INTRODUCTION

Regional Rural Banks are local level banking organizations operating in different States of India.

They have been created with a view to serve primarily the rural areas of India with basic banking

and financial services. However, RRBs may have branches set up for urban operations and their

area of operation may include urban areas too.

The area of operation of RRBs is limited to the area as notified by Government of India covering

one or more districts in the State. RRBs also perform a variety of different functions. RRBs

perform various functions in following heads

• Providing banking facilities to rural and semi-urban areas. Carrying out government operations

like disbursement of wages of MGNREGA workers, distribution of pensions etc.

• Providing Para-Banking facilities like locker facilities, debit and credit cards.

Agriculture and rural sectors play an important role in India overall development strategy in

terms of income and employment generation and poverty alleviation. Great significance has,

therefore, been accorded to developing appropriate institutions and mechanisms for catering to

the credit requirements of these sectors.

Government of India promoted Regional Rural Banks (RRBs) through the RRBs Act of 1976 to

bridge the gap in the flow of credit to the rural poor. The RRBs have a special place in the multi-

agency approach adopted to provide agricultural and rural credit in India. These banks are state-

sponsored, regionally-based and rural oriented.

Besides the RRBs, commercial and co-operative banks have been catering to the credit

requirements of the rural sector.

The renewed emphasis on agricultural and rural development by the Government of India would

lead to a growing demand for different types of financial services in the rural areas. The present

structure of rural credit may not be able to cater to the same. RRBs would be called upon to play

a greater role in providing such services due to their rural character and feel. RRBs have to take

over a larger share of credit disbursements calling for much larger resource mobilization, as also

greater efforts for their institutional strengthening.

It was announced in the Union Budget for 2008-09 that the Central Government and the State

Governments had reached an agreement on the content of the package for revival of the long-

term cooperative credit structure. The cost of the package was estimated at Rs. 3,074 crore, of

which the Central Government share would be Rs. 2,642 crore.

MODERN economy may he called "bank economy". The banking system spares the individuals

and tile communities the trouble of stockpiling bulky chattels and enables them to attain

domestic security and transact business by means of ever-negotiable bank accounts.

For once it has been necessary to say the obvious, because banking has been the target of vicious

political attack and multi-slinging from Left and Right over several decades. However, banks

were functioning in the Fascist and National Socialist countries yesterday in spite of their

repeated denunciation of "interest slavery". They are operating in the Communist countries

today, in spite of some of the more picturesque propagandist allegations, comparing bank

directors to leeches.

That politicians on the extreme Right as well as the extreme-Left ended up by adapting, instead

of destroying, the hated banks, is no indication of a change of heart. They may have merely

discovered that banks are indispensable for the administration of an up-to-date economic system,

whatever the political complexion, racial composition or social philosophy of the government. It

is not a mere theory, but a very tangible fact that banks, as the coordinating centres and

observation posts of economic activities, transcend national as well as ideological frontiers in

this modern age. At the present stage of development, banks are alone capable of ushering the

surplus production, — and surplus production does exist even in the poorest districts of the

poorest countries — into productive investment and thus promote technical progress and human

welfare. When we speak about "underdeveloped" territories, we could more accurately use the

term ''under-banked" territories.

The principal cause of India's economic plight is therefore the melancholy fact that eighty per

cent of the country has so far remained outside the banking network. It is, in consequence, a vital

problem, and not just for a certain section of the public, but for the entire nation, what can be

done to extend the banking facilities to the rural areas? There is hardly any circulation of money

in the very small villages, even where the population is not exactly poor. The local labourers and

craftsmen receive payments in kind, so does the village Brahmin for his religious services. Even

the village bania may not be able to change one single rupee-note.

In the larger villages or smaller townships, however, there is a considerable volume of

commerce, busy bazars, even some industry. There are usually several large, comfortable and

recently re-decorated houses testifying to the material well-being of the inhabitants. In such

localities there must be Some amount of bankable savings which could be profitably integrated

into the bloodstream of the national economy.

The Barclays Bank from London had recently a very encouraging experiment with its publicity

campaign in Nigeria. They used the medium of the film screen, simple language and witty

cartoons. Since there are at least occasional cinema shows in the larger Indian villages also, the

experience of the Barclays Bank may have some bearing on the stratagem to be devised for this

country. However, making people bank-conscious is only part- and the smaller pari—of the

problem here. The real difficulty is how to make banking services available to the well-to-do in

the rural community.

