type of banks- RRBs
Rural Banking: On the birth anniversary of Mahatma Gandhi on October 2, 1975, Rural
Banks were established with a view to stepping up rural credit. In 1975, the Government of
India appointed a working group under the Chairmanship of M. Narasimham, the Deputy
Governor of the Reserve Bank of India to review the flow of institutional credit to the people
in rural areas. The committee was to study the availability of institutional credit to the weaker
section of the rural population and to suggest alternative agencies for this purpose. The
committee concluded that the commercial banks would not be able to meet the credit
requirements of the weaker sections of the rural areas in particular and rural community in
general. The Government accepted the recommendations of the working group and passed an
ordinance in September 1977 to establish Regional Rural Banks.
Need to Establish Regional Rural Banks
The main need and objective of the RBBs was to provide credit and other facilities to the small
and marginal farmers, agricultural laborers and artisans, who had, by and large, not been
adequately served by the existing credit institutions namely, cooperative banks and commercial
banks:
1. Co-operative Banks: So far as the co-operative credit structure is concerned, it lacks the
managerial talent, post credit supervision and the loan recovery. They are also not in a
position to mobilize necessary resources.
2. Commercial Banks: These banks are mostly centralized in urban areas and are urbanoriented.
Although these can play a crucial role as far as the rural credit is concerned. For
this they have to adjust their methods, procedures, training and orientation in accordance
with the rural environment. Further, due to high salary structure, staffing pattern and high
establishment expenses their operational cost is also higher. Thus, under these
circumstances, the commercial banks cannot provide credit, to the weaker sections of the
rural areas, at a cheap rate.
8
3. Need of a New Institution: Thus in accordance with the rural requirements, the necessity
was felt to establish such an institution i.e. a rural oriented bank which may fulfill credit
needs of the rural people particularly the weaker section. It may also combine the merits
of the above two mentioned institutions, keeping aside their drawbacks. The RRBs, as
subsidization to nationalized banks, are expected in the long run not only to provide
credit to farmers and village industries but also to mobilize deposits from rural
households. They may form an integral part of the rural financial structure in India.
Difference Between RRBs and Commercial Banks
Although the RRBs are basically the scheduled commercial banks, yet they differ from each
other in the following respects
1. The area of the RRB is limited to a specified region comprising one or more districts of a
state.
2. The RRBs grant direct loans and advance only to small and managerial farmers, rural
artisans and agricultural laborers and others of small having small means for productive
purposes.
3. The lending rates of RRBs are not higher than the prevailing lending rates of co-operative
societies, in any particular state. The sponsoring banks and the Reserve bank of India
provide many subsidies and concessions to RRBs to enable it to function effectively.
Organisation
The RRBs have been established by ‘Sponsor bank’ usually a public sector bank. The steering
committee on RRBs identifies the districts requiring these banks. Later, the Central Government
sets up RRBs with the consultation of the state government and the sponsor bank. Each RRBs
operates within local limits with such as name as may be specified by the Central Government.
The bank can establish its branches at any place within the notified areas.
Capital
The authorized capital of each RRBs is Rs. 5 crore which may be increased or reduced by the
Central Government but not below its paid up capital of Rs. 25 lakh. Of this fifty percent is
subscribed by the Central Government, 15 percent by the State Government and 35 percent by
the sponsor bank. At present the formula for subscription to RRBs has been fixed at 60:20:20
between central government, state government and the sponsor bank. The Central Government’s
contribution is made through NABARD.
Management
Each RRB is managed by a Board of Directors. The general superintendence, direction and
management of the affairs and business of RRBs vests with the nine member Board of Directors.
The Central Government nominates 3 directors. The chairman, usually an officer of the sponsor
bank but is appointed by the central Government. The Board of Directors is required to act on
business principles and in accordance with the directives and guidelines issued by the Reserve
Bank. At the State Level, State Level Coordination Committee have also been formed to have
uniformity of approach of different RRBs.
9
Functions
The RRB are required to perform the following functions or operations:
1. Operations Related to Agricultural Activities: To grant loans and advances to small and
marginal framers and agricultural laborers, whether individually or in groups or to
cooperative societies including agricultural marketing societies, agricultural processing
societies, cooperative farming societies, primary agricultural societies for agricultural
purposes or for other related purposes.
2. Operations Related to Non-Agricultural Activities: 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 operation.
Banks were established with a view to stepping up rural credit. In 1975, the Government of
India appointed a working group under the Chairmanship of M. Narasimham, the Deputy
Governor of the Reserve Bank of India to review the flow of institutional credit to the people
in rural areas. The committee was to study the availability of institutional credit to the weaker
section of the rural population and to suggest alternative agencies for this purpose. The
committee concluded that the commercial banks would not be able to meet the credit
requirements of the weaker sections of the rural areas in particular and rural community in
general. The Government accepted the recommendations of the working group and passed an
ordinance in September 1977 to establish Regional Rural Banks.
Need to Establish Regional Rural Banks
The main need and objective of the RBBs was to provide credit and other facilities to the small
and marginal farmers, agricultural laborers and artisans, who had, by and large, not been
adequately served by the existing credit institutions namely, cooperative banks and commercial
banks:
1. Co-operative Banks: So far as the co-operative credit structure is concerned, it lacks the
managerial talent, post credit supervision and the loan recovery. They are also not in a
position to mobilize necessary resources.
2. Commercial Banks: These banks are mostly centralized in urban areas and are urbanoriented.
Although these can play a crucial role as far as the rural credit is concerned. For
this they have to adjust their methods, procedures, training and orientation in accordance
with the rural environment. Further, due to high salary structure, staffing pattern and high
establishment expenses their operational cost is also higher. Thus, under these
circumstances, the commercial banks cannot provide credit, to the weaker sections of the
rural areas, at a cheap rate.
8
3. Need of a New Institution: Thus in accordance with the rural requirements, the necessity
was felt to establish such an institution i.e. a rural oriented bank which may fulfill credit
needs of the rural people particularly the weaker section. It may also combine the merits
of the above two mentioned institutions, keeping aside their drawbacks. The RRBs, as
subsidization to nationalized banks, are expected in the long run not only to provide
credit to farmers and village industries but also to mobilize deposits from rural
households. They may form an integral part of the rural financial structure in India.
Difference Between RRBs and Commercial Banks
Although the RRBs are basically the scheduled commercial banks, yet they differ from each
other in the following respects
1. The area of the RRB is limited to a specified region comprising one or more districts of a
state.
2. The RRBs grant direct loans and advance only to small and managerial farmers, rural
artisans and agricultural laborers and others of small having small means for productive
purposes.
3. The lending rates of RRBs are not higher than the prevailing lending rates of co-operative
societies, in any particular state. The sponsoring banks and the Reserve bank of India
provide many subsidies and concessions to RRBs to enable it to function effectively.
Organisation
The RRBs have been established by ‘Sponsor bank’ usually a public sector bank. The steering
committee on RRBs identifies the districts requiring these banks. Later, the Central Government
sets up RRBs with the consultation of the state government and the sponsor bank. Each RRBs
operates within local limits with such as name as may be specified by the Central Government.
The bank can establish its branches at any place within the notified areas.
Capital
The authorized capital of each RRBs is Rs. 5 crore which may be increased or reduced by the
Central Government but not below its paid up capital of Rs. 25 lakh. Of this fifty percent is
subscribed by the Central Government, 15 percent by the State Government and 35 percent by
the sponsor bank. At present the formula for subscription to RRBs has been fixed at 60:20:20
between central government, state government and the sponsor bank. The Central Government’s
contribution is made through NABARD.
Management
Each RRB is managed by a Board of Directors. The general superintendence, direction and
management of the affairs and business of RRBs vests with the nine member Board of Directors.
The Central Government nominates 3 directors. The chairman, usually an officer of the sponsor
bank but is appointed by the central Government. The Board of Directors is required to act on
business principles and in accordance with the directives and guidelines issued by the Reserve
Bank. At the State Level, State Level Coordination Committee have also been formed to have
uniformity of approach of different RRBs.
9
Functions
The RRB are required to perform the following functions or operations:
1. Operations Related to Agricultural Activities: To grant loans and advances to small and
marginal framers and agricultural laborers, whether individually or in groups or to
cooperative societies including agricultural marketing societies, agricultural processing
societies, cooperative farming societies, primary agricultural societies for agricultural
purposes or for other related purposes.
2. Operations Related to Non-Agricultural Activities: 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 operation.
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