A Study Of Regional Rural Banks In India

It is expected to policy-makers that rural development programmes are strategically designed to better the life conditions of a specific groups of rural people. It includes little and fringy husbandmans, landless agricultural labourers, craftsmans ‘ category and socially and economically backward castes and categories. Recognition is one of the most pressing facets to do rural development scheme and programmes successful and with this ground, the regional rural Bankss ( RRBs ) were established to dispatch the implicit in aim.

At the same clip, it is besides a known fact that the load of liability in rural India is exceptionally tremendous. Despite major structural alterations in recognition establishments and signifiers of rural recognition in the post-Independence period, the development of the rural multitudes in the name of recognition installation is one of the most permeant and relentless characteristics of rural India. Historically, there have been four major jobs with regard to the supply of recognition to the rural India. First, the supply of entire formal recognition to rural people has been unequal. Second, rural recognition markets in India themselves have been really imperfect and disconnected. Third, the distribution of formal sector recognition has been unequal, peculiarly with regard to part and category, caste and gender in the countryside. Formal sector recognition demands specially to make backward countries, income-poor families, people of the laden castes and folks, and adult females. Fourthly, the major beginning of recognition to rural families, peculiarly income-poor working families, has been the informal sector. Informal sector loans typically are advanced at really high rates of involvement. Further, the footings and conditions attached to these loans have given rise to an luxuriant construction of coercion – economic and extra-economic- in the countryside.

Given the issues and jobs involved, the declared aims of public policy with respect to rural recognition in the post-Independence period are, “ to guarantee that sufficient and timely recognition, at sensible rates of involvement, is made available to as big a section of the rural population as possible ” ( Rangarajan 1996, p.288 ) . The policy instruments to accomplish these aims are to be, foremost, the enlargement of the institutional construction of formal sector loaning establishments ; secondly, directed loaning, and thirdly, concessional or subsidized recognition ( ibid ) . The policy is therefore aimed non merely at run intoing rural recognition demands but besides at forcing out the informal sector and the development to which it subjected borrowers. Rural recognition policy in India envisaged the proviso of a scope of recognition services, including long-run and short term recognition loans to rural families. All these developments in this field offer the range of elaborate probe and survey.

The Banking Commission-1972 recommended set uping an alternate establishment for rural recognition and ultimately Government of India established RRBs, a separate establishment fundamentally for rural recognition on the footing of the recommendation of the Working Group under the chairmanship of Sh. M. Narashimham that gave birth to RRBs in the twelvemonth 1975. Initially five RRBs were set up on 2nd October 1975 under a Presidential Regulation, which followed the announcement of Regional Rural Banks Act in April 1976. The RRBs have been identified as scheduled commercial Bankss under the Reserve Bank of India Act-1934 and are authorized to transact banking concern as defined in the Banking Regulation Act-1949. The RRBs were required, in peculiar, to under the concern of supplying recognition installations to the poorer subdivisions of rural society, by and large referred to as the Target Group. The first five RRBs were set up in five provinces in Haryana, West Bengal, Rajasthan, with one each and two in Uttar Pradesh, which were sponsored by different commercial Bankss. These Bankss covered 11 territories of five provinces. The first five Regional Rural Banks has been shown in Table: 1.

After the constitution of RRBs, another beginning for supplying banking installations in rural countries on a big graduated table came into being with the underlying aims as given in the preamble of RRBs Act of 1976, ” aˆ¦..to develop the rural economic system in supplying for the intent of development of agribusiness, trade, commercialism, industry, and other productive activities in the rural countries, recognition and other installations peculiarly to the little and fringy husbandmans, agricultural labourers, artisan and little enterprisers and for affair connected therewith and incidental thereto. ”

Research Methodology

This Term-Paper focal points to measure the growing form of RRBs ; to analyze the recognition distribution of RRBs ; to measure the geographical distribution of RRBs ; and to urge some feasible suggestion to augment the public presentation of RRBs in India.

