REGIONAL RURAL BANKS

The Regional Rural Banks (RRBs)were established in 1975 under the provisions of the
Ordinance promulgated on 26th September 1975 and Regional Rural Banks Act,
1976. Regional rural banks (RRBs), which have been established in rural India, are intended to
play an important role in rural credit. They have evolved into low-cost, rural-based institutions.

Regional rural banks, by bringing credit facilities closer to the poorer sections of the rural
population, will help to free them from the grip of the moneylender. In addition, it should be
noted that small/marginal farmers, agricultural labourers, artisans, and other vulnerable
groups in rural areas are the primary recipients of loan assistance from regional rural banks.

Regional Rural Banks – Historical Perspective

 In the mid-1970s, it was recognised that more systematic and coordinated efforts were
required to strengthen the flow of institutional rural credit.
 The aim is to develop the rural economy by providing credit for both agricultural and
non-agricultural productive activities, with a focus on the most vulnerable groups, such as
small and marginal farmers, agricultural labourers, artisans, and small businesses.
 In its report dated July 30, 1975, the Working Group headed by Shri M. Narsimham
recommended the establishment of a new type of institution to supplement the efforts of
commercial and cooperative institutions in the rural sector.
 Such Rural banks were to be established in areas with a weak credit structure.
 This was the start of Regional Rural Banks, which made rapid progress in the decade that
followed.
 The first five regional rural banks were established on October 2, 1975, in West Bengal,
Uttar Pradesh, Rajasthan, and Haryana.
 In 1977, the government established the Review Committee on Regional Rural Banks,
chaired by Prof. M.L. Dantwala, to investigate the operation of RRBs.
 The committee made several recommendations, including encouraging the establishment
of RRBs in areas where central co-operative banks can be converted to RRBs.
 According to the committee, the better-off segments of rural society should not be
completely denied credit because this would have a negative impact on mobilisation and
depress it.

What are Regional Rural Banks?

 Regional Rural Banks were established in accordance with the provisions of an
Ordinance promulgated on September 26, 1975, and the RRB Act, 1976, with the goal of
ensuring adequate institutional credit for agriculture and other rural sectors.
 The Regional Rural Banks were created with the intention of combining the strengths of
cooperative and commercial banks.
 It was hoped that these would provide cheap and adequate credit while also being
operationally efficient and easy to access.
  The primary goal of Regional Rural Banks was to end the rural debt culture and
close the credit gap that existed between geographical regions.
 RRBs are operationally sponsored by scheduled banks, which are typically public
sector commercial banks.
 Instead of burdening commercial banks by extending their operations over large areas
and spreading resources thin, RRBs were thought to be able to function intensively and
confine their operations to a single region consisting of one or two contiguous districts.
 Thus, RRBs operate similarly to commercial banks, albeit with a smaller geographical
reach for each of them.
 The Central Government, State Governments, the Reserve Bank of India (RBI), and
smaller banks all work together to establish new RRBs and assist them in their
operations.
 Since 1978, the RBI has primarily carried out promotional functions, while state
governments carry out statutory functions.
 RRBs are jointly owned by Gol, the relevant State Government, and Sponsor Banks; the
issued capital of an RRB is divided among the owners in the proportions of 50%, 15%,
and 35%, respectively.
 Currently, there are 43 RRBs in India serving 14494 branches in 525 districts across the
country.

