Unit 1 regional rural banks

Regional rural banks, history, objectives, role play and NABARD

1. Regional Rural Bank

2. Classification of banking
system

3. Regional Rural Banks
•RegionalRuralBanks(RRBs)aregovernment ownedscheduled
commercialbanksofIndiathatoperateatregionallevelindifferentstates
ofIndia.
•ThesebanksareundertheownershipofMinistryofFinance,Government
ofIndia.Theywerecreatedtoserveruralareaswithbasicbanking
andfinancialservices.However,RRBsalsohaveurbanbranches.
•Theareaofoperationislimitedtotheareanotifiedbythegovernmentof
Indiacovering,anditcoversoneormoredistrictsintheState.
•RRBsperformvariousfunctionssuchasprovidingbankingfacilitiesto
ruralandsemi-urbanareas,carryingoutgovernmentoperationslike
disbursementofwagesofMGNREGA workersanddistributionofpensions,
providingpara-bankingfacilitieslikelockerfacilities,debitandcredit
cards,mobilebanking,internetbanking,andUPIservices.

4. History of RRB
•RegionalRuralBankswereestablishedundertheprovisionsofan
ordinancepassedon26September1975andtheRRBAct1976toprovide
sufficientbankingandcreditfacilityforagricultureandotherruralsectors.
Asaresult,fiveRRBsweresetupon2October1975onthe
recommendations oftheNarsimhamCommitteeonRuralCredit,during
thetenureofIndiraGandhi'sgovernment.Thepurposewastoinclude
ruralareasintotheeconomicmainstreamsincearound70%oftheIndian
populationwasrural.
•PrathamaBank,withheadofficeinMoradabad,UttarPradeshwasthefirst
RRB.ItwassponsoredbySyndicateBankandhadanauthorisedcapitalof
Rs.5crore.TheotherfourRRBswereGaurGraminBank(sponsored
byUCOBank),GorakhpurKshetriyaGraminBank(sponsoredbyState
BankofIndia),HaryanaKshetriyaGraminBank(sponsoredbyPunjab
NationalBank),andJaipur-NagpurAnchalikGraminBank(sponsored
byUCOBank).
•TheRRBswereownedbythecentralgovernment,stategovernment,and
thesponsoringbankwith50%,15%,and35%shareholdingrespectively.

5. The scheme of Regional
Rural Banks
•TheGovernmentthoughtofinstitutingruralbanksaspartofitsTwenty-
PointProgramme,alsoreferredtoastheNewEconomicProgramme,in
1975,inspiredbyconsiderationsofloweringthecostsofruralbankingand
operatingsuchbankswithlocalstaffinahomelyatmosphereofthe
villages.
•TheGovernmentofIndiathenappointedaWorkingGrouponRural
Banks,headedbyShriM.Narasimah,toexamineindetailtheissues
involvedintheestablishmentofnewruralbanksassubsidiariesofthe
publicsectorbankstodealwiththeproblemofruralfinance.TheWorking
GroupsubmitteditsreportonJuly30,1975.
•TheWorkingGroup,howevere,conceievedagrosslydifferentideafrom
theconceptof‘ruralbanks’advocatedbythebankingCommission.The
Grouprecommendedtheestablishmentofstate-sponsoredregionallybased
andruralorientedcommercialbankscalledRegionalRuralbanks.

6. •Basedontherecommendationandafterdueconsiderationofthescheme
suggestedbytheNarasimahCommittee’sReport,theGovernmentofIndia
institutedRegionalRuralBanksOrdinance,1975,promulgatedbythe
Presidentof India on September 26, 1975.
Subsequently,onFebruary9,1976,theGovernmentofIndiapassedthe
RegionalRuralBanksAct,1976,withclarificationonsomeissues.

7. Organizational structure
TheorganizationalstructureforRRB'svariesfrombranchtobranchand
dependsuponthenatureandsizeofbusinessdonebythebranch.Thehead
officeofanRRBnormallyhadthreetoninedepartments.Thefollowingisthe
decisionmakinghierarchyofofficialsinaRRB.
•BoardofDirectors
•Chairman&ManagingDirector
•GeneralManager
•AssistantGeneralManager
•RegionalManager/ChiefManager
•SeniorManager
•Manager
•Officer
•OfficeAssistant
•OfficeAttendant

