COMPARATIVE ANALYSIS OF EFFECTIVENESS OF RRB & NABARD

Bachelor of Commerce

(Banking & Insurance)

Semester V

(2017-18)

Submitted by

YASHKUMAR PALAV

ROLL NO 37

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS

BANDRA (W)

MUMBAI-50
COMPARATIVE ANALYSIS OF EFFECTIVENESS OF RRB & NABARD

Bachelor of Commerce

(Banking & Insurance)

Semester V

(2017-18)

Submitted

In Partial Fulfillment of the requirements

For the Award of Degree of Bachelor of

Commerce – Banking & Insurance

By

YASHKUMAR PALAV

SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS

BANDRA (W)

MUMBAI-50
 SMT.M.M.K. COLLEGE OF COMMERCE AND ECONOMICS

BANDRA (W)

MUMBAI-50

CERTIFICATE

(2016 – 2017)

This is to certify that YASHKUMAR PALAV of B.Com (Banking & Insurance)

Semester V (2017-18) has successfully completed the project on COMPARATIVE
ANALYSIS OF EFFECTIVENESS OF RRB & NABARD

Under the guidance of DR.ASHOK VANJANI

Date:-

Place:- MUMBAI

Dr. Aashish Jani Dr. ASHOK VANJANI

(Course Coordinator) (Principal / Project Guide)

External Examiner
 DECLARATION
Date:-

I, Mr. YASHKUMAR PALAV the student of B.Com (Banking & Insurance)

Semester V (2017-18) hereby declare that I have completed the project on
successfully COMPARATIVE ANALYSIS OF EFFECTIVENESS OF RRB &
NABARD

The information submitted is true and original to the best of my knowledge.

Thank you,

Yours faithfully,

YASHKUMAR PALAV
 ACKNOWLEDGEMENT

At the beginning, I would like to thank Almighty God for his shower of blessing. The
desire of completing this dissertation was given a way by my guide Dr. ASHOK
VANJANI, Principal of Smt. M.M.K. College. I am very much thankful to him for
the guidance, support and for sparing his precious time from a busy and hectic
schedule.
I would fail in my duty if I don‟t thank my parents who are pillars of my life. Finally,
I would express my gratitude to all those persons who directly and indirectly helped
me in completing dissertation.

YASHKUMAR PALAV
 DECLARATION

Date:-

I the undersigned Dr. A. C. VANJANI, have guided YASHKUMAR PALAV for

his/ project, he has completed the project “successfully. COMPARATIVE
ANALYSIS OF EFFECTIVENESS OF RRB & NABARD

I hereby, declared that information provided in this project is true as per the best of
my knowledge.

Thank you,

Yours faithfully,

Dr. A. C. VANJANI
 EXECUTIVE SUMMARY
Credit is seen as a powerful instrument in promoting economic
development with equity and social justice and more
particularly to increase agricultural production and improve the
standard of living of rural population. That is why credit to
agriculture sector has always commanded special attention in
terms of both policy issues and institution building. Broadly
there are two sources of credit institutional and non-
institutional. The evolution of institutional credit to agriculture
could be broadly classified into four distinct phases. First phase
was (1904-1969) predominant of cooperative and setting up of
RBI. Second phase was nationalization of banks and setting up
of Regional Rural Banks (RBBs). Third phase mainly included
setting up of National Bank for Agriculture and Rural
Development (NABARD) in 1982. Fourth was financial sector
reforms from 1991 onwards which infused a spirit of
competition among banks in India. Non institutional sources
mainly included money lenders, trader, commission agents
friends and relatives. A large number of agencies including co-
operative, Regional Rural Banks (RRBs) scheduled
commercial banks (SCBs) non banking financial corporation
(NBFC), self help groups (SHGs)and well spread informal
credit together constitute Indian agriculture credit delivery
system. In spite of all efforts, the dependence of small and
marginal farmers is still high on non-institutional sources. RBI
had set up one man high level committee of Shri R.V Gupta in
December 1997 to suggest measures for improving the delivery
system as well as simplification of the procedure of farm
credit. The committee submitted its report in April 1998.
 TABLE OF CONTENTS

Sr. No. Particulars Page No.

1. Introduction 1

2. Features of RRB & NABARD 13

3. Contribution of RRB & NABARD towards 20

economic Development

4. Objective of RRB & NABARD 36

Conclusion 49

References
 CHAPTER NO: 1 INTRODUCTION

REGIONAL RURAL BANK (RRB)

Regional Rural Bank

Regional Rural Banks (also RRBs) 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.