The opening of branches by the large banks in the villages—even in the largest ones would not

be a practical proposition for a very long time to come. A novel approach has therefore to be

devised for the injection of the hidden wealth in the countryside into the veins and arteries of the

nation's financial system.

The best solution, in theory at least, appears to be the establishment of a "Rural Banking Society"

with the participation of India's leading banks. While direct Government association with the

project might not be desirable, the official circles would have a finger in the pie through the State

Bank of India in any case.

Such an agency could set up its offices in some of the prosperous rural and agricultural centres,

preferably in co-operation with several leading local merchants and farm-ers whose presence on

the board

would create popular confidence. While banks, according to the natural scheme of things, usually

seek to collect deposits before granting loans, in the case of rural India we may have to put the

cart before the horse for the sake of long-term benefits.

Even by granting local loans with the maximum of security and making investments with the

minimum of risk, the Rural Banking Society would create in the villagers the necessary goodwill

towards itself and its operations. 'Green Credit' to farmers against the new crop, the financing of

small fruit-bottling plants in the hilly regions, fish-tanning works at the seaside places, land

reclamation and improvement projects in the purely agricultural districts could offer a suitable

outlet for short-term, comparatively safe and potentially lucrative exploratory activities.

Once the villagers are convinced that the Rural Banking Society is a helpful friend and a wise

counsel, the possible initial distrust will melt and the local cash will find its way from

underground hide-outs, hay-slacks and pillow cases into the savings books and current accounts.

Especially if the "exploratory investments" by the Rural Banking Society prove effective in

increasing the villagers" income, the borrowers of yesterday will come forward as the depositors

of tomorrow. The new Society will thus gradually unify the hitherto separated economies of

urban and rural India for the benefit of both.

Obviously there would not be enough funds and experienced personnel to cover the entire

country with Rural Banking Societies right from the beginning. However, It would certainly be

worth the while and the risk to inaugurate a small pilot project in one of the reasonably

prosperous and comparatively "dacoit-proof" areas. While the government has undertaken

numerous commendable schemes to utilize the vast natural resources of the sub-continent, the

lime has come to attempt the mobilization of the hitherto equally untapped financial resources of

India's extensive ''backwoods''.

BANKS FUNCTIONING FOR THE DEVELOPMENT OF RURAL AREAS

The area of operation of a majority of the RRBs is limited to a notified area comprising a few

districts in a State. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of

SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North

East. Apart from SBI, there are other few banks which functions for the development of the rural

areas in India. Few of them are as follows.

Haryana State Cooperative Apex Bank Limited

The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK occupies a

vital position in the economy of Haryana State and has been financing farmers, rural artisans,

agricultural laborers’, entrepreneurs, etc. in the State and serving its depositors for the last 47

years.Haryana State Co-Operative Apex Bank Ltd;(HSCB) has been preparing Development

Action Plans (DAPs) in accordance with the guidelines issued by NABARD.The basic objective

of this excersice is to identify the reasons standing in the way of the viability of the bank. The

Short Term Cooperative Credit Structure consists of three tiers

NABARD

NABARD is a Development Bank with a mandate for providing and regulating credit and other facilities for the promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas, and for matters connected therewith or incidental thereto.

In discharging its role as a facilitator for rural prosperity, NABARD is entrusted with Providing refinance to lending institutions in rural areas Bringing about or promoting institutional development and Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

Acts as a coordinator in the operations of rural credit institutions.

Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development.

Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development.

Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development

Acts as regulator for cooperative banks and RRBs

Some of the milestones in NABARD's activities are:

Business Operations:

Production Credit: NABARD sanctioned aggregating of 66,418 crore short term loans to Cooperative Banks and Regional Rural Banks (RRBs) during 2012-13, against which, the maximum outstanding was 65,176 crore.

Investment Credit : Investment Credit for capital formation in agriculture & allied sectors, non-farm sector activities and services sector to commercial banks, RRBs and co-operative banks reached a level of 17,674.29 crore as on 31 March 2013 registering an increase of 14.6 per cent, over the previous year.

Rural Infrastructure Development Fund (RIDF):

Through the Rural Infrastructure Development Fund (RIDF) 16,292.26 crore was disbursed during 2012-13. A cumulative amount of 1,62,083 crore has been sanctioned for 5.08 lakh projects as on 31 March 2013 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection, forest management etc.

New Business Initiatives:

NABARD Infrastructure Development Assistance (NIDA): 

NABARD has set up NIDA, a new line of credit support for funding of rural infrastructure projects. The sanctions under NIDA during the year 2012-13 was 2,818.46 crore and disbursement was 859.70 crore.

