A STUDY ON FINANCIAL INCLUSION OF SBI SPONSORD RRB IN RURAL AREAS

Author: Dr. K.R. SIVABAGYAM, M.Com. M.Phil., Ph.D., SET, MBA, PGDCA
Assistant Professor, Department of Commerce,
Sri Krishna Arts and Science College, Bharathiar University, Coimbatore, Tamil Nadu
Mail id: sivabagyamkr@skasc.ac.in Mob: 7871809789
Co-Authors: AAFRIN.M.N, INDU DURGA.J Final M. Com Students,
Email id: aafsha1996@gmail.com,indudurga8005@gmail.com
Mob: 8086261889

Abstract
The Regional Rural Banks (RRBs) were established in 1975 under the provisions of the
Ordinance promulgated on 26th September, 1975 and Regional Rural Banks Act, 1976 with a view
to developing the rural economy by providing, for the purpose of development of agriculture, trade,
commerce, industry and other productive activities in the rural areas. As on date SBI is having 14
sponsored RRBs with a network of 3784 branches. Stakeholders of RRB include government of
India, state government and commercial banks whereas stakeholders of commercial banks are
public and central government etc. The aggregate deposits and advances of all RRBs (sponsored
by the Bank) as on 31.03.2014 stood at Rs.41,034cr and Rs.24,032cr respectively. They have
posted a profit of Rs.438 cr during the year 2013-14. The bulk of the loans from RRBs were to the
priority sector. The percentage of priority sector advances and agri advances to total advances as
on 31.03.2014 was 77.09% (benchmark 60%) & 63.78% respectively. All these RRBs are on Core
Banking platform. This has helped the RRBs to improve their performance at par with Commercial
Banks.

Key Words: Regional Rural Banks, Rural, State Bank of India

Introduction

Financial inclusion is providing various banking services to all individuals including rural
masses in an affordable manner. Financial inclusion will help BPL people to access credit which
can be used by them for various income-generating activities. It will also help people to save
money for their future requirement or unexpected requirements. Banks under financial inclusion
will provide financial services at economical prices. The services like deposits, funds transfer
services, loans, insurance etc.. Financial inclusion as per RBI, PSB and RRB is to ensure every
individual in the country opens a savings account so that he is financially included in order to get
various financial service and benefits of Government schemes. The RBI with the help of
NABARD, lead banks has given directions to the bank to ensure a brick and motor outlet of a bank
in every village where the population is above 2000.

The RRBs have been in sharp focus over the last few years with several measures initiated
towards strengthening them and making them vibrant channels of credit delivery, particularly for
the rural sector. The most prominent of these has been the process of State wise amalgamation of
RRBs sponsored by the same sponsor bank. Due to the process of amalgamation, the number of
RRBs in the country declined from 196 to 96 at the end of March 2006 and further to 88 at the end
of June 2008 and 84 at the end of March 2010.

Objectives

 To study of banking services to the home step of rural masses, particularly in before
unbanked rural areas.
 To study of making available in situational credit to the weaker sections of the
society who had by far little or no access to chapter loans and had perforce been
depending on the probate money lenders.
 To study of mobilize rural savings and channelize them for supporting productive
activities in rural areas.
 To analyze the financial performance of Regional Rural Banks in India before and
after amalgamation
 To understand the working of Regional Rural Banks in India

Scopes

History

RRB’s were established under the provisions of an ordinance passed on September 1975
and the RRB Act. 1976. It recognized to provide sufficient banking and credit facility for
agriculture and other rural sectors during the tenure of Indira Gandhis government with a view to
include rural areas into economic mainstream. The various facilities provided by sponsor banks
should continue for 10 years in each case. Concessionary refinance by RBI should be continued.
The control regulatory and promotional responsibilities relating to RRBs should be transferred
from the government of India to RBI or NABARD.

Recapitalization of regional rural banks (RRBs)

RRBs to have capital to risk weight assets ratio of least 7% as of 31 march 2011 and least
9% from 31 march 2012 onwards. Recapitalization requirements of Rs. 2,200.00 core for 40 of the
82 RRBs. The remaining 42 RRBs will not require any capital and will be able to maintain CRAR
of least 9%ifs on 31 st March 2012 and thereafter on their own.

Present status RRBs and future plans

As per the reports of June 2014, govt. of India has put on hold future amalgamation of
RRBS and has conveyed to the sponsor banks that no fresh proposal of amalgamation of RBI
should be taken up at present. Therefore at present the focus for RRBS will be on improving their
performance including their profitability.RRBS are also fast moving towards core banking for
effectiveness and to increase customer base.
Performance of RRBs in the Spatial Dimension

The RRBs, over the years have made impressive strides on various business indicators. For
instance, deposits of RRBs have grown by 18 times and advances by 13 times between 1980 and
1990. Between the year 2000 and 2004, loans disbursed by RRBs more than doubled reflecting
the efforts taken by the banks to improve credit flow to the rural sector. The average per branch
advances also increased from Rs.25 lakh in March 1990 to Rs.154 lakh in March 2003. When one
considers the deployment of credit relative to the mobilisation of resources, the credit-deposit (C-
D) ratio of RRBs were more than 100 per cent during the first decade of their operations up to
1987. Though the C-D ratio subsequently became lower, of late, it has shown an improvement and
went up from around 39 per cent in March 2000 to 44.5 per cent in March 2004

Capital structure

The authorized capital of a regional rural bank has been fixed at Rs,1 .OO crore and divided into
one lakh of fully paid - up shares of one hundred rupees each, The issued capital is Rs 25 lakhs of
which 50 per cent is subscribed by the central government, 15 per cent by the state government
concerned and the remaining 35 per cent by the sponsor bank (lead Bank), in the ratio of 50:35:15,
with effect from July 1984, the NABARD has provided refinance facilities to RRBs to meet their
disbursements. With a view to involve of RRBs more effectively in the area of rural development,
they have been advised to tune their lending programmes to suit the requirements of the people in
their respective service areas and to make serious efforts to avail maximum refinance from
NABARD and others.

Role of RRB

Regional Rural Banks have been playing a key role as an important vehicle of credit
delivery in rural areas with the objective of credit dispersal to small, marginal farmers & socio
economically weaker section of population for the development of agriculture, trade and industry.
However, their commercial viability has been questioned due to their limited business flexibility,
smaller size of loan and high risk in loans and advances. Although RRBs had a rapid expansion of
branch network and increase in volume of business, these institutions went through a difficult
evolutionary process. Some of the problems with the functioning of RRBs have been identified as,
Limited area of operations. High risk due to exposure only to the target group. Mounting losses
due to non-viable level of operations in branches located at resource-poor areas Heavy reliance
on sponsor banks for investment avenues. Burden of government subsidy schemes and inadequate
knowledge of customers leading to low quality assets Unionized staff with low commitment to
profit orientation and functional efficiency Inadequate skills in treasury management for profit
orientation. Inadequate exposure and skills to innovate products limiting the lending portfolios.
Inadequate effort to achieve desired levels of excellence in staff competence for managing the
affairs and business as an independent entity
 The role of RRBs cannot be ignored present days. Banking as these Gramin Banks have
played a major role in implementation of central and state govt. sponsored various programmed of
poverty alleviation like SGSRY, PMRGP, Old Days pension, Payment to Anganwadi, Mid Day
meal, Scholarship to students, IAY, Labor payment to NAREGA beneficiary has effectively been
carried by these RRBs.

Special features

With a view to facilitate RRBs operation, the RBI gave RRBs direct access to refinance assistance
at a concessional rate of 3% below the bank rate. • Allowed to maintain a lower level of SLR than
commercial bank. • Allowed to pay half per cent more interest on all deposits except those of 3
years and above. • Sponsor banks IDBI, NABARD, SRDBI, and other FIs are required under the
RRBs act to provide managerial and financial assistance to RRBs. As these banks were more
suitable for rural development work, preference should be given to them to open branches in rural
banks. • The eligible business of commercial banks rural branches may be transferred to RRBs

Shares and Ratios

• Central Goverment
50%

• Sponsor Banks
35%

• State Goverment
15%

Present status and future plans

As per the reports of June, 2014, Govt. of India has put on hold future amalgamation of
RRBs and has conveyed to the sponsor banks that no fresh proposal of amalgamation of RBIs
should be taken up at present. Therefore at present the focus for RRBs will be on improving their
performance including their profitability. RRBs are also fast moving towards core banking for
effectiveness and to increase customer base. Over 20 RRBs are already on CBS platform.
Sponsored commercial banks

The Regional Rural Bank were owned by the Central Government, the State Government
and the
 Sponsor Bank
 Punjab Bank of India
 State Bank of India
 Syndicate Bank
 United Bank of India
 United Commercial Bank

Limitations

 This paper reflects only the secondary data published so there is chance of change in the
data.
 This paper speaks only about regional rural banks and banking systems in rural areas.
 This publication fails to study about other commercial banks and commercial scheme
rather than rural schemes.

Conclusion

RRBs are well positioned to play a major role in financial inclusion particularly in areas
with high rates of financial exclusion. RRBs were originally created to cater to neglected sections
as they were expected to have sound financial management combined with local feeling and
familiarity. RRBs should concentrate on asset quality and earnings. With the increasing
competition among banks to meet customer expectations, banks should offer a broader range of
deposits, Investments and credit products through diverse distribution channels including ATMs,
telephone, and internet.

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