1
History

Regional Rural Banks were established under the provisions of an Ordinance passed
on September 1975 and the RRB Act. 1976 to provide sufficient banking and credit
facility for agriculture and other rural sectors. These were set up on the
recommendations of The M. Narasimham Working Group during the tenure of Indira
Gandhi's government with a view to include rural areas into economic mainstream
since that time about 70% of the Indian Population was of Rural Orientation. The
development process of RRBs started on 2 October 1975 with the forming of the first
RRB, the Prathama Bank with authorized capital of Rs. 5 crore at its starting. Also on
2 October 1976 five regional rural banks were set up with a total authorised capital
Rs. 100 crore ($10 Million) which later augmented to 500 crore ($50 Million). The
Regional Rural Bank were owned by the Central Government, the State Government
and the Sponsor Bank (There were five commercial banks, Punjab National Bank,
State Bank of India, Syndicate Bank, United Bank of India and United Commercial
Bank, which sponsored the regional rural banks) who held shares in the ratios as
follows Central Government-50%, State Government- 15% and Sponsor Banks-
35[2]%.. Earlier, Reserve Bank of India had laid down ceilings on the rate of interest
to be charged by these RRBs.

2
Recapitalization of Regional Rural BankS.

Subsequent to review of the financial status of RRBs by the Union Finance Minister
in August, 2009, it was felt that a large number of RRBs had a low Capital to Risk
weighted Assets Ratio (CRAR). A committee was therefore constituted in September,
2009 under the Chairmanship of K C Chakrabarty, Deputy Governor, RBI to analysis
the financials of the RRBs and to suggest measures including re-capitalisation to
bring the CRAR of RRBs to at least 9% in a sustainable manner by 2012. The
Committee submitted its report in May, 2010. The following points were
recommended by the committee:

RRBs to have CRAR of at least 7% as of 31 March 2011 and at least 9% from 31

March 2012 onwards. recapitalization requirement of Rs. 2,200.00 crore for 40 of the
82 RRBs. This amount is to be released in‟ two installments in 2010-11 and 2011-12.
.

The remaining 42 RRBs will not require any capital and will be able to maintain
CRAR of at least 9% ifs on 31 st March 2012 and thereafter on their own.

A fund of Rs. 100 crore to be set up for training and capacity building of the RRB
staff.

3
The Government of India recently approved the recapitalization of Regional Rural
Banks (RRBs) to improve their Capital to Risk Weighted Assets Ratio CRAR) in the
following manner:

Share of Central Government i.e. Rs.1, 100 crore will be released as per provisions
made by the Department of Expenditure in 2010-11 and 2011-12. However, release of
Government of India share will be contingent on proportionate release of State
Government and Sponsor Bank share.

A capacity building fund with a corpus of Rs.100 crore to be set up by Central

Government with NABARD for training and capacity building of the RRB staff in the
institution of NABARD and other reputed institutions. The functioning of the Fund
will be periodically reviewed by the Central Government. An Action Plan will be
prepared by NABARD in this regard and sent to Government for approval.

Additional amount of Rs. 700 crore as contingency fund to meet the requirement of
the weak RRBs, particularly those in the North Eastern. and Eastern Region, the
necessary provision will be made in the Budget as and when the need arises.

Organizational Structure

The Organizational Structure for RRB's varies from branch to branch and depends
upon the nature and size of business done by the branch. The Head Office of an RRB
normally had three to seven departments.

4
The following is the decision making hierarchy of officials in a Regional Rural Bank.

Board of Directors

1.Chairman & Managing Director

2.General Manager

3.Chief Manager/Regional Managers

4.Senior Manager

5.Manager

6.Officer / Assist

Amalgamation

Currently, RRB's are going through a process of amalgamation and consolidation. 25

RRBs have been amalgamated in January 2013 into 10 RRBs. This counts 67 RRBs
till the first week of June 2013. This counts 56 as of March 2015. On 31 March 2006,
there were 133 RRBs (post-merger) covering 525 districts with a network of 14,494
branches. All RRBs were originally conceived as low cost institutions having a rural
ethos, local feel and pro poor focus. However, within a very short time, most banks
were making losses. The original assumptions as to the low cost nature of these
institutions were belied. This may be again amalgamated in near future. At present
there are 56 RRBs in India.

5
Legal Existence and Protection

RRB's are recognized by the law and they have legal significance.The Regional Rural
Banks Act, 1976 Act No. 21 Of 1976 [9 February 1976.] reads

"For the incorporation, regulation and winding up of Regional Rural Banks 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, credit and other facilities, particularly to the small and marginal farmers,
agricultural laborers, artisans and small entrepreneurs, and for matters connected
therewith and incidental thereto".

6
 INTRODUCTION

NATIONAL BANK FOR AGRICULTURE & RURAL DEVELOPMENT

(NABARD)

National Bank for Agriculture and Rural Development (NABARD) is an apex

development bank in India, headquartered at Mumbai with branches all over India.[2]
The Bank has been entrusted with "matters concerning policy, planning and
operations in the field of credit for agriculture and other economic activities in rural
areas in India". NABARD is active in developing financial inclusion policy and is a
member of the Alliance for Financial Inclusion.[3]

NABARD Head Office at Mumbai

NABARD was established on the recommendations of Shivaraman Committee, (by

Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit
Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of
India, and Agricultural Refinance and Development Corporation (ARDC). It is one of
the premier agencies providing developmental credit in rural areas. NABARD is
India's specialised bank for Agriculture and Rural Development in India.

