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Regional Rural Banks (RRBs)

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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
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
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
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 31.03.2004 31.03.2005 31.03.2006
No. of RRBs 196 196 133
No. of districts covered 518 523 525
No. of branches 14446 14484 14494
No. of Staff 69249 68912 68629
Owned funds 5438 6181 6647
Deposits 56350 62143 71329
Borrowings 4595 5524 7303
Investments 36135 36761 41182
Loans outstanding 26114 32870 39713
Credit-deposit (CD) ratio 46% 53% 56%
Loans issued 15579 21082 25427
No. of RRBs having accumulated losses 90 83 58
Accumulated losses 2725 2715 2637
No. of RRBs in profit 163 166 111
Net NPA (%) 8.55% 4.84% 3.99%
Recovery (%) (as on 30 June) 73% 78% 80%
Per branch productivity 5.71 6.56 7.66
Per staff productivity 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 Total
No % to No % to No % to No % to
Total Total Total 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
- Merger of RRBs coming under a sponsor bank and operating in contiguous
- 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.