8. Objectives of RRBs
•Toprovidecheapandliberalcreditfacilitiestosmallandmarginalfarmers,
agriculturelabourers,artisans,smallentrepreneursandotherweaker
sections.
•Tosavetheruralpoorfromthemoneylenders.
•Toactasacatalystelementandtherebyacceleratetheeconomicgrowth
intheparticularregion.
•Tocultivatethebankinghabitsamongtheruralpeopleandmobilize
savingsfortheeconomicdevelopmentofruralareas.
•Toincreaseemployment opportunitiesbyencouragingtradeand
commerceinruralareas.Toencourageentrepreneurshipinruralareas.
•Tocatertotheneedsofthebackwardareaswhicharenotcoveredbythe
othereffortsoftheGovernment.
•Todevelopunderdeveloped regionsandtherebystrivetoremove
economicdisparitybetweenregions.Identifythefinancialneedspeciallyin
ruralareas
•Toenhancebankingandfinancingfacilitiesinbackwardorunbankedareas
•Toprovidefinancetoco-operativesocieties,primarycreditsocieties,
Agriculturalmarketingsocieties.Enhance&Improvebankingfacilitiesto
semiurban,ruralandotheruntappedmarket.

9. Functions of Rural Banks
AccordingtotheBankingCommission,theruralbanks
shouldrenderthefollowingfunctions:
Toacceptdeposits
Tograntadvances
Toprovideancillarybankingservices
Toprovideassistanceinthemarketingoftheirproducts
Tohelpintheoveralldevelopmentofvillagesinitsarea
Toextendcreditandallotherbankingservices
etc…

10. Review (1986) of RRBs
by committee
TheReserveBankofIndiahadconstitutedaWorkingGrouponRRBs,under
thechairmanshipofShriS.M.Kelkar,toreviewthevariousaspectsofthe
workingoftheRRBs.TheGroupsubmitteditsReportinJune1986.
FollowingarethemajorrecommendationsoftheKelkarGroup:
1)TheRRBsshouldbepermittedtoincreasetheirauthorisedsharecapitalfrom
Rs.1croretoRs.5croresandissuedcapitalfromRs.25lakhstoRs.1crore.
2)Thesponsorbanksshould,onbehalfofRRBs,investthedepositskeptby
themincurrentaccountforSLRrequirementingovernmentsecurities.
3)Thesponsorbanksshouldlowertherateofinterestonrefinancefrom8.5
percentto7percent.
4)NewRRBsshouldbeestablishedonlyinconsiderationofthegenuineneedto
serveaneglectedarea,especiallytribalareasandpeople.
5)ThecoverageofRRBsberestrictedto2districtsinordertohaveabetter
supervisionadcontroloftheirbranches.

11. Review of RRBs (2009)
•AreviewoftheRRBsonAugust2009bytheUnionFinanceMinister
revealedthatalargenumberofRRBshadalowCapitaltoRiskweighted
AssetsRatio(CRAR).AcommitteewasconstitutedinSeptember2009
underthechairmanshipofKCChakraborty,
[4]
thedeputygovernorof
theReserveBankofIndia(RBI)toanalysethefinancialsoftheRRBsand
suggestmeasures,includingre-capitalisationtobringtheCRARofRRBsto
atleast9%inasustainablemannerby2012.Thecommitteesubmittedits
reportinMay2010.
•Thecommitteerecommended RRBstohaveaCRARofatleast7%on31
March2011andatleast9%from31March2012onwards.The
recapitalizationrequirementofRs2,200.00crorefor40ofthe82RRBs
weretobereleasedintwoinstalmentsin2010–11and2011–12.The
remaining42RRBswillnotrequireanycapitalandwillbeabletomaintain
CRARofatleast9%asof31March2012andthereafter,ontheirown.A
fundof₹100croretobesetupfortrainingandcapacitybuildingofthe
RRBstaff.
[5]
•TheGovernmentofIndiaapprovedtherecapitalizationoftheRRBsto
improvetheirCRARinthefollowingmanner:

12. Progress and recapitalization
•Shareofcentralgovernment,thatis,₹1,100crorewillbereleasedasper
provisionsmadebytheDepartmentofExpenditurein2010-11and2011–
12.However,releaseofthefundswillbecontingentonproportionate
releaseofthestategovernmentandsponsorbankshare.
[5]
•Acapacitybuildingfundwithacorpusof₹100croretobesetupby
centralgovernmentwithNABARDfortrainingandcapacitybuildingofthe
RRBstaffintheinstitutionofNABARDandotherreputedinstitutions.The
functioningofthefundwillbeperiodicallyreviewedbythecentral
government.AnactionplanwillbepreparedbyNABARDandsenttothe
governmentforapproval.
•Anadditionalamountof₹700crorewassetupasacontingencyfundto
meettherequirementoftheweakRRBs,particularlythoseinthenorth-
easternandtheeasternregion.