The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the
composition of share capital between Government of India and RBI, the paid up
capital as on 31 March 2015, stood at Rs.5000 crore with Government of India
holding Rs.4,980 crore (99.60%) and Reserve Bank of India Rs.20.00 crore

7
(0.40%).[4] RBI sold its stake in NABARD to the Government of India, which now
holds 99% stake.

International associates of NABARD include World Bank-affiliated organizations and

global developmental agencies working in the field of agriculture and rural
development. These organizations help NABARD by advising and giving monetary
aid for the upliftment of the people in the rural areas and optimizing the agricultural
process. [6]

ROLE

NABARD has been instrumental in grounding rural, social innovations and social
enterprises in the rural hinterlands. It has in the process partnered with about 4000
partner organisations in grounding many of the interventions be it, SHG-Bank
Linkage programme, tree-based tribal communities‟ livelihoods initiative, watershed
approach in soil and water conservation, increasing crop productivity initiatives
through lead crop initiative or dissemination of information flow to agrarian
communities through Farmer clubs. Despite all this, it pays huge taxes too, to the
exchequer – figuring in the top 50 tax payers consistently. NABARD virtually
ploughs back all the profits for development spending, in their unending search for
solutions and answers. Thus the organisation had developed a huge amount of trust
capital in its 3 decades of work with rural communities.

8
1.NABARD is the most important institution in the country which looks after the
development of the cottage industry, small industry and village industry, and other
rural industries.

2.NABARD also reaches out to allied economies and supports and promotes
integrated development.

3.NABARD discharge its duty by undertaking the following roles :

Serves as an apex financing agency for the institutions providing investment and
production credit for promoting the various developmental activities in rural areas

Takes measures towards institution building for improving absorptive capacity of the
credit delivery system, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, training of personnel, etc.

Co-ordinates the rural financing activities of all institutions engaged in developmental

work at the field level and maintains liaison with Government of India, state
governments, Reserve Bank of India (RBI) and other national level institutions
concerned with policy formulation

Undertakes monitoring and evaluation of projects refinanced by it.

NABARD refinances the financial institutions which finances the rural sector.

NABARD partakes in development of institutions which help the rural economy.

NABARD also keeps a check on its client institutes.

It regulates the institutions which provide financial help to the rural economy.

9
It provides training facilities to the institutions working in the field of rural
upliftment.

It regulates the cooperative banks and the RRB‟s, and manages talent acquisition
through IBPS CWE.

NABARD's refinance is available to state co-operative agriculture and rural

development banks (SCARDBs), state co-operative banks (SCBs), regional rural
banks (RRBs), commercial banks (CBs) and other financial institutions approved by
RBI. While the ultimate beneficiaries of investment credit can be individuals,
partnership concerns, companies, State-owned corporations or co-operative societies,
production credit is generally given to individuals. NABARD has its head office at
Mumbai, India.

NABARD Regional Office has a Chief General Manager [CGMs] as its head, and the
Head office has several top executives viz the Executive Directors[ED], Managing
Directors[MD], and the Chairperson.It has 336 District Offices across the country,
one special cell at Srinagar. It also has 6 training establishments.

NABARD is also known for its 'SHG Bank Linkage Programme' which encourages
India's banks to lend to self-help groups (SHGs). Largely because SHGs are
composed mainly of poor women, this has evolved into an important Indian tool for
microfinance. By March 2006, 22 lakh SHGs representing 3.3 core members had to
be linked to credit through this programme.

10
NABARD also has a portfolio of Natural Resource Management Programmes
involving diverse fields like Watershed Development, Tribal Development and Farm
Innovation through dedicated funds set up for the purpose.

Rural innovation

NABARD role in rural development in India is phenomenal.[9] National Bank For

Agriculture & Rural Development (NABARD) is set up as an apex Development
Bank by the Government of India with a mandate for facilitating credit flow for
promotion and development of agriculture, cottage and village industries. The credit
flow to agriculture activities sanctioned by NABARD reached Rs 1,57,480 crore in
2005-2006. The overall GDP is estimated to grow at 8.4 per cent. The Indian
economy as a whole is poised for higher growth in the coming years. Role of
NABARD in overall development of India in general and rural & agricultural in
specific is highly pivotal.