Beginnings of Datas: The present survey is of analytical explorative nature and makes usage of secondary informations. The relevant secondary informations are collected from IBA publications particularly the public presentation high spots of selected regional rural Bankss, publications of National Bank for Agriculture and Rural Development ( NABARD ) and Reserve Bank of India ( RBI ) and the one-year studies of the Bankss concerned. The diaries like the Banker, and the Journal of Indian Institute of Bankers. Business India etc have besides been referred to obtain the relevant information.

Analysis and Discourses

Growth of Regional Rural Banks

Since their origin in 1975, the RRBs have grown quickly in construction and strength. From a modest beginning with five Bankss covering 11 territories of five provinces with 17 subdivisions, every bit many as 196 RRBs are runing in 518 territories of 26 provinces with a subdivision web of 14446 as on 31st March 2004. The rural subdivision web of RRBs histories for about 37 per centum of the entire subdivision web of agenda commercial Bankss in India. The growing of RRBs in footings of construction since 1975 is given in Table 2. It is clear from Table 2 that after the first twelvemonth of its origin in 1975, a crisp addition has been recorded during the following twelvemonth in which the figure of bank were went up to 40, covering 84 territories with a subdivision web of 489. It is besides clear from the Table in each consecutive twelvemonth the figure of RRBs, territory covered and figure of subdivisions had significantly increased.

Therefore, merely after go throughing 12 old ages since its origin at that place was every bit many as 196 RRBs runing with 13353 subdivisions covering 363 territories till the terminal of 1987 onwards the figure of RRBs is changeless but the figure of subdivisions has increased to 14446 as on 31st March 2004 and territories covered have besides been increased to 518. The ground for increasing territories is chiefly because of bifurcation and trifurcation of old territory in assorted provinces.

The RRBs had been conceived to develop rural economic system by supplying recognition and other installations for the intent of development of agribusiness, trade, commercialism, industry, and other productive activities to the targeted hapless people in the rural countries. However, with the coming of fiscal sector reforms in early 1890ss, the RRBs were allowed to widen recognition installations to rural non-target group besides to a limited extend.

Development of Economy

RRB ‘s drama a polar function in the economic development of the rural India. The chief end of set uping regional rural Bankss in India was to supply recognition to the rural people who are non economically strong plenty, particularly the little and fringy husbandmans, craftsmans, agricultural labors, and even little enterprisers. The function of these Bankss in economic development is examined, their policies and advancement are assessed, and suggestions are given on how they can assist better and elate the weaker subdivisions of society. This latter aim has been mostly achieved by the RRBs. They have succeeded in widening their subdivision web to the unbanked or under-banked rural countries, and they have made important advancement in sedimentation mobilisation, and in extension of recognition peculiarly among the hapless. Furthermore, RRBs have played an of import function in the execution of assorted particular strategies such as the Integrated Rural Development Program.

In rural countries, RRBs history for a significant 37 % of entire offices of all scheduled RBBs. In semi-urban countries, their portion comes to 15 % . It goes without stating that exclusion is more terrible in rural countries 91 % of the entire work force in RRBs is posted in rural and semi-urban countries as compared to 38 % for other scheduled RBBs. Even in absolute footings out of a entire work force of 179,423 deployed by all scheduled RBBs in rural countries, RRBs portion is 25 % ( 45,062 ) . This is important sing that at all India degree, work force of RRBs constitute merely 7 % of the entire work force of all scheduled RBBs.

At all India degree, RRBs history for 18 % of loan histories of all scheduled RBBs and 3 % of loans outstanding. However in rural countries the portion of RRBs in loan histories is an impressive 38 % . More significantly, despite holding 38 % of all loan histories, RRBs history for merely 21 % of entire recognition outstanding in rural countries connoting thereby their better range to little borrowers. The microfinance services provided through ego aid groups bank linkage has so far been the most successful enterprise in fiscal inclusion. Therefore RRB ‘s engagement in these Self aid groups have increased fiscal inclusion at more than faster rate than it was earlier. RRBs have non merely provided fiscal services to the SHG-Bank Linkage Program me, but have besides played a important function as ego help promotional establishment. Equally many as 104 RRBs ( 31 March 2006 ) are besides working as SHPIs with grant aid from NABARD.