13. Business which a Regional Rural
Bank may transact
•EveryRegionalRuralBankshallcarryonandtransactthebusinessof
bankingasdefinedinclause(b)ofsection5oftheBankingRegulation
Act,1949(10of1949),andmayengageinoneormoreformsofbusiness
specifiedinsub-section(1)ofsection6ofthatAct.
•Withoutprejudicetothegeneralityoftheprovisionsofsub-section(1),
everyRegionalRuralBankmay,inparticular,undertakethefollowing
typesofbusiness,namely:—
(a)thegrantingofloansandadvances,particularlytosmalland
marginalfarmersandagriculturallabourers,whetherindividuallyor
ingroups,andtoco-operativesocieties,includingagricultural
marketingsocieties,agriculturalprocessingsocieties,co-operative
farmingsocieties,primaryagriculturalcreditsocietiesorfarmers’
servicesocieties,foragriculturalpurposesoragriculturaloperations
orforotherpurposesconnectedtherewith;
(b)thegrantingofloansandadvances,particularlytoartisans,
smallentrepreneursandpersonsofsmallmeansengagedintrade,
commerceorindustryorotherproductiveactivities,withinthe
notifiedareainrelationtothe RegionalRuralBank

14. Major Problems Faced By RRBs
•RRB’sarefacingtheproblemofinadequatefinance.TheyaredependentonNABARD
tocollectfinancefortheirfurtheroperation.Poorruralpeopleareunabletosave
anythingduetopovertyandlowpercapitaincome.Thelowlevelofsavingofthese
customercreateobstacleforRRB’stocollectsufficientdeposits.
•Highoverduesandpoorrecoveryofloanisoneofthebiggestconcernaffectingthe
functioningofRRB’s.Reasonsbeingpooraccessofgrantingloan,insufficientand
untrainedstaff,unproductiveorlessproductiveuseofcredit,inadequate
production,poormarketingfacilitiesandimproperchannelofrecoverysystem.
•ThereisalsoaproblemofregionalimbalanceinbankingfacilitiesprovidedbyRRB’s.
Theyarecreatingthisproblembyconcentratingtheirbranchesinsomespecific
statesanddistricts&looseotherprospectivegroupofcustomers.
•ManyRRB’saresufferingfromtheproblemofheavyloansbecauseoflowrepaying
capacityoftheircustomer,untrainedstaff,lowlevelofdepositsandheavysanction
ofloanwithoutcheckingthecreditworthinessoftheircustomers.
•Thesebankshavestillnotplayedasignificantroleinpovertyalleviationofthe
country.Althoughvariouseffortshavebeenmadeinthisregardbutlackof
economicinfrastructure,poormarketingstrategies,poorknowledgeofcustomers,
lowproduction,lowawarenessaboutsavingshavecreatedmanyhurdlesforRRB’s.
•Lackofproperco-ordinationbetweenRRB’sandotherfinancialinstitutionlike
commercialbanks,NABARDandotherco-operativebankhasbadlyaffectedthe
performanceofthesebanks

15. List of Regional Rural banks
There are 43 RRBs in since 1 April 2020
Andhra Pradesh
•Andhra PragathiGrameenaBank
•Andhra Pradesh GrameenaVikasBank
•ChaitanyaGodavari GraminBank
•SaptagiriGraminBank
Arunachal Pradesh
•Arunachal Pradesh Rural Bank
Assam
•Assam GraminVikashBank
Bihar
•DakshinBihar GraminBank
•Uttar Bihar GraminBank
Chhattisgarh
•Chhattisgarh RajyaGraminBank
Gujarat
•The Gujarat State Co.opAgriculture & Rural Development Bank Ltd.
•Baroda Gujarat GraminBank
•SaurashtraGraminBank
Haryana
•SarvaHaryana GraminBank
Himachal Pradesh
•Himachal Pradesh GraminBank
Jammu and Kashmir
•J&K GrameenBank
•EllaquaiDehatiBank