Through assistance of Swiss Agency for Development and Cooperation, NABARD

set up the Rural Innovation Fund. Vrajlal Sapovadia Rural Infrastructure
Development Fund (RIDF) is another noted scheme for the bank for rural
development.[10] Under the RIDF scheme Rs. 51,283 crore have been sanctioned for
2,44,651 projects covering irrigation, rural roads and bridges, health and education,
soil conservation, water schemes etc. Rural Innovation Fund is a fund designed to
support innovative, risk friendly, unconventional experiments in these sectors that
would have the potential to promote livelihood opportunities and employment in rural
areas. The assistance is extended to Individuals, NGOs, Cooperatives, Self Help
11
Group, and Panchayati Raj Institutions who have the expertise and willingness to
implement innovative ideas for improving the quality of life in rural areas. Through
member base of 25 crore, 600000 cooperatives are working in India at grass root level
in almost every sector of economy. There are linkages between SHG and other type
institutes with that of cooperatives.

The purpose of RIDF is to promote innovation in rural & agricultural sector through
viable means. Effectiveness of the program depends upon many factors, but the type
of organization to which the assistance is extended is crucial one in generating,
executing ideas in optimum commercial way. Cooperative is member driven formal
organization for socio-economic purpose, while SHG is informal one. NGO have
more of social color while that of PRI is political one. Does the legal status of an
institute influences effectiveness of the program? How & to what an extent?
Cooperative type of organization is better (Financial efficiency & effectiveness) in
functioning (agriculture & rural sector) compared to NGO, SHG & PRIs.

Recently in 2007-08, NABARD has started a new direct lending facility under
'Umbrella Programme for Natural Resource Management' (UPNRM). Under this
facility financial support for natural resource management activities can be provided
as a loan at reasonable rate of interest. Already 35 projects have been sanctioned
involving loan amount of about Rs 1000 crore. The sanctioned projects include honey
collection by tribals in Maharashtra, tussar value chain by a women producer
company ('MASUTA'), eco-tourism in Karnataka etc.

12
 CHAPTER NO- 2

FEATURES OF RRB

Regional Rural Banks (Amendment) Bill 2014: Features

Q.1: Banking is a crucial sector of the economy where reforms are needed. Discuss
the features of the Regional Rural Banks (Amendment) Bill 2014 passed by the RS
recently.

• RS has passed the Regional Rural Banks (Amendment) Bill 2014

• It seeks to amend the RRB Act 1976 which is concerned with the following
functions of the RRBs:

- Incorporation

- Regulation

- Closure

• The Act removes 5 year limit cap placed on sponsor banks to provide assistance
to upcoming RRBs as per the RRB Act 1976

13
• Earlier, according to the Act, sponsor banks were liable to train personnel and
provide managerial as well as financial assistance for 5 years

• Amount of authorised capital was raised to INR 2000 crore and not reduced
below INR 1 crore rupees; Earlier, authorised capital was INR 5 crore and it was not
permitted to be reduced below INR 25 lakhs

• Union government will now be able to specify capital issued by RRB should be
a minimum of INR 1 crore

• Bill also permits RRBs to raise capital from other sources rather than just
central and state governments

According to the Act:

- 50% of capital is being issued by Union government

- 15% is by concerned state government

- 35% is by sponsor banks

14
• The Bill also states when capital is being raised by other sources, the
shareholding of central government and sponsor banks cannot fall below 51%

• Also, state government will have to be consulted if shareholding of the state

government in the RRB is lowered below 15%

• Union government may through notification raise/lower limit of shareholding

patterns following consultation with state government and sponsor banks

• Bill also stipulates that person who is director of RRB is not eligible to be
placed on Board of Directors of another RRB

• Directors of RRB board should be elected by shareholders associated with total

amount of equity share capital issuance to such shareholders

• 2 directors will be elected by shareholders when equity share capital issued

ranges from 10 to 25 percent

• Three directors should be elected when equity share capital issuance is beyond
25%

15
• The tenure of a director excluding the Chairman has been extended to
minimum of three years and maximum of 6 years

• Date of closure and balancing of books to 31st March has provided uniformity
in the fiscal

Facts and Stats

• RRBs were formed in 1975 as per an Ordinance promulgated on 26th

September 1975 followed by the Regional Rural Banks Act 1976

• RRBs aim to develop rural economy

• They also create supplementary channel to Cooperative Credit structure

• RRBs funds comprise owned fund, deposits, NABARD borrowings, sponsor

banks and other sources like SIDBI

• Owned funds of RRBs comprise share capital, share capital deposits from
shareholders and reserves

16
 FEATURES OF NABARD

NABARD is designated as an apex development bank in the country. This national

bank was established in 1982 by a Special Act of the Parliament, with a candidate to
uplift rural India by facilitating credit flow in agriculture, cottage and village
industries, handicrafts and small-scale industries. It is also required to support non-
farm sector while promoting other allied economic activities in rural areas. NABARD
functions to promote sustainable rural development for attaining prosperity of rural
areas in India.

It is basically concerned with “matters concerning policy, as well as planning and

operations in the field of credit for agriculture and other economic activities in rural
areas in India”. It is worth noting with refernce to NABARD that RBI has sold its
own stake to the Government of India. Therefore, Government of India holds 99%
stake in NABARD.

