assets (INTA) are
included as explanatory variables.

. The impact of liquidity on profitability is captured through the variable LIQ, which is
represented through Cash in Hand of the RRBs as a proportion of their Assets.

To judge the impact of expense management on balance sheet health, the variable
operating expenses as a percentage of total expenditure (OE) has been taken as another
independent variable.

NITA=Net Income to Assets

LOTA = Loan as a proportion of Total Assets.
INTA =Investment as a proportion of Total assets.
LIQ=Cash in Hand as a proportion of Total Assets
OE= Operating Expenses as a proportion of Total Expenditure

Here we are taking these five values as the performance indicators


-.P• /

RRBs though operate with a rural focus are primarily scheduled commercial banks with a
commercial orientation. Beginning with the seminal contribution of Haslem (1968), the literature
probing into factors influencing performance of banks recognizes two broad sets of factors, i.e.,
internal factors and factors external to the bank.

The internal determinants originate from the balance sheets and/or profit and loss
accounts of the bank concerned and are often termed as micro or bank-specific determinants of
profitability. The external determinants are systemic forces that reflect the economic
environment which conditions the operation and performance of financial institutions.

A number of explanatory variables have been suggested in the literature for both the
internal and external determinants. The typical internal determinants employed are variables,
such as, size and. Given the nature of banking business, the need for risk management is of
crucial importance for a bank¶s financial health.

Risk management is a reflection of the quality of the assets with a bank and availability
of liquidity with it. During periods of uncertainty and economics low down, banks may prefer a
more diversified portfolio to avoid adverse selection and may also raise their liquid holdings in
order to reduce risk. In this context, both credit and liquidity risk assumes importance.

The literature provides mixed evidence on the impact of liquidity on profitability. While
Molyneux and Thornton (1992) found a negative and significant relationship between the level
of liquidity and profitability, Bourke (1989) in contrast, reports an opposite result.

One possible reason for the conflicting findings may be the different elasticity of demand
for loans in the samples used in the studies (Guru, Staunton and Balashanmugamå2004). Credit
risk is found to have a negative impact on profitability 'Miller and Noulas, 1997). This result
may be explained by taking into account the fact that more the financial institutions are exposed
to high-risk loans, the higher is the accumulation of unpaid loans implying that these loan losses
have produced lower returns to many commercial banks (Athanasoglou, Brissimis and Delis,

Some of the other internal determinants found in the literature are funds source
management and funds use management (Haslam, 1968), capital and liquidity ratios, the credit-
deposit ratio and loan loss expenses [Short (1979); Bell and Murphy (1969); Kwast and Rose

(1982)]. Expense management, a correlate of efficient management is another very important
determinant of bank¶s profitability.

There has been an extensive literature based on the idea that an expenses-related variable
should be included in the cost part of a standard microeconomic profit function. In this context,
Bourke (1989) and Molyneux and Thornton (1992) find that better-quality management and
profitability go hand in hand.

+ •  •

The performance indicators of the five RRB¶s are taken to calculate the values for the
RRB¶s performance indicators.

RRB 2010 2009

Grameena 0.624 0.101 0.594 0.129 0.046 0.026 0.089
0.133 0.168 0.022
Grameena 0.526 0.051 0.012 0.122 0.077 0.542 0.049 0.012 0.0126 0.080
Grameena 0.407 0.170 0.040 0.016 0.051 0.648 0.259 0.083 0.025 0.089
Grameena 0.358 0.189 0.189 0.048 0.070 0.036 0.211 0.048 0.016 0.066
Grameena 0.688 0.165 0.043 0.071 0.084 0.729 0.162 0.038 0.015 0.083

Table 6: Performance Indicators

The performance indicators are calculated with the help of annual reports those RRB¶s.
These indicators are telling that some of the banks reducing their operating expense through
different new technology getting profits compared with other banks.







Chart 1: Comparison of Income and Investment in 2010


’ ’ 



Chart 2: Comparison of Income and Investment in 2009


RRBs should extend their services into unbanked areas and increase their credit to
deposit (CD) ratio. As on 31 March 2006, 37 RRBs had CD ratio of less than40%, 44 RRBs
between 40% and 60% and 52 RRBs above 60%. The CD ratio variations ranged from 20% to
116%. As RRBs operate with branches in remote, interior and tribal-dominated areas, they have
a special role to play in financial inclusion.

The following areas would require attention from the point of view of financial inclusion.

‡ Setting exclusive targets for microfinance and financial inclusion,

‡ Providing funding support &
‡ Providing technology support

Keeping the above in view, the following specific recommendations are made:
No further merger of RRBs
Recapitalization of RRBs with negative Net Worth
Widening network and Expanding coverage
Strategic microfinance plan with NABARD support
Pilot testing of BF / BC Model by RRBs
Separate credit plan for excluded regions
Strengthening Boards of Management
Tax Incentives
NABARD to support HR development in RRBs
Implementation of RBI initiatives for financial inclusion



The study made an attempt to examine whether the problems associated with the RRBs
are specific to certain sponsor banks or States in which they operate.

Based on the balance sheet information on individual RRBs for the past ten years and
present two years, this study has approached the issue primarily from the asset side of the RRBs
balance sheet.

1. RRBs were established ³with a view to developing the rural economy by providing, for the
purpose of development of agriculture, trade, commerce, industry and other productive activities
in the rural areas, credit and other facilities, particularly to small and marginal farmers,
agricultural laborers, artisans and small entrepreneurs, and for matters connected therewith and
incidental thereto´(RRBs Act, 1976).

2. Debate in the XV Lok Sabha on Regional Rural Bank (Amendment Bill, 2004).

3. RRBs alone have organized roughly 12 lakh self-help groups, 45 percent of the total self-help
groups in the country. RRBs have also issued over 40 lakh Kisan Credit Cards to the farmers and
organized over 5,000 out of 11,000 farmers¶ clubs under NABARD scheme.

4. Following the recommendations of the Narasimham Committee (1991),there have been

gradual relaxations in their choice of clientele and area of operations.

5. Lack of a single owner with clear ownership and control, and no prospects for profits, diffused
accountability and weakened oversight of the RRBs.

6. Though the growth in credit when seen in isolation gives an impression of the impressive
strides made by RRBs in disbursing credit, they account for a very small proportion (around 3
per cent) of the total assets of the Indian banking sector, despite their significant branch network.

7. While C-D ratio for 50 RRBs was more than 60 per cent that for 87 banks was less than 40 per
cent in March 2004.

8. Net Income has been defined as the excess of total income over total expenditure.

9. Specifically, the sponsor bank contributes thirty-five per cent of issued capital of a RRB,
appoints its chairman, advises on decisions regarding investments, monitor its progress and
suggest corrective measures to be taken by the RRB

10. The left out RRB is the Kshetryia Kisan Gramin Bank due to lack of information on the
Sponsor Bank for the entire period of 1994-2003. This RRB is sponsored by U.P.S.C.B., a
Cooperative Bank.


11. This in a way testifies the appropriateness of employing the extended dynamic model for
estimation. Guided by statistical significance, two lags of the dependent variable have been used
in the GMM estimation.

12. The p-values for the Sargan test are 0.18, 0.10 and 0.08 for the profit making, loss making
and all RRBs, respectively.

13. The Government of India (Ministry of Finance), issued nine notifications on September 12,
2005 for amalgamation of 28 RRBs into nine new RRBs sponsored by nine banks in six States.

These amalgamations have become effective from September 12, 2005.



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