16. Jharkhand
•Jharkhand RajyaGraminBank
Karnataka
•Karnataka GraminBank
•Karnataka VikasGrameenaBank
Kerala
•Kerala GraminBank
Madhya Pradesh
•MadhyanchalGraminBank
•Madhya Pradesh GraminBank
Maharashtra
•Maharashtra GraminBank
•VidharbhaKonkanGraminBank
Manipur
•Manipur Rural Bank
Meghalaya
•Meghalaya Rural Bank
Mizoram
•Mizoram Rural Bank
Nagaland
•Nagaland Rural Bank
Odisha
•Odisha GramyaBank
•UtkalGrameenBank
Puducherry
•PuduvaiBharathiarGramaBank
Punjab
•Punjab GraminBank
Rajasthan
•Baroda Rajasthan KshetriyaGraminBank
•Rajasthan MarudharaGraminBank
Tamil Nadu
•Tamil Nadu GramaBank
Telangana
•TelanganaGrameenaBank
Tripura
•Tripura GraminBank
Uttar Pradesh
•AryavartBank
•PrathamaUP GraminBank
•Baroda UP Bank
Uttarakhand
•UttarakhandGraminBank
West Bengal
•PaschimBangaGraminBank
•BangiyaGraminVikashBank
•UttarbangaKshetriyaGraminBank
•

17. RRBs in India

18. Difference between RRBs and
commercial banks
RRBalsoknownasRegionalRuralBankandcommercialbanksperformsquite
similarfunctions,howeverthereissomedifferencebetweenthetwo.Let’s
lookatthedifferencebetweenRRBandcommercialbanks–
1.WhilethemainreasonbehindtheexistenceofRRBisthedevelopment
ofruralandbackwardareas,andalsoprovidingbankingfacilitytorural
populationwhereasthemainreasonbehindtheexistenceofcommercial
banksistomakeprofitsoutoftheiroperations.
2.ScopeofRRBislimitedtoagriculturefinance,smallsectorloans,
handicraftsandothersmallsectorloans,whereasscopeofcommercial
banksiswideanditnotonlyprovidesagriculturefinancebutalso
housingloan,carfinance,letterofcredit,credittobigcompaniesandfor
manyactivities.
3.RRBispresentinruralandsemiurbanareasonlywhereascommercial
banksdooperationsinalloverthecountrythatisrural,semiurbanand
urbanareas.

19. Difference between RRBs and
commercial banks
4.WhilethefocusofRRBismoreonacceptingdepositsandgrantingofloans
tothepeoplewhereasthefocusofcommercialbanksapartfromlendingand
borrowingisonmanyotherserviceslikestockbroking,assetmanagement,
insurance,merchantbanking,venturecapitalfinancing,foreignexchange
relatedbusinessetc…
5.StakeholdersofRRBincludegovernmentofIndia,stategovernmentand
commercialbankswhereasstakeholdersofcommercialbanksarepublic,
centralgovernmentetc…

20. Role of RBI / NABARD and Co -operative
Banks in Promoting Rural Credit
•All-IndiaRuralCreditSurveyCommittee submittedits
monumentalreportin1954.
•TheSurveyCommitteehadfoundthatwhiletheco-operative
societiesandgovernmentprovidedonly3%eachoftheloans
raisedbythecultivator,theprivatecreditagencies(the
moneylenderandthetrader)lentmorethan70%ofwhatthe
cultivatorborrowed.
•Themoneylenderchangedveryhighratesofinterestanddidnot
concernhimselfwiththepurposeoftheloan.
The Survey Committee recommended an ‘integrated scheme
of rural credit’, of which the main features were:
•Statepartnershipinco-operativecreditinstitutionsthrough
contributiontotheirsharecapital;
•Fullco-ordinationbetweencreditandothereconomicactivities
especiallymarketingandprocessing;and
•Administrationthroughadequatelytrainedandefficientpersonnel,
responsivetotheneedsoftheruralpopulation.

21. Role of RBI in rural banking
•Shorttermrefinancefacilityforagriculture&allied
activities.
•Developmentofcooperativecreditinstitutions
•Expansionofsourcesoffundforshort&longtermforrural
credit.
•Trainingandprofessionalismofcooperativecreditsocieties.
•Conductingruralcreditsurveystodeterminethecourageof
ruralhouseholdbycreditinstitution.
•Helpingbankbranchexpansioninruralareastofacilitate
loans.
•Guidancetoallmattersconcernedonruralcredit.

22. NABARD Establishment
•National Bank for Agriculture and Rural
Development (NABARD)isanapexregulatorybodyforoverall
regulationofregionalruralbanksandapexcooperativebanksin
India.
•ItisunderthejurisdictionofMinistryofFinance,Governmentof
India.
[5]
•Thebankhasbeenentrustedwith"mattersconcerningpolicy,
planning,andoperationsinthefieldofcreditforagricultureand
othereconomicactivitiesinruralareasinIndia".NABARDis
activeindevelopingandimplementingfinancialinclusion.
•NABARD wasestablishedontherecommendations of
B.SivarammanCommittee(byAct61,1981ofParliament)on12
July1982toimplementtheNationalBankforAgricultureand
RuralDevelopmentAct1981.