Role of NABARD:

 It is an apex institution which has power to deal with all matters concerning
policy, planning as well as operations in giving credit for agriculture and other
economic activities in the rural areas.
 it is a refinancing agency for those institutions that provide investment and
production credit for promoting the several developmental programs for rural
development.

17
 It is improving the absorptive capacity of the credit delivery system in India,
including monitoring, formulation of rehabilitation schemes, restructuring of
credit institutions, and training of personnel.
 It co-ordinates the rural credit financing activities of all sorts of institutions
engaged in developmental work at the field level while maintaining liaison with
Government of India, and State Governments, and also RBI and other national
level institutions that are concerned with policy formulation.
 It prepares rural credit plans, annually, for all districts in the country.
 It also promotes research in rural banking, and the field of agriculture and rural
development.

 NABARD gives high priority to projects formed under IRDP.

 It provides refinance for IRDP accounts in order to give highest share for the
support for poverty alleviation programs run by IRDP.
 Other than the activities included under IRDP, it also makes the service area
plan, to provide backward and forward linkages and also infrastructural
support.

18
 NABARD also prepares guidelines for promotion of group activities under its
programs and provides 100% refinance support for them.
 It is making efforts to establish linkages between Self-help Group(SHG) that
are organized by voluntary agencies for poor and needy in rural areas and other
official credit agencies.
 It refinances to the complete extent for those projects that are taken under
the „National Watershed Development Programme„ and the „National Mission
of Wasteland Development„.
 It also has a system of District Oriented Monitoring Studies, under which, study
is conducted for a cross section of schemes that are sanctioned in a district to
various banks, to ascertain their performance and to identify the constraints in
their implementation, It also initiates appropriate action to remedy them.
 It also supports Vikas volunteer Vahini programs which offer credit and
development activities to poor farmers.
 It also inspects and supervises the cooperative banks and RRBs to periodically
ensure the development of the rural financing and farmers‟ welfare.
 NABARAD also recommends about licensing for RRBs and Cooperative banks
to RBI.
 NABARD also provides assistance and support for the training and
development of the staff of various other credit institutions, that are engaged in
credit distributions.
 It also runs programs for agriculture and rural development.
 It is engaged in regulations of the cooperative banks and the RRB‟s, and
manages their talent acquisition through IBPS CWE conducted across the
country.

19
 CHAPTER NO:3
CONTRIBUTION OF RRB TOWARDS
ECONOMIC DEVELOPMENT

Regional Rural banks were established in 1975 under the Regional Rural Banks
(RRB) act. They are local level banking organizations operating in different states of
India. They have been created with a view to serve the rural sector of India. They give
financial service to the people. It performs various functions like providing banking
facility to the rural people, distribution of wages as well as pension and other
functions like locker facilities, debit and credit card. We need Regional Rural Banks
in India because a major part of our population lives in rural area. As people live in
these areas there are a lot of farmers who needs money for farming. We know that
farming is the backbone of this country and if farming gets developed India would be
on its way to become a developed economy but due to the exploitation done by the
moneylenders Indian farmers are not able to progress. By the help of regional rural
banks who will provide loans to farmers at very low rate of interest, India would be
on its way to progress. The present paper highlights the factors which need to be
addressed for their effective implementation for the contribution for a developed
economy. Key Words: Regional Rural Banks, Developed Economy Proceedings of
the International Symposium on Emerging Trends in Social Science Research
1. Introduction Agricultural sector has been the backbone of India. Around 50% of its
total workforce is involved in agriculture. Even today its total contribution is 13.7% in