Credit Distribution, Performance and Problems

The concern public presentation of RRBs in footings of sedimentation mobilisation and recognition extension has besides been presented in Table 3 along with the analysis of growing tendency since the birth of the bank. The bank mobilized a entire sedimentation of Rs. 0.20 crore and widen an progress of Rs. 0.10 crore with 50 percent credit-deposit ratio in the initial twelvemonth of its constitution in 1975 which increased to Rs. 7.72 crore and Rs. 7.02 crore in the following twelvemonth registering an addition of more than 37 times and 69 times than the predating twelvemonth with 91 percent credit-deposit ratio.

During the operation of three decennaries, the RRBs in India have recorded a important growing in mobilisation of sedimentations and expense of recognition of Rs. 62143 crore and Rs. 31817 crore severally till the terminal of 331st March 2005. In footings of credit-deposit ratio, it increased from 50 per centum in 1975 to, every bit high as, 165 per centum in 1978. But after that, it shows worsening tendency, which came down to 51.2 per centum in 2005.

The C/D ratio tendency shows that it was crisp addition before liberalization ear of Indian economic system but after 1987 it was on diminution tendencies, which take fringy addition in the twelvemonth 2005. However, there is no important correlativity between the C/D ratio of RRBs and Overall Banking Industry.

It observed from table 3 that RRBs has achieved a applaudable advancement in footings of sedimentation mobilisation and carry throughing the recognition demands of rural people during the 30 old ages of their being. But the Bankss have to take attempts to widen more recognition to the rural people as it is found that merely 51.2 per centum of their sedimentations have been provided as loan and progresss as on 31st March 2005.

111 RRBs out of entire 133 registered net income in the twelvemonth 2008-09.

Cadmium Ratio has been increasing from 46 % on 31 March 2007 to 53 % on 31 March2008 and farther to 56 % on 31 March 2009.

Recovery per centum has been bettering from 73 % during 2003-04 to 80 % during 2008-08.

Consequently, net NPAs have declined from 8.55 % on 31 March 2007 to 3.99 % on 31 March 2009.

Per subdivision productiveness has increased from Rs. 5.71 crore on 31 March 2007 to Rs. 7.66 crore on 31 March 2009

Per staff productiveness has increased from Rs.1.19 crore on 31 March 2007 toRs.1.62 crore on 31 March 2009


Apart from the high cost of their operations, RBBs find it hard to post the clerical staff to rural Centres since the latter prefer to work in urban centres. Even in. regard of movable cells like subdivision, the Bankss face a job in happening the needed staff for rural Centres.One of the of import grounds for the unsatisfactory operation of many rural subdivisions is the involuntariness of the urban-oriented staff to acquire involved in rural loaning to the fullest extent. Both the clerical staff and supervisory staff who have joined the RBBs with outlooks of urban poster and the attendant amenitiess, are frequently antipathetic to remaining and touring in small towns. On balance, the advantage would look to lie in promoting RBBs to reassign the eligible of their rural subdivisions to RRBs by them, wherever possible. Rural bank loans to weaker subdivisions may be given precedence for such transportation. Similarly, rural subdivisions which have non been able to develop equal concern seven after a sensible period, so as to cover their ain costs of constitution deserve to be considered for this intent. On the other manus, where the bigger class of borrowers are significant in totaling any rural subdivision and history for majority of the concern, it may be retained by the RRBs