Producers Organisations Development Fund (PODF):

In its endeavour to support Producer’s Organizations in a comprehensive manner, NABARD sanctioned as assistance of 55.95 crore out of Producer Organization Development Fund (PODF)

to 34 PO’s during 2012-13. The disbursment amounted to 29.18 crore covering major activities like dairy, fishery, marketing infrastructure and agro processing infrastructure.

Direct refinance assistance to CCBs for short term multipurpose credit: 

Direct refinance assistance to CCBs was conceived and additional line of finance for CCBs in the light of recommendations of the “Task Force on Revival of Short Term Rural Cooperative Credit Structutre, which enables the latter to raise financial resources other than from StCBs. During 2012-13, refinance assistance aggregating 3,385 crore was sanctioned to 42 CCBs and three StCBs and disbursement stood at 2,363.45 crore.

Support to develop PACS as Multi Service Centres:

Keeping in mind the wide coverage of PACS at the ground level and the limited products at their disposal, NABARD extended financial support to StCBs/CCBs/PACS to develop PACS as Multi Service Centre (MSCs) so as to serve as “one Stop Shop”unit for meeting the various requirements of the farmers. During 212-13,747 PACS were supported with sanction of 141.17 crore and the disbursements thereagainst stood at 48.84 core, assistance for estabilishment of agro service, processing, storage and information centres, etc.

NABARD Initiated Project on Core Banking Solutions (CBS) in Co-operatives : 

Through Core Banking Solution (CBS), Co-operatives are being brought to a higher technology platform so as to compete with other banks for business and growth. The programme made rapid strides with 5,543 branches of 163 banks across 10 States joining the platform in the first phase and 42 banks joining in the second phase, a total of 7,088 branches of 205 StCBs and CCBs across 16 States and three UTs came into the umbrella of the programme as on 31 March 2013.

Development Initiatives:

Watershed Development Fund (WDF): 

The cumulative number of watershed projects sanctioned under Watershed Development Fund (WDF) stood at 586 in 16 States covering an area of 5.40 lakh ha with total commitment (loan and grant component) of 306.36 crore as on 31 March 2013.

Farm Innovation and Promotion Fund (FIPF) and Farmers’ Technology Transfer Fund (FTTF):

The funds were created out of the operating profits of NABARD to support innovative ventures and to support technology transfer in farm sector and its corpus stood at 50.00 crore and 61.21 crore respectively as on 31 March 2013. Grant assistance of 9.90 croreand 39.79 crore, respectively, were disbursed for various interventions under the programme during 2012-13.

Farmers’ Clubs: 

With the launching of 24,802 new Farmers’ Clubs during the year, the number of clubs reached 1.27 lakh as on 31 March 2013.

Umbrella Programme on Natural Resource Management (UPNRM):UPNRM aims to boost rural livelihoods by supporting community-managed sustainable natural resource management projects. Assistance of 174.30 crore was sanctioned during 2012-13 taking the cumulative sanction to 386.92 crore as at the end of March 2013. The cumulative disbursment under the programme amounted to 217.57 crore, including 207.23 crore as loan and 10.34 crore as grant.

Tribal Development Fund (TDF):During the year 2012-13, financial assistance of 224.26 crore was sanctioned for 69 projects benefiting 53,700 tribal families in 14 States. The cumulative sanction as on 31 March 2013 was 1,432 crore, covering 3.80 lakh families in 484 projects across 26 States/UTs.

Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund (FITF) : As on 31 March 2013, the cumulative sanctions under FIF and FITF were 181.64 crore and 365.49 crore, respectively againstwhich disbursements were 69.77 crore and 201.30 crore, respectively.

SHG-Bank Linkage Programme:As on 31 March 2013, there were more than 73.18 lakh savings linked Self Help Groups (SHG) and more than 44.51 lakh credit-linked SHGs covering over 10.3 crore poor households under

the micro-finance programme. NABARD carried forward its guiding role in the microfinance programme during 2012-13 by taking a host of new initiatives and consolidating some of the already operational interventions.

United Bank of India

United Bank of India (UBI) is one of the 14 major banks which were nationalized on July 19,

1969. Its predecessor the United Bank of India Ltd., was formed in 1950 with the amalgamation

of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918),

Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932) (which were established in the

years indicated in brackets after the names). The origin of the Bank thus goes as far back as to

1914. As against 174 branches, Rs. 147 crores of deposits and Rs. 112 crores of advances at the

time of nationalisation in July, 1969, today the Bank is 100% CBS enabled with 1999 branches

and offices and is having a Total business of more than Rs 2 lac crore. Presently the Bank is

having a Three-tier organisational set-up consisting of the Head Office, 35 Regional Offices and

the Branches.

After nationalisation, the Bank expanded its branch network in a big way and actively

participated in the developmental activities, particularly in the rural and semi-urban areas in

conformity with the objectives of nationalisation. In recognition of the role played by the Bank,

it was designated as Lead Bank in several districts and at present it is the Lead Bank in 30

districts in the States of West Bengal, Assam, Manipur and Tripura. The Bank is also the

Convener of the State Level Bankers' Committees (SLBC) for the States of West Bengal and

Tripura.

UBI played a significant role in the spread of banking services in different parts of the country,

more particularly in Eastern and North-Eastern India. UBI has sponsored 4 Regional Rural

Banks (RRB) one each in West Bengal, Assam, Manipur and Tripura. These four RRBs together

have over 1000 branches. United Bank of India has contributed 35% of the share capital/

additional capital to all the four RRBs in four different states. In its efforts to provide banking

services to the people living in the not easily accessible areas of the Sunderbans in West Bengal,

UBI had established two floating mobile branches on motor launches which moved from island

to island on different days of the week. The floating mobile branches were discontinued with the

opening of full-fledged branches at the centers which were being served by the floating mobile

branches. UBI is also known as the 'Tea Bank' because of its age-old association with the

financing of tea gardens. It has been the largest lender to the tea industry.

The Bank has three full fledged Overseas Branches one each at Kolkata, New Delhi and Mumbai

with fully equipped dealing room and SWIFT terminal . Operations of all the branches have

since been computerized and Electronic Fund Transfer System came to be implemented in the

Bank's branches across the country. The Bank has ATMs all over the country and customers can

use United International Debit Card at all VISA ATMs across the globe.

Syndicate Bank

Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in coastal

Karnataka with a capital of Rs.8000/- by three visionaries - Sri Upendra Ananth Pai, a

businessman, Sri Vaman Kudva, an engineer and Dr.T M A Pai, a physician - who shared a

strong commitment to social welfare. Their objective was primarily to extend financial assistance

to the local weavers who were crippled by a crisis in the handloom industry through mobilising

small savings from the community. The bank collected as low as 2 annas daily at the doorsteps

of the depositors through its Agents under its Pigmy Deposit Scheme started in 1928. This

scheme is the Bank's brand equity today and the Bank collects around Rs. 2 crore per day under

the scheme.

The progress of Syndicate Bank has been synonymous with the phase of progressive banking in

India. Spanning over 80 years of pioneering expertise, the Bank has created for itself a solid

customer base comprising customers of two or three generations. Being firmly rooted in rural

India and understanding the grassroot realities, the Bank's perception had vision of future India.

It has been propagating innovations in Banking and also has been receptive to new ideas, without

however getting uprooted from its distinctive socio-economic and cultural ethos. Its philosophy

of growth by mutual sustenance of both the Bank and the people has paid rich dividends. The

Bank has been operating as a catalyst of development across the country with particular

reference to the common man at the individual level and in rural/semi urban centres at the area

level.

The Bank is well equipped to meet the challenges of the 21st century in the areas of information

technology, knowledge and competition. A comprehensive IT plan is being put in place and the

skills and knowledge of the Bank's personnel are being upgraded through a variety of training

programmes to promote customer delight in every sphere of its activity. The Bank has launched

an ambitious technology plan called Centralised Banking Solution (CBS) whereby 500 of our

strategic branches with their ATMs are being networked nationwide over a 4 year period. The

Bank is pioneer among Public Sector Banks on launching CBS. Our bank has already achieved

CBS implementation among all its branches. Thus, the bank is 100% CBS enabled.

Co-operative bank

Larger institutions are often called cooperative banks. Some are tightly integrated federations of

credit unions, though those member credit unions may not subscribe to all nine of the strict

principles of the World Council of Credit Unions (WOCCU).

Like credit unions, cooperative banks are owned by their customers and follow the cooperative

principle of one person, one vote. Unlike credit unions, however, cooperative banks are often

regulated under both banking and cooperative legislation. They provide services such as savings

and loans to non-members as well as to members, and some participate in the wholesale markets

for bonds, money and even equities.[2] Many cooperative banks are traded on public stock

markets, with the result that they are partly owned by non-members. Member control is diluted

by these outside stakes, so they may be regarded as semi-cooperative.

Cooperative banking systems are also usually more integrated than credit union systems. Local

branches of cooperative banks select their own boards of directors and manage their own

operations, but most strategic decisions require approval from a central office. Credit unions

usually retain strategic decision-making at a local level, though they share back-office functions,

such as access to the global payments system, by federating.

Some cooperative banks are criticized for diluting their cooperative principles. Principles 2-4 of

the "Statement on the Co-operative Identity" can be interpreted to require that members must

control both the governance systems and capital of their cooperatives. A cooperative bank that

raises capital on public stock markets creates a second class of shareholders who compete with

the members for control. In some circumstances, the members may lose control. This effectively

means that the bank ceases to be a cooperative. Accepting deposits from non-members may also

lead to a dilution of member control.

CO-OPERATIVE BANKS AND RURAL CREDIT

The Co-operative bank has a history of almost 100 years. The Co-operative banks are an

important constituent of the Indian Financial System, judging by the role assigned to them, the

expectations they are supposed to fulfill, their number, and the number of offices they operate.

Their role in rural financing continues to be important even today, and their business in the urban

areas also has increased phenomenally in recent years mainly due to the sharp increase in the

number of primary co-operative banks.

Co-operative Banks in India are registered under the Co-operative Societies Act. The RBI also

regulates the cooperative bank. They are governed by the Banking Regulations Act 1949 and

Banking Laws (Co-operative Societies) Act, 1965

Institutional Arrangements for Rural Credit (Co-operatives)

Short Term Co-operatives

Long Term Co-operatives

Short Term Co-operatives

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District Central Co-operative Banks

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State Co-operative Banks

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Primary Agriculture Credit Co-operative Societies

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Branches

Long Term Cooperatives

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State Agriculture & Rural Development Banks

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Primary Agriculture & Rural Development Banks

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Branches

Primary Agricultural Credit Societies (PACSs)

An agricultural credit society can be started with 10 or more persons normally belonging to a

village or a group of villages. The value of each share is generally nominal so as to enable even

the poorest farmer to become a member. The members have unlimited liability, that is each

member is fully responsible for the entire loss of the society, in the event of failure. Loans are

given for short periods, normally for the harvest season, for carrying on agricultural operation,

and the rate of interest is fixed. There are now over 92,000 primary agricultural credit societies in

the country with a membership of over 100 million.

The primary agricultural credit society was expected to attract deposits from among the well –to-

do members and non-members of the village and thus promote thrift and self-help. It should give

loans and advances to needy members mainly out of these deposits.

Central Co-operative Banks (CCBs)

The central co-operative banks are located at the district headquarters or some prominent town of

the district. These banks have a few private individuals also who provide both finance and

management. The central co-operative banks have three sources of funds,

Their own share capital and reserves

Deposits from the public and

Loans from the state co-operative banks

Their main function is to lend to primary credit society apart from that, central coopertive banks

have been undertaking normal commercial banking business also, such as attracting deposits

from the general public and lending to the needy against proper securities. There are now 367

central co-operative banks.

State Co-operative Banks (SCBs)

The state Co-operative Banks, now 29 in number, they finance, co-ordinate and control the

working of the central Co-operative Banks in each state. They serve as the link between the

Reserve bank and the general money market on the one side and the central co-operative and

primary societies on the other. They obtain their funds mainly from the general public by way of

deposits, loans and advances from the Reserve Bank and they are own share capital and reserves.

COMMERCIAL BANKS AND RURAL CREDIT

The commercial banks at present provide short term crop loans account for nearly 45 to 47% of

the total loans given and disbursed by the commercial banks. Term loans for varying periods are

given for purchasing pump sets, tractors and other agricultural machinery, for construction of

wells and tube well, for development of fruit and garden crops, for leveling and development of

land, for purchase of ploughs, animals, etc. commercial banks also extend loans for allied

activities viz., for dairying, poultry, piggery, bee keeping, fisheries and others. These loans come

to 15 to 16%.

Commercial Banks and Small Farmers

The commercial banks identifying the small farmers through Small Farmers Development

Agencies (SFDA) set up in various districts and group them into various categories for credit

support so as to enable them to become bible cultivators. As regard small cultivators near urban

areas and irrigation facilities, commercial banks can help them to go in for vegetable cultivation

or combine it with small poultry farming and maintaing of one or two milch cattle.

IRDP and commercial banks

Since October 1980, the Integrated Rural Development Programme (IRDP) has been extended to

all the blocks in the country and the commercial banks have been asked by the government of

India to finance IRDP. The lead banks have to prepare banking plans and allocate the

responsibility of financing the identified beneficiaries among the participating banks.

Commercial banks have been asked to finance all economically backward people identified by

government agencies.

REGIONAL RURAL BANKS AND RURAL CREDIT

The Narasimham committee on rural credit recommended the establishment of Regional Rural

Banks (RRBs) on the ground that they would be much better suited than the commercial banks or

co-operative banks in meeting the needs of rural areas. Accepting the recommendations of the

Narasimham committee, the government passed the Regional Rural Banks Act, 1976. The main

objective of RRBs is to provide credit and other facilities particularly to the small and marginal

farmers, agricultural laborers, artisians and small entrepreneurs and develop agriculture, trade,

commerce, industry and other productive activities in the rural areas.

The progress of RRBs in the initial stage was quite rapid. For instance, the Sixth Five-year

plan(1980-85) had envisaged the setting up of 170 RRBs covering 270 districts by the end of

march 1985.The target was exceeded. There are now 196 RRBs in 23 states of the country with

14,200 branches.

ROLE OF REGIONAL RURAL BANKS (RRB) IN THE PRESENT SCENERIO:

 

 

To accept deposit

To grant advances

To provide ancillary banking services

To supply inputs and equipments to farmers

To provide assistance in the marketing of their products

To maintain godowns

 

 

STRUCTURE AND ORGANISATION OF RRB :

 

 

 

The authorized capital of RRB is fixed at Rs. 1crore, and its issued capital at Rs. 2 lakhs.  Of the

issued capital, 50% is to be subscribed by the Central Government, 15% by the concerned State

Government and the rest 35% by the sponsoring bank.

 

The working and the affairs of the RRB are directed and managed by a Board of Directors.  The

Board of Directors consists of chairman, three directors to be nominated by the Central

Government concerned, and not more than 3 directors to be nominated by the Central

Government and his term of office does not exceed five years.

 

 

 

PROGRESS OF REGIONAL RURAL BANKS – CURRENT SCENERIO (RRB):

 

  

The progress of RRB in the initial stages was quite rapid.  At present 196 RRB in 23 states with

14500 branches operating in the country.  The total deposit with RRB in 2004-05 amounted to

Rs. 58350 crores and their advances came to Rs.31770 crores.  Over 95 % of the advances of the

RRB are direct advances to small marginal farmers, landless laborers and rural artisian or, in

other words to weaker section of the society.

 

 

 

More especially about 48% of RRB loan assistance is to agricultural and 52% for non-agriculture

(rural artisian, retail trade, etc).

 

 

 

State wise, the largest number of offices in a single State is to be found in Uttar Pradesh (3100)

followed by Bihar (1950) and Madhya Pradesh (1620).

 

RRB has an important role to play in our rural economy, as they have to act as alternative

agencies to provide institutional credit in rural areas.  In course of time it is necessary to

remember that they have not been set up to replace cooperative credit societies but act as a

supplement to them.  RRB has always been active participant in programmes designed to provide

credit assistance to weaker sections.

 

 

 

PROBLEMS FACED BY RRB:

 

 

 

1.      Haste and lack of coordination in branch expansion.

Difficulties in deposit mobilization.

Constraints in deposit mobilization.

Slow progress in lending activity.

Urban orientation of staff.

Procedural rigidities.

 

 

SUGGESTION FOR REORGANISATION AND 

IMPROVEMENT IN THE WORKING OF RRB:

 

 

 

1.      The unique role of RRB in providing credit facilities to weaker sections in the villages must

be preserved. The RRB should exist as rural banks of the rural poor.

The RRB may be permitted to lend up to 25% of their total advances to the richer section of the

village society.

The State Government should also take keen interest in the growth of RRB.

Participation of local people in the equity share capital of the RRB should be allowed

encouraged.

Local staff may be appointed as far as possible.

Cooperative societies may be allowed to sponsor or co-sponsor with commercial banks in the

establishment of the RRB.

A uniform pattern of interest rate structure should be devised for the rural financial agencies.

The RRB must strengthen effective credit administration by way of credit appraisal, monitoring

the progress of loans and their efficient recovery.

The credit policy of the RRB should be based on the group approach of financing rural activities.

The RRB may initiate certain new insurable policies like deposit-linked cattle and other animals

insurance policy, crop insurance policy or the life insurance policy for the rural depositors.

The RRB may relax their procedure for lending and make them more easy for village borrowers.

Co-ordination between district level development planning and district level credit planning is

also required in order to chart out the specific role of the RRB as a development agency of the

rural areas.

Structure of regional rural bank

The establishment of the Regional Rural Banks (RRBs) was initiated in 1975 under the

provisions of the ordinance promulgated on 26.9.1975 and thereafter Section 3(1) of the RRB

Act, 1976. The issued capital of RRBs is shared by Central Government, sponsor bank and the

State Government in the proportion of 50%, 35% and 15% respectively.

RRBs established with the explicit objective of:

* Bridging the credit gap in rural areas

* Check the outflow of rural deposits to urban areas

* Reduce regional imbalances and increase rural employment generation

ROLE OF RBI IN RURAL CREDIT

Though the co-operative credit movement was made a special responsibility of the MI right from

the latter’s birth in 1935, much was not accomplished in this sphere till about the mid- 1950s.

The real turning point in the Bank’s role in the movement came only after the Bank’s All-India

Rural Credit Survey Committee submitted its monumental report in 1954.

The Survey Committee had found that while the co-operative societies and government provided

only 3% each of the loans raised by the cultivator, the private credit agencies (the moneylender

and the trader) lent more than 70% of what the cultivator borrowed. The moneylender changed

very high rates of interest and did not concern himself with the purpose of the loan.

The Survey Committee summed up the position of agricultural credit thus It fell short of the right

quantity, was not of the right type, did not serve the right purpose and often failed to go to the

right people It also said that ‘co-operation had failed but co-operation must succeed’.

For this success, the Survey Committee recommended an ‘integrated scheme of rural credit’, of

which the main features were:

(i) State partnership in co-operative credit institutions through contribution to their share capital;

(ii) Full co-ordination between credit and other economic activities especially marketing and

processing; and

(iii) Administration through adequately trained and efficient personnel, responsive to the needs

of the rural population.

The RBI was assigned a crucial role in the scheme of integrated credit and in the building up of

the co-operative credit organization. The consequent steps taken by the RBI in pursuance of the

recommendations of the Survey Committee and later committees like the Committee on

Cooperative Credit (1960) transformed the Bank’s role from that of a conventional central

banker to that of an active agency that takes all necessary measures for enabling the co-operative

system to provide a growingly larger share of rural credit.

The adoption of special programmes for increasing agricultural production and the spread of

green revolution based largely on intensive use of fertilisers, water, better seeds, and machine

power have enhanced the RBI’s responsibilities further. The RBI had also started offering greater

financial assistance to co-operatives for credit facilities to small farmers and other weaker

sections and for minimising disparities in the flow of credit to various regions.

With the setting up of the National Bank for Agriculture and Rural Development (NABARD) in

July 1982, the RBI’s functions relating to the co-operative movement have been taken over by

the NABARD.

Now, the RBI’s role is primarily restricted to the provision of finance to the NABARD through

its contributions to the two national rural credit funds, already transferred to the NABARD, and

additional loans and advances to the latter. Besides, the RBI still offers loans and advances to

SCBs.

The NABARD measures are basically a continuation of the RBI measures.

They are studied below under two main heads:

(A) Provision of finance and

(B) Building up of the co-operative credit structure.

(A) Provision of Finance:

All the NABARD finance is provided to the co-operative sector through the SCBs. The bulk

(almost 90%) of it goes to finance agriculture. The finance is of all the three types, viz., short-

term, medium-term, and long-term.

(i) Short-term Agricultural Finance:

This is given primarily for seasonal agricultural operations which are interpreted to include

mixed farming activities, i.e., animal husbandry and allied activities jointly undertaken with

agricultural operations.

(ii) Medium-term Agricultural Finance:

The NABARD provides medium-term loans to SCBs for periods of 3 to 5 years. These loans are

provided for (a) agricultural purposes (purchase of agricultural machinery, sinking and repair of

wells and tube wells, etc.), animal husbandry, poultry farming and for purchase of shares of co-

operative sugar factories and other processing societies by agriculturists, and (b) conversion of

short-term agricultural loans into medium term loans whenever such conversion becomes

necessary on account of wide-spread crop failure as a result of drought, floods or other natural

calamities. All medium-term loans are fully guaranteed as to e repayment of the principal and the

payment of interest by the state government concerned.

(iii) Long-term Agricultural Credit:

Long-term credit for agriculture is provided mainly through investment in the debentures of

SLDBs. In addition, the National Bank makes long-term loans to state governments for

contribution to the share capital of co-operative credit institutions, most of which goes to

strengthen co-operative credit for agriculture. The financial accommodation of all kinds

indicated above is provided at concessional rates of interest which vary between the Bank Rate

and up to 3% below the Bank Rate.

(iv) Non- agricultural finance:

The NABARD also provides short- term finance for:

(i) The production and marketing activities of selected cottage and small-scale industries (mostly

handloom weavers’ co-operative societies) and

(ii) The purchase and distribution of fertilisers.

The loans are generally provided through SCBs against guarantees of the state governments.

However, all such finance has constituted a small proportion (5 to 7 per cent) of the total Reserve

Bank short-term finance to cooperatives: the bulk of it goes to agricultural co-operatives.

During 1994-95, the total amount of financial assistance sanctioned by NABARD was about Rs.

5,300 crore. Of this, about Rs. 4,800 crore were short-term credit and Rs. 500 crore were

medium-term credit. The outstanding amount of financial assistance was about Rs. 3,700 crore.

(B) Building up of the Co-operative Credit Structure:

From around 1951 the RBI made efforts to (a) strengthen the co-operative credit structure at all

the three levels and (b) reorient the operational policies of cooperative banks in more purposive

directions. Under the former, the RBI had taken steps to get SCBs established in such states that

did not have them and strengthen them where they were weak. The RBI had also tried for the

rehabilitation of weak CCBs by prescribing action to recover over dues, strengthen the bad debts

reserves and improve the quality of the administrative and supervisory staff.

Similarly, the Bank played an active role in the reorganization of primary societies. The Bank

had also made arrangements for the training of personnel of co-operative departments and

institutions and undertaken periodical inspection of SCBs, CCBs, and SLDBs to promote healthy

and sound growth of co-operative banking in the country. All these functions are now being

performed by the NABARD.

MARKETING OF MUTUAL FUND UNITS - RRBS 

With a view to expanding the scope of business of RRBs and considering that marketing of

Mutual Fund (MF) units provides a profitable avenue for banks, it has been decided by RBI on

17th May 2006 to allow Regional Rural Banks (RRBs) to undertake marketing of units of

Mutual Funds, as agents.

Accordingly, RRBs may, with approval of their Board of Directors, enter into agreements with

Mutual Funds for marketing their units subject to the following terms and conditions: 

* The bank should only act as an agent of the customers, forwarding applications of the investors

for purchase / sale of MF units to the Mutual Fund / Registrar Transfer Agents. 

* The purchase of MF units should be at the risk of customers and without the bank guaranteeing

any assured return. 

* The bank should not acquire such units of Mutual Fund from the secondary market. 

* The bank should not buy back units of Mutual Funds from their customers. 

* The bank holding custody of MF units on behalf of their customers should ensure that its own

investment and investments belonging to their customers are kept distinct from each other. 

* Retailing of units of Mutual Funds may be confined to some select branches of the bank to

ensure better control. 

* The bank should comply with the extant KYC/ AML guidelines in respect of the applicants. 

* The RRBs should put in place adequate and effective control mechanisms in consultation with

their sponsor banks.

CONCLUSION

RRBs' performance in respect of some important indicators was certainly better than that of

commercial banks or even cooperatives. RRBs have also performed better in terms of providing

loans to small and retail traders and petty non-farm rural activities. In recent years, they have

taken a leading role in financing Self-Help Groups (SHGs) and other micro-credit institutions

and linking such groups with the formal credit sector.

RRBs should really be strengthened and provided with more resources with which they can

undertake more of these important activities. And most certainly they should be kept apart from a

profit-oriented corporate motivation that would reduce their capacity to provide much needed

financial services to the rural areas, including to agriculture. Ideally, the best use of the resources

raised by RRBs through deposits would be through extensive cross-subsidisation. This, in turn,

really requires an apex body that would cover and oversee all the RRBs, something like a

National Rural Bank of India (NRBI).

The number of rural branches should be increased rather than reduced; they should be

encouraged to develop more sophisticated methods of credit delivery to meet the changing needs

of farming; and most of all, there should be greater coordination between district planning

authorities, panchayati raj institutions and the banks operating in rural areas. Only then will the

RRBs fulfill the promise that is so essential for rural development.