20
the GDP of India. India inherited a stagnant agriculture at the time of independence in
1947. The first task of Indian Government in the immediate post-independence period
was, therefore, to initiate growth process in agriculture. Measure like green revolution
brought a sudden and visible change in the agrarian system of the country, but it did
not have lasting effects because the sector lacks the basic need i.e. Finance. For
permanent effects of such methods there is a need of modern methods of production
which includes the use of HYV seeds, machines like harvesters, threshers etc. that
could be relatively more productive and can give lasting effects. But these modern
techniques need huge initial investments for acquiring the machines and setting up the
proper irrigation system. The need of finance is the main problem in the rural India,
the fund could be arranged by two major sources viz. organized sector and
unorganized sector. Organized sector includes private and public institutions like
banks; co-operative societies etc. unorganized sector involves the local landlords,
zamindarsand other money lenders who charge a high rate of interest and slowly the
poor peasants become the slaves of these money lenders. Indian farmers largely
depend upon the unorganized sector to meet their financial requirements. Although
the bank branches are increasing at a rapid rate but these commercial banks are not
interested in granting loans for agricultural purposes or to these farmers because they
do not have any assets to keep as collateral and there are chances of bad debt as the
Indian agriculture is highly dependent on rain and the rains are uncertain in most of
the areas. But the agricultural sector could not be ignored as it still feed the country
and provides employment at a large scale. The solution to this chronic problem lies in
creating an agency that provides finance to agriculture sector at a subsidized rate and
works with the motive of accelerating the growth of this sector. Currently regional
rural banks are local level banking organizations operating in different States of India
to fight this problem of finance. They have been created with a view to serve
21
primarily the rural areas of India with basic banking and financial services.
2. Review of Literature N.Sabitha Devi (2014) in her work, Problems and Prospects
of Regional Rural Banks in India, tried to find out the problems faced by the regional
rural banks and in her work she suggested more involvement of government to
improve the status of RRBs. Proceedings of the International Symposium on
Emerging Trends in Social Science Research. Anil Kumar Soni and AbhayKapre, in
their work PERFORMANCE EVALUATION OF REGIONAL RURAL BANKS IN
INDIA, evaluated progress of the RRBs during 2006-07 to 2010-11 and concluded
that uniform pattern of interest rate structure should be devised for the rural financial
agencies. Dr. M.Syed Ibrahim (2010) carried out a study on the topic “Performance
Evaluation of Regional Rural Banks in India”. In this study, it was concluded that
RRBs in India showed a remarkable performance in the post-merger period. Professor
DilipKhankhoje and Dr. MilindSathye (2008) have analyzed to measure the variation
in the performance in terms of productive efficiency of RRBs in India and to assess if
the efficiency of these institutions has increased post-restructuring in 1993-94 or not.
According to Nathan, Swami (2002), policies of current phase of financial
liberalization have had an immediate, direct and dramatic effect on rural credit. There
has been a contraction in rural banking in general and in priority sector ending and
preferential lending to the poor in particular. A. K. Jai Prakash (1996) conducted a
study with the objective of analyzing the role of RRBs in Economic Development and
revealed that RRBs have been playing a vital role in the field of rural development.
Moreover, RRBs were more efficient in disbursal of loans to the rural borrowers as
compared to the commercial banks. Support from the state Governments, local
participation, and proper supervision of loans and opening urban branches were some
steps recommended to make RRBs further efficient. As none of the above study
analyzed the reason of non-working of the RRBs in particular regions, there was a
22
need of the present study.

Objective of the study

. To explore the regions where the RRBs are making profits
 To know the reasons of their better performance.
 Find out the loss making regions in the working of RRBs.
 To highlight the causes of loss in these regions.
 To give a way ahead for the working of RRBs.
3. Methodology The present study is diagnostic and exploratory in nature and makes
use of secondary data. The relevant secondary data have been collected mainly
through the data bases of Reserve Bank of India (RBI), National Bank for
Agricultural and Rural Development (NABARD). The journals like Abhinav journal
and International Management Journal have been referred. An attempt is made here in
this paper to examine the causes of differential Proceedings of the International
Symposium on Emerging Trends in Social Science Research performance of RRBs in
some selected regions. The study tries to figure out all the reasons that lead to the loss
or profit of the RRBs.
3.1 Relation of agriculture with the overall development Economic development has
historically been associated with structural changes in the national economies.
Economic development is sometimes defined as a process combining economic
growth with changing share of different sectors in the national product and labor
force. The most common structural changes that have been observed historically have
followed a sequence of shift from agriculture to industry and then to services. But
during the shift the primary sector could not be ignored as it provides base to various
types of industries and to the service sector also, and has a direct link with the overall

23
development by helping in reducing the burden of import for food and raw material
requirement.
3.2 Regional Rural Bank Regional rural banks were conceived as institutions that
combine the local feel and familiarity of cooperatives and the business organization
ability of the commercial banks. In a multi-agency approach for agriculture and rural
credit in India, Regional rural banks have a special place. Regional Rural Banks
(RRBs) were established in 1975 under the provisions of the Ordinance promulgated
on the 26th September 1975 and followed by Regional Rural Banks Act 1976 with a
view to develop the rural economy and to create credit and other facilities particularly
to small and marginal farmers, agricultural laborers, artisans and small entrepreneurs
so as develop agricultural trade, commerce, industry and other productive activities in
the rural areas. The Government of India, State Government and the bank, which had
sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%,
15% and 35%, respectively. The area of operation of the RRBs is limited to notify
few districts in a State. The RRBs mobilize deposits primarily from rural/semi-urban
areas and provide loans and advances mostly to small and marginal farmers,
agricultural laborers, rural artisans and other segments of priority sector. The RBI in
2001 constituted a Committee under the Chairmanship of Dr V S Vyas on “Flow of
Credit to Agriculture and Related Activities from the Banking System” which
examined relevance of RRBs in the rural credit system and the alternatives for making
it viable. The consolidation process thus was initiated in the year 2005 as an off-shoot
of Dr Vyas Committee Recommendations. First phase of amalgamation was initiated
Sponsor Bank-wise within a State in 2005 and the second phase was across the
Sponsor banks within a State in 2012. The process was initiated with a view to
provide better customer service by having better infrastructure, computerization,
experienced work force, Proceedings of the International Symposium on Emerging
24
Trends in Social Science Research common publicity and marketing efforts etc. The
amalgamated RRBs also benefit from larger area of operation, enhanced credit
exposure limits for high value and diverse banking activities. As a result of
amalgamation, number of the RRBs has been reduced from 196 to 64 as on 31 March
2013. The number of branches of RRBs increased to 17856 as on 31 March 2013
covering 635 districts throughout the country.
4. Objectives of RRBs The RBBs Act has made various provisions regarding the
incorporation, regulation and working of RRBs. According to this Act, the RRBs are
to be set-up mainly with a view to develop rural economy by providing credit
facilities for the purpose of development of agriculture, trade, commerce, industry and
other productive activities in the rural areas. Such facility is provided particularly to
the small and marginal farmers, agricultural laborers, artisans, and small
entrepreneurs and for other related matters.
The objectives of RRBs are as follows:
i. To provide cheap and liberal credit facilities to small and marginal farmers,
agriculture laborers, artisans, small entrepreneurs and other weaker sections.
ii. To save the rural poor from the moneylenders.
iii. To act as a catalyst element and thereby accelerate the economic growth in the
particular region.
iv. To cultivate the banking habits among the rural people and mobilize savings for
the economic development of rural areas.
v. To increase employment opportunities by encouraging trade and commerce in rural
areas.
vi. To encourage entrepreneurship in rural areas.
vii. To cater the needs of the backward areas which are not covered by the efforts of
the government.
25
viii. To develop underdeveloped regions and thereby strive to remove economic
disparity between regions.