Name of Regional Rural Bank Sponsor Bank State

Andhra Pradesh Grameena Vikas Bank State Bank of India Telangana
Andhra Pragathi Grameena Bank Syndicate Bank Andhra Pradesh
Arunachal Pradesh Rural Bank State Bank of India Arunachal Pradesh
Aryavart Bank Bank of India Uttar Pradesh
Assam Gramin Vikash Bank United Bank of India Assam
Bangiya Gramin Vikash Bank United Bank of India West Bengal
Baroda Gujarat Gramin Bank Bank of Baroda Gujarat
Baroda Rajasthan Kshetriya Gramin Bank Bank of Baroda Rajasthan
Baroda UP Bank Bank of Baroda Uttar Pradesh
Chaitanya Godavari Grameena Bank Andhra Bank Andhra Pradesh
Chhattisgarh Rajya Gramin Bank State Bank of India Chhattisgarh
Dakshin Bihar Gramin Bank Punjab National Bank Bihar
Ellaquai Dehati Bank State Bank of India Jammu & Kashmir
Himachal Pradesh Gramin Bank Punjab National Bank Himachal Pradesh
J&K Grameen Bank J&K Bank Ltd. Jammu & Kashmir
Jharkhand Rajya Gramin Bank State Bank of India Jharkhand
Karnataka Gramin Bank Canara Bank Karnataka
Karnataka Vikas Grameena Bank Syndicate Bank Karnataka
Kerala Gramin Bank Canara Bank Kerala
Madhya Pradesh Gramin Bank Bank of India Madhya Pradesh
Madhyanchal Gramin Bank State Bank of India Madhya Pradesh
Maharashtra Gramin Bank Bank of Maharashtra Maharashtra
Manipur Rural Bank United Bank of India Manipur
Meghalaya Rural Bank State Bank of India Meghalaya
Mizoram Rural Bank State Bank of India Mizoram
Nagaland Rural Bank State Bank of India Nagaland
Odisha Gramya Bank Indian Overseas Bank Odisha
Paschim Banga Gramin Bank UCO Bank West Bengal
Prathama UP Gramin Bank Punjab National Bank Uttar Pradesh
Puduvai Bharthiar Grama Bank Indian Bank Puducherry
Punjab Gramin Bank Punjab National Bank Punjab
Rajasthan Marudhara Gramin Bank State Bank of India Rajasthan
Saptagiri Grameena Bank Indian Bank Andhra Pradesh
Sarva Haryana Gramin Bank Punjab National Bank Haryana
Saurashtra Gramin Bank State Bank of India Gujarat
Tamil Nadu Grama Bank Indian Bank Tamil Nadu
Telangana Grameena Bank State Bank of India Telangana
Tripura Gramin Bank United Bank of India Tripura
Utkal Grameen Bank State Bank of India Odisha
Uttar Banga Kshetriya Gramin Bank Central Bank of India West Bengal
Uttar Bihar Gramin Bank Central Bank of India Bihar
Uttarakhand Gramin Bank State Bank of India Uttarakhand
Vidharbha Konkan Gramin Bank Bank of India Maharashtra

Regional Rural Banks – Significance

 Every RRB operates as a commercial bank, and in addition to directly granting short-term
and long-term loans, it has the authority to mobilise savings.
 They give loans for agriculture, allied activities, retail trade, and small rural industries.
 They also specifically target the group of small and marginal farmers, landless labourers,
rural artisans, and others through the Integrated Rural Development Programme
by extending credit to the poorest of the poor in rural areas.
 The Regional Rural Banks has a Priority Sector Lending (PSL) target of 75% where
loans are lent to agricultural activities and vulnerable sectors.
 These banks are also providing financial assistance to regional cooperative institutions
inlow-incomestrengthen their financial bases and enable them to play a more positive role
as viable financial institutions engaged in rural development.

Regional Rural Banks – Limitations

 The most troubling aspect of RRB operation is that they are, on average, losing money.
 The main factor that has contributed to their loss of profitability is that they exclusively
lend to the poorer sections at low-interest rates, despite the fact that their operational
costs in handling small loans are quite high.
 Aside from that, loan recovery is unsatisfactory, and debts are piling up.
 PRIVATE SECTOR BANKS

Private sector banks are those in which private individuals or private corporations own a
significant portion of the bank's equity. Even though these banks adhere to the guidelines of the
country's central bank, they are free to develop their financial strategies for their customers. A
significant portion of these banks' shares are traded on the stock market, and anyone can
purchase a significant portion of these banks' shares on the stock market.

What is a Private Sector Bank?

 Private Sector Banks are the banks in which private individuals own and maintain the
majority of the shares or equity.
 Initially, public sector banks dominated the Indian banking sector, but after the 1990s,
private sector banks emerged and expanded rapidly.
 Their rapid growth was due to their use of cutting-edge technology, new financial tools,
and cutting-edge innovations.
 In India, private sector banks are divided into two types.
o Old Private Sector Banks (emerged before 1968)
o New Private Sector Banks (emerged after the 1990s)
 Old Private Sector Banks are those private sector banks that existed at the time of
nationalization.
 The Reserve Bank of India issued guidelines for the establishment of new private sector
banks in India in 1993.
 The majority of a bank's share capital is held by private individuals. These banks are set
up as limited-liability corporations.
 Currently, there are 21 private sector banks in India.

List of Private Sector Banks

Axis Bank IndusInd Bank
Bandhan Bank Jammu and Kashmir Bank
City Union Bank Karnataka Bank
Dhanlaxmi Bank Kotak Mahindra Bank
DCB Bank Karur Vysya Bank
Federal Bank Lakshmi Vilas Bank
HDFC Bank Nainital Bank
ICICI Bank RBL Bank
IDFC Bank South Indian Bank
IDBI Bank Tamilnad Mercantile Bank
YES Bank
Private Sector Banks – Advantages
 Customers are offered quick service by private sector banks.
 These banks also provide tailored services based on the customer's financial
requirements.
 Banks in the private sector have a streamlined management system.
 Private sector banks can make quick financial decisions.