The willingness to let the RRBs these specific considerations however, there were serious efforts to right the prevalent jobs of these Bankss, the chief 1 at the clip being the low recovery rates and loan over dues. These had non merely led to capital eroding but more significantly had resulted in non-recycling of financess, which in bend necessitated increasing dependance on external beginnings of refinancing. The internal factors identified as lending to low recovery were: weak monitoring and supervising, apathy towards recovery, failure to associate imparting with development and to guarantee terminal usage of the loan. The external factors were: political intervention, wilful default, drouth and inundations, underdevelopment, deficiency of legal and administrative support from the province authorities in the affair of recovery, etc. By and large, recovery was low in regard of loans sanctioned under IRDP and other poorness relief programmes. Besides there were certain organisational jobs such as low capital base, multiple ownership and divided duty, deficiency of equal preparation for the RRB staff, etc. which called for intercession. It was estimated that the RRBs would necessitate about seven old ages to go feasible, though for the RRBs with a big figure of infant subdivisions even this period might non be equal. Between 1980 and 1987, while the figure of RRBs increased a little more than double, the figure of subdivisions of RRBs increased more than quadruple. It was non wholly unexpected therefore that by the terminal of the 1980s several of these Bankss were demoing losingss on their books.

Distributions of RRB ‘s

It is clear from Table 4 that there is 196 RRBs in India, which covers 26 provinces with 14446-branch web and 70396 employees as on 31st March 2005. However, the services of RRBs are non available in the provinces like Delhi, Goa, Sikkim and in all the Union Territories. Out of the 26 provinces, Uttar Pradesh has the highest figure of 36 RRBs followed by Madhya Pradesh with 19, and Bihar with 16 RRBs, and these three provinces constitute 36 per centum of the entire RRBs in India. All the provinces in North-East Region, except Assam, have one RRB each. In footings of subdivision web, Uttar Pradesh is once more at top with 2850 subdivisions followed by Bihar with 1487 and Andhra Pradesh with 1124 subdivisions, which has recorded 20 per centum, 10 per centum and eight per centum severally in entire subdivision web of the state.

The lowest figure of subdivisions has been found in Nagaland with 9 merely. The maximal RRBs staff has besides been found in Uttar Pradesh with 14511 employees and the lowest in Nagaland with 33 merely.

Decision and Suggestions

Depending on the context and applications, the term public presentation may hold different intensions. Keeping in consideration the varied activities being performed by rural regional Bankss, any assessment of their public presentation may go meaningful with its implicit in aims. In the present survey, for the public presentation of Regional Rural Banks an effort has been made in footings of certain defined, parametric quantities, like growing form of RRBs ; the recognition distribution of RRBs ; and the geographical distribution of RRBs.

Till the birth of RRBs in India, subdivisions of commercial Bankss and co-operative Bankss in 1000 Numberss were runing in the rural countries. But despite of such big web of bank subdivisions, the recognition demands of rural India was rather unequal. As a constitutional extensive of commercial banking web, the RRBs have achieved enormous growing in term of figure of bank and its subdivisions. It has extended its service to every nook and corner of the state covering 487 territories in 26 provinces. Out of the 26 provinces, Uttar Pradesh has the highest figure of 36 RRBs followed by Madhya Pradesh with 19, and Bihar with 16 RRBs, and these three provinces constitute 36 per centum of the entire RRBs in India However, the distribution of bank is non same in different provinces. The highest bank figure of are in Uttar Pradesh with 36 Bankss and the RRBs are yet to its activities in Delhi, Goa, Sikkim and all Union Territories. Furthermore, the overall place of RRBs in India is non rather encouraging.

The hapless credit-deposit ratio is still doing large dent on the coveted operation of RRBs. Since the RRB is a bank for hapless people, it ‘s presence in all the provinces of state particularly in developing provinces and Union Territories is strongly realized. The authorities should distribute the subdivisions of RRBs to grass root degree to supply banking and recognition service to the destitute people in rural India. Furthermore, it is the duty of the bank direction and the sponsored bank to take the alteration for disciplinary big leagues to raise the credit-deposit ratio of the bank. The spread between C-D ratio of commercial Bankss and RRBs need to be minimized and with the consequence the rural India tends to derive benefit of recognition policy in the rural.