4.1 Sources of Funds The sources of funds of RRBs comprise of owned fund,
deposits, borrowings from NABARD, Sponsor Banks and other sources including
SIDBI and National Housing Bank. The owned funds of RRBs comprising of share
capital, share capital deposits received from the shareholders and the reserves stood at
19304 crore as on 31 March 2013 as against 16462 crore as on 31 March 2012;
registering a growth of 17.26%. The increase in owned funds to the tune of 2842 crore
was mainly on account of accretion to reserves by the profit making RRBs. The share
capital and share capital deposits together amounted to 6174 crore of total owned fund
while the balance amount of 13130 crore represented reserves. Proceedings of the
International Symposium on Emerging Trends in Social Science Research.
Recapitalization of RRBs The chakrabarty Committee reviewed the financial position
of all RRBs in 2010 and recommended for recapitalization of 40 out of 82 RRBs for
strengthening their CRAR to the level of 9 per cent by 31 March 2012. According to
the Committee, the remaining RRBs are in a position to achieve the desired level of
CRAR on their own. Accepting the recommendations of the committee, the GOI
along with other shareholders decided to recapitalize the RRBs by infusing funds to
the extent of 2200 Crore. As on 31 March 2013, an amount of 2015.86 crore has been
released to 37 RRBs in 20 States. The released amount includes GoI‟s contribution of
1003.92 crore, State Govt's contribution of 303.59 crore and Sponsor bank's
contribution of 708.35 crore. The recapitalization is complete in respect of 35 RRBs
(5 in Odisha , 3 in MP, 2 in Uttarakhand, 2 in Jharkhand, 2 in Chhatisgarh, 2 in Bihar,
2 in Maharashtra, 3 in West Bengal, 5 in Rajasthan and one each in Assam, Arunachal
Pradesh, Nagaland, Tripura, J&K, Karnataka, Tamil Nadu, Gujarat & UT of
26
Puducherry). GoI share 7.99 cr. is pending in respect of Manipur Rural Bank.
Mizoram State Government has partially released 0.50 crore in respect of Mizoram
Rural Bank and 2.80 crore is pending. Two State Govts.viz. UP(2 RRBs), & J&K (1
RRB) have not released any amount in respect of 3 RRBs operating in their states.
Out of 35 fully recapitalised RRBs, 3 RRBs viz. Central Madhya Pradesh GB,
Manipur Rural Bank and Mizoram GB have not achieved CRAR of 9 per cent as on
31.3.2013.