Private Sector Banks – Disadvantages

 Private sector banks charge additional fees for all financial services.
 These banks only operate in cities, making them inaccessible to the rural population.
 Employees in private sector banks have no job security.

Conclusion
 Private Sector Banks are solely owned by major public shareholders, who tend to take the
entire profit that the Private Sector Banks make.
 These private sector banks are more focused on meeting the needs of their customers than
government-owned public banks.
 Private sector banks also offer additional services to attract customers and persuade them
to invest.

PUBLIC SECTOR BANKS

Public sector banks (PSBs) are those in which the government owns more than 50% of the
stock. The government regulates the financial guidelines for these banks. Most depositors
believe that their money is safer in public sector banks because they are owned by the
government. As a result, the majority of public sector banks have a sizable customer base.
The State Bank of India (SBI), for example, is India's largest public sector bank.

Historical Perspective
 As India embarked on planned economic growth soon after independence, it, like any
other country, required a strong and efficient financial system to meet the diverse
requirements of credit and development.
 To achieve this goal, it used a mixed pattern of economic development and created a
financial system to support it.
 There are few parallels in the world to its success, particularly in bringing banking to the
masses and transforming the banking system into a powerful vehicle for advancing public
policy.
  The rapid expansion of the banking system in terms of presence and penetration in the
two decades following bank nationalization in 1969 was impressive.
 By the 1990s, public sector banks controlled 90% of the country's banking business.
 By March 1992, all public sector banks had a fantastic branch network of 60,646
branches spread across the length and breadth of the country.
 Even as the banking system's branch network expanded rapidly, it was clear by the early
1990s that the efficiency of the financial system could not be measured solely by
quantitative growth in terms of branch expansion and growth in deposits/advances.
 The financial strength and operational efficiency of Indian banks and financial
institutions operating in a highly protected and regulated environment did not meet
international standards.
 Global and domestic developments necessitated corrections, primarily to strengthen the
financial system and bring it up to par with institutions abroad.
 As a result, beginning in 1992, a process of financial sector reforms was initiated as part
of a larger program of structured economic reforms.

What is a Public Sector Bank?

 These are banks in which the Government of India owns a majority stake.
 Public sector banks account for the majority of the banking business in India and are
divided into two types:
o State Bank of India
o Nationalized Banks

State Bank of India

 This group includes the State Bank of India, India's largest commercial bank.
 The State Bank of India Act, 1955, established the State Bank of India by converting
the then-existing Imperial Bank of India into the State Bank of India.
 Following the formation of the State Bank of India in 1955, another 14 banks were
nationalized between 1969 and 1991. These were the banks with more than 50 crores in
national deposits.
 Another six banks were nationalized in 1980, bringing the total to twenty.
 The formation of the State Bank Group was intended to accelerate the expansion of
banking facilities in rural areas.

Nationalised Banks
 After about a decade, the Banking Companies (Acquisition and Transfer of
Undertakings) Act 1970, enacted in July 1969, nationalized 14 major commercial banks
in India.
 Six more commercial banks were nationalized a decade later, in 1980.
  The decision to nationalize the major commercial banks was made with the goal of
opening a large number of branches throughout the country, particularly in rural areas
and mobilizing large amounts of deposits for the purpose of lending to productive
purposes.
 Agriculture, small industries and small businesses, weaker sections, and so on were
among the projects that had previously gone unnoticed.
 Initially, the Government of India held 100 percent ownership of nationalized banks.
 Following the amendment to the Act, private shareholding is now permitted, with the
condition that the Government's share does not fall below 51 percent.
 Since then, a few banks have issued public shares, reducing the government's
shareholding percentage.
 Currently, there are a total of 12 Nationalised Banks in India.

Public Sector Banks – Advantages

 Deposits offer a high-interest rate.
 Loans with low-interest rates.
 Employees have complete job security.
 Employees are also eligible for a pension upon retirement.
 Provides services to a large number of customers.
 Provides services to the rural areas of the country.
 Provides financial services through multiple branches.

Public Sector Banks – Disadvantages

 At the management level, there is a large bureaucratic system.
 Inability to make a major financial decision in a timely manner.
 Customers receive less personalized service.
 There have been far too many complaints about the employees' poor service.
 The majority of public-sector banks are embroiled in major corruption scandals.
 Customer default rate is high.
 Banks in the public sector spend a lot of money on financial operations.
 Cooperative Banks
A Cooperative bank is a financial entity that is owned and operated by its members,
who are both the owners and customers of the bank. In India, cooperative banks are
governed by the States Cooperative Societies Act. The Reserve Bank of India
(RBI) also regulates cooperative banks, which are governed by the Banking Regulations
Act 1949 and the Banking Laws (Co-operative Societies) Act, 1955.

What is a Co-operative Bank?

 A cooperative bank is a financial entity that is owned and operated by its members, who
are also its customers.
 Co-operative banks are frequently formed by people who belong to the same local or
professional community or who share a common interest.
 Co-operative banks typically offer a wide range of banking and financial services to their
members (loans, deposits, banking accounts, etc).
 They offer a limited range of banking services and specialize in agricultural products.
 Cooperative banks are the primary financiers of agricultural activities, small-scale
industries, and self-employment.
 Cooperative banks operate on the principle of "no profit, no loss."
 Anyonya Co-operative Bank Limited (ACBL) is India's first co-operative bank,
headquartered in Vadodara,Gujarat.

Co-operative Banks can further be divided into the following:

(i) Urban Cooperative Banks

 The term "Urban Co-operative Banks" refers to primary cooperative banks in urban and
semi-urban areas.
 These banks primarily lent to small borrowers and businesses centred on communities,
neighborhoods, and workplace groups.
 They primarily finance entrepreneurs, small businesses, industries, and self-employment
in urban areas, as well as home purchases and educational loans.

(ii) State Cooperative Banks

 A State Cooperative Bank is a federation of the central cooperative bank that serves as
the state's custodian of the cooperative banking structure.
 Co-operative banks in rural areas primarily serve agricultural-based activities such as
farming, livestock, dairies, and hatcheries, among others.
 They also give loans to small-scale businesses, cottage industries, and self-employment
activities such as artisanship.
Co-operative Banks – Historical Perspective
 The cooperative movement in India can be traced back to the passage of the Cooperative
Credit Societies Act in 1904.
 The publication of the Rural Credit Survey Report in December 1954 was a watershed
moment in the country's cooperative movement.
 The various recommendations contained in the Report were accepted by the Government
of India, and State Governments were directed to draft proposals for the development of
the cooperative movement during the plan period.
 The establishment of an integrated rural credit structure based on three fundamental
principles was envisaged in the Second Five Year Plan:
o state partnership at different levels
o complete coordination of credit and economic activities (particularly marketing
and processing)
o administration with adequately trained personnel responsive to the needs of the
rural population.

Co-operative Banks – Structure

Co-operative Banks – Features

 Members of a cooperative bank are both customers and owners of the bank.
 Cooperative banks are owned and controlled by their members, who elect a board of
directors democratically.
 According to the cooperative principle of "one person, one vote," members usually have
equal voting rights.
  A significant portion of the yearly profit, benefits, or surplus is usually set aside as
reserves, and a portion of this profit can also be distributed to co-operative members,
subject to legal and statutory restrictions.
 They have played an important role in bringing the unbanked rural masses into the
financial mainstream.

Co-operative Banks – Significance

 Cooperative banking is a viable alternative to the village money lender's traditional
flawed credit system.
 It offers low-cost credit to rural residents.
 Cooperative banks have discouraged unproductive personal consumption borrowing and
established a culture of productive borrowing.
 Instead of hoarding money, the cooperative credit movement has encouraged rural people
to deposit their savings in cooperatives or other banking institutions.
 Cooperative societies have also greatly aided in the adoption of more efficient
agricultural methods.
 Cooperative credit is available for the purchase of improved seeds, chemical fertilisers,
and modern implements, among other things.
 Deposits at cooperative banks earn a higher interest rate.

Co-operative Banks – Limitations

 The primary credit societies' organisational and financial constraints significantly
limit their ability to provide adequate credit to the rural population.
o Tenants' and small farmers' needs are not fully met.
o Primary credit societies are financially insecure and unable to meet the needs for
production-oriented credit.
o Overdue is increasing at all levels at an alarming rate.
o Primary credit societies have failed to provide sufficient and timely credit to
borrowing farmers.
 Cooperatives face resource constraints because their owned funds do not constitute a
sizable portfolio of working capital. Raising working capital has been a major
impediment to their effective operation.
 Overdue loanof cooperativeve banks have been steadily increasing over the years and
pose a serious problem for cooperative credit.
o Large amounts of overdue impede the recycling of funds and have a negative
impact on the cooperative's lending and borrowing capacity.
 Due to the strong socioeconomic position of large landowners, majority of the benefits
from cooperatives have been reaped by them only.
 Cooperative banks are losing their lustre as a result of the growth of Scheduled
Commercial Banks and the adoption of technology.
 Payment banks and small finance banks are also vying for their business.
 They are extending less long-term credit.
 Cooperatives in the northeast and states such as West Bengal, Bihar, and Odisha are not
as developed as those in Maharashtra and Gujarat.
o There is a lot of friction between different states because of competition, and
this friction affects how cooperatives work.
 Politicians use them to increase their vote bank and usually get their representatives
elected to the board of directors in order to gain unfair advantages.