23. Replacement of ACD & ARDC
by NABARD
•ItreplacedtheAgriculturalCreditDepartment(ACD)and
RuralPlanningandCreditCell(RPCC)ofReserveBankof
India,andAgriculturalRefinanceandDevelopment
Corporation(ARDC).Itisoneofthepremieragencies
providingdRs.14080crore(100%share).Theauthorized
sharecapitalisRs.30,000crore
•InternationalassociatesofNABARDincludeWorldBank-
affiliatedorganisationsandglobaldevelopmentalagencies
workinginthefieldofagricultureandruraldevelopment.
TheseorganisationshelpNABARDbyadvisingandgiving
monetaryaidfortheupliftmentofthepeopleintherural
areasandoptimisingtheagriculturalprocess.

24. Role of NABARD
•NABARDhasbeeninstrumentalingroundingrural,socialinnovationsand
socialenterprisesintheruralhinterlands.
•AsofMay2020,NABARDoperatesat32RegionalOfficesinthecountry.
•Ithasintheprocesspartneredwithabout4000partnerorganisationsin
groundingmanyoftheinterventionsbeit,SHG-BankLinkageprogramme,
tree-basedtribalcommunities’livelihoodsinitiative,watershedapproachin
soilandwaterconservation,increasingcropproductivityinitiatives
throughleadcropinitiativeordisseminationofinformationflowto
agrariancommunitiesthroughFarmerclubs.
•NABARDisthemostimportantinstitutioninthecountrywhichlooksafter
thedevelopmentofthecottageindustry,smallscaleindustryandvillage
industry,andotherruralindustries.
•NABARDalsoreachesouttoalliedeconomiesandsupportsandpromotes
integrateddevelopment.

25. Role of NABARD continues..
•Servesasanapexfinancingagencyfortheinstitutionsprovidinginvestment
andproductioncreditforpromotingthevariousdevelopmentalactivitiesin
ruralareas
•Takesmeasurestowardsinstitutionbuildingforimprovingabsorptivecapacity
ofthecreditdeliverysystem,includingmonitoring,formulationofrehabilitation
schemes,restructuringofcreditinstitutions,trainingofpersonnel,etc.
•Co-ordinatestheruralfinancingactivitiesofallinstitutionsengagedin
developmentalworkatthefieldlevelandmaintainsliaisonwithGovernmentof
India,stategovernments,ReserveBankofIndia(RBI)andothernationallevel
institutionsconcernedwithpolicyformulation
•Undertakesmonitoringandevaluationofprojectsrefinancedbyit.
•NABARDrefinancesthefinancialinstitutionswhichfinancestheruralsector.
•NABARDpartakesindevelopmentofinstitutionswhichhelptheruraleconomy.
•NABARDalsokeepsacheckonitsclientinstitutes.
•Itregulatestheinstitutionswhichprovidefinancialhelptotheruraleconomy.
•Itprovidestrainingfacilitiestotheinstitutionsworkinginthefieldofrural
upliftment.
•ItregulatesandsupervisethecooperativebanksandtheRRB's,throughout
entireIndia.

26. NABARD structure and linkages
•NABARDhasitsheadofficeatMumbai,Indiaandregionalofficesinall
statesandonespecialcellatSrinagarJ&K.TheRegionalOffice[RO]is
headedbyaChiefGeneralManager[CGMs]asOfficerIncharge,andthe
HeadofficehasseveraltopexecutivesviztheDirectors,DeputyManaging
Directors[DMD],andtheChairperson.TheBoardofDirectorsare
appointedbytheGovernmentofIndiainconsonancewithNABARDAct.It
has336DistrictOfficesacrossthecountrywhicharestaffedbyDistrict
DevelopmentManagers(DDMs).Italsohassixtrainingestablishments.
•NABARD isalsoknownforits'SHGBankLinkageProgramme'which
encouragesIndia'sbankstolendtoself-helpgroups(SHGs).Largely
becauseSHGsarecomposedmainlyofpoorwomen,thishasevolvedinto
animportantIndiantoolformicrofinance.ByMarch2006,22lakhSHGs
representing3.3croremembershadtobelinkedtocreditthroughthis
programme.
•NABARD alsohasaportfolioofNaturalResourceManagement
ProgrammesinvolvingdiversefieldslikeWatershedDevelopment,Tribal
DevelopmentandFarmInnovationthroughdedicatedfundssetupforthe
purpose.

27. Thank You!