27
 CONTRIBUTION OF NABARD TOWARDS ECONOMIC DEVELOPMENT

Role of NABARD in Rural Infrastructure Development Dr. Anoop Kumar Singh*,

Dr.Anupam Vidyarthi Assistant Professor, Dept. of Applied Economics, Faculty of
Commerce, University of Lucknow, Lucknow- 226 007 Vice Principal, Jaipuria
College, Lucknow ABSTRACT It is a known fact that for economic development of a
nation, presence of adequate infrastructure in rural and urban areas is indispensable.
In Indian context, infrastructure development is essential not only in urban areas but
also in remote and rural areas of the country as majority of the share of the total
population is still domiciled in rural and semi developed areas. Rural infrastructure is
two way associated. On one side it is positively associated with rural economic
development and on the other side it is negatively associated with incidence of
poverty. Investment in rural infrastructure has manifold effect which leads to create
new economic opportunities, generate additional employment, enhance credit
absorption and also ensure delivery of related services. The ultimate result of this will
surely lead to improvement in the standard of living and also reduce the frailness of
the rural people. The researcher has selected this topic out of inquisitiveness to
understand the need of rural development and increasing role of agriculture and allied
activities along with MSME sector in the economic development of the nation. The
study aims at assessing the working and progress of NABARD with respect to rural
infrastructure development initiatives. Introduction Since the attainment of
independence, "Growth with Social Justice" has been the basic objective of the
Development Planning in India. With the beginning of planned economic
development, the Government through Five Years Plans made significant measures in
developing rural and remote parts of the country. Keeping this as the motive, the
28
National Bank for Agriculture and Rural Development (NABARD) was set up in
July, 1982 by the National Bank for Agriculture and Rural Development Act 1981.
The Act was passed on the recommendations of the "Committee to Review
Arrangements for Institutional Credit for Agriculture and Rural Development"
(Shivaraman Committee). It replaced the Agricultural Credit Department (ACD) and
Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural
Refinance and Development Corporation (ARDC). NABARD has been accredited
with "matters concerning policy, planning and operations in the field of credit for
agriculture and other economic activities in rural areas in India". Traditionally, public
sector investment is considered as the major provider of rural infrastructure. It has
encouraged private investment in agriculture. Lack of public investment in
infrastructure influences the viability and effectiveness of private investment in a
negative manner. However, it has not been possible to step up public investment in a
big way. For this purpose, Government of India, instituted Rural Infrastructure
Development Fund (RIDF) in 1995 in NABARD, entrusting it with the responsibility
of channelizing financial resources to the State Governments for rural infrastructure
development. Objectives The present study aims at examining need of the
development of rural infrastructure and various efforts made by NABARD in these
lines.
The main objectives of the present study are:
1. To understand the overall policy and major functions performed by NABARD
2. To examine the developmental initiatives, creation of various funds and schemes
in respect to rural development undertaken by NABARD.
3. To assess the improvement and development discernible in different form of rural
infrastructure. The main focus of the present study is on comprehending the current
scenario of rural infrastructure development efforts made by NABARD. The study is
29
descriptive as well as analytical in nature and is being carried out with the help of
secondary data availed from library books, journals, newspapers, magazines,
government publications and websites. However an actual position at the root level
could have been portrayed if first hand information had been collected from the fields
where developmental works have taken place. But because of time, manpower and
financial constraints it was not feasible for the researcher. Developmental and
Supervisory Role of NABARD Mission of NABARD is to promote sustainable and
equitable agriculture and rural development through effective credit support, related
services, institution building and other innovative initiatives. For the attainment of
this mission, NABARD performs multiple kind of functions which are as under:
Credit functions It is the most important function of the bank. It involves preparation
of potential-linked credit plans annually for all districts of the country for
identification of credit potential, monitoring the flow of ground level rural credit,
issuing policy and operational guidelines to rural financing institutions and providing
credit facilities to eligible institutions under various programs.
The credit functions include the following:
 Framing policy and guidelines for rural financial institutions
.  Providing credit facilities to issuing organizations.
 Preparation of potential-linked credit plans annually for all districts for
identification of credit potential.
 Monitoring the flow of ground level rural credit.
Development and promotional functions The bank has also a focus on overall
development and income generating interventions aimed at supplementing the credit
functions as well as making credit more productive. These functions include the
following:

30
 Help cooperative banks and Regional Rural Banks to prepare development actions
plans for themselves.
 Enter into MOU with state governments and cooperative banks specifying their
respective obligations to improve the affairs of the banks in a stipulated timeframe. 
Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their
respective obligations to improve the affairs of the Regional Rural Banks in a
stipulated timeframe.
 Monitor implementation of development action plans of banks and fulfillment of
obligations under MOUs.
 Provide financial assistance to cooperatives and Regional Rural Banks for
establishment of technical, monitoring and evaluations cells.
 Provide organization development intervention (ODI) through reputed training
institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National
Bank Staff College, Lucknow and College of Agriculture Banking, Pune, etc.
 Provide financial support for the training institutes of cooperative banks.
 Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks.
 Create awareness among the borrowers on ethics of repayment through Vikas
Volunteer Vahini and Farmer‟s clubs.
 Provide financial assistance to cooperative banks for building improved
management information system, computerization of operations and development of
human resources. Supervisory functions NABARD also plays a significant role in
proper functioning of cooperative banks and regional rural banks in the country. 
Undertakes inspection of Regional Rural Banks (RRBs) and cooperative banks (other
than urban/primary cooperative banks) under the provisions of Banking Regulation

31
Act, 1949.
 Undertakes inspection of State Cooperative Agriculture and Rural Development
Banks (SCARDBs) and apex non-credit cooperative societies on a voluntary basis
 Undertakes portfolio inspections, systems study, besides off-site surveillance of
cooperative banks and Regional Rural Banