A

PRESENTATION
ON
Regional Rural Bank

Hina Khan
MBA III SEM
 RURAL BANKS
The proposal for instituting a kind of ‘rural banks’ was first mooted by the
Banking Commission in its Report published in 1972.
To strengthen the field of co-operative banking in the rural sector, the
commission in proposed the creation of a new category of ‘rural banks’ in
one of the three possible ways:
Conversion of selected viable or potentially viable primary agricultural
societies (PACS) into ‘rural co-operative banks’ which would provide a
full range of banking facilities, together with certain closely allied non-
banking services.
Restructuring a sound primary agricultural credit society as a subsidiary of
a commercial bank. It is to be called ‘rural subsidiary bank’.
Commercial banks may also set-up their own rural subsidiary banks with
local participation in capital and management, where suitable primary
societies are not available.
Functions of Rural Banks
According to the Banking Commission, the rural banks should
render the following functions:
To accept deposits
To grant advances
To provide ancillary banking services
To supply inputs and equipments to farmers
To provide asssistance in the marketing of their products
To maintain godowns
To help in the overall development of villages in its area
To extend credit and all other banking services
 The scheme of Regional Rural
Banks
The Government thought of instituting rural banks as part of its Twenty-
Point Programme, also referred to as the New Economic Programme, in
1975, inspired by considerations of lowering the costs of rural banking and
operating such banks with local staff in a homely atmosphere of the
villages.
The Government of India then appointed a Working Group on Rural Banks,
headed by Shri M. Narasimah, to examine in detail the issues involved in
the establishment of new rural banks as subsidiaries of the public sector
banks to deal with the problem of rural finance. The Working Group
submitted its report on July30,1975.
The Working Group, howevere, conceieved a grossly different idea from
the concept of ‘rural banks’ advocated by the banking Commission. The
Group recommended the establishment of state-sponsored regionally based
and rural oriented commercial banks called Regional Rural banks.
Based on the recommendation and after due consideration of the
scheme suggested by the Narasimah Committee’s Report, the
Government of India instituted Regional Rural Banks Ordinance,
1975, promulgated by the President of India on September 26,
1975.

Subsequently, on February 9, 1976, the Government of India

passed the Regional Rural Banks Act, 1976, with clarification on
some issues.
The Organisation and Functions of
the Regional Rural Banks
The Regional Rural Banks (RRB) aimed at providing credit and other
facilities to the small and marginal farmers, agricultural labourers, artisans
and small entrepreneurs in rural areas.
Structure and Organisation of the RRB
The authorised capital of an RRB is fixed at Rs.1 crore and its issued capital
at Rs. 2 lakhs. Of the issued capital, 50 percent is to be subscribed by the
Central Government, 15 percent by the concerned State Govrnment and the
rest 35 percent by the sponsoring bank.
The working and affairs of the RRB are directed and managed by a Board of
Directors consists of a Chairman, three directors to be nominated by the
central Government concerned, and not more than two directors to be
nominated by the State Government concerned, and not more than 3
directors to be nominated by the sponsoring bank. The chairman is
appointed by the Central Government and his term of office does not
exceed five years.
 Functions of the RRB
Granting of loans and advances to small and marginal farmers
and agricultural labourers, whether individually or in groups,
and to co-operative societies, agricultural processing societies,
co-operative farming societies.
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 co-operation
Accepting deposits
 Operations of RRBs
In December 1989, 196 reporting RRBs
have aggregate deposits of Rs. 3,644 crores
and advances of Rs. 3,155 crores. Over 92
percent of the total advances are made by
the RRBs to the weaker sections. Their
advances under IRDP during 1986
amounted to Rs. 200 crores relating to
7,84,145 accounts.
Finance from NABARD
In December 1986, the RRBs obtained
refinance amounting to Rs. 246.9 crores
from the sponsor banks. They borrowed
Rs. 226.9 crores of short-term loans and
Rs. 80.3 crores of medium-term loans from
the NABARD.
Working Group on RRBs
The Reserve Bank of India had constituted
a Working Group on RRBs, under the
chairmanship of Shri S. M. Kelkar, to
review the various aspects of the working
of the RRBs. The Group submitted its
Report in June 1986.
Following are the major recommendations
of the Kelkar Group:
1) The RRBs should be permitted to increase their authorised
share capital from Rs.1 crore to Rs.5 crores and issued capital
from Rs.25 lakhs to Rs.1 crore.
2) The sponsor banks should, on behalf of RRBs, invest the
deposits kept by them in current account for SLR requirement
in government securities.
3) The sponsor banks should lower the rate of interest on
refinance from 8.5 percent to 7 percent.
4) New RRBs should be established only in consideration of the
genuine need to serve a neglected area, especially tribal areas
and people.
5) The coverage of RRBs be restricted to 2 districts in order to
have a better supervision ad control of their branches.
 Major Problems Faced By RRBs
1) Haste and lack of Co-ordination in Branch Expansion:- Haste
in branch expansion programme in many cases have resulted in lopsidedness
due to lack of co-ordination.
2) Difficulties in Deposit Mobilization:- On account of their restrictive
lending policy which excludes richer sections of the village society, these
potential depositors show least interest in depositing their money with these
banks.
3) Constraints in Deposit Mobilisation:- State and local Governments
and their agencies also have not co-operated much by maintaining their
deposits accounts with the RRBs.
4) Slow Progress in Lending Activity:- The RRBs pace of growth in
loan business is slow.
5) Urban-Orientation of Staff:- There is no true local involvement of the
bank staff in the village where they serve.
6) Procedural Rigidities:- The RRBs follow the procedures of the
scheduled commercial banks in the matter of deposits and advancing loans
which are highly complicated and time-consuming from the villagers’ point of
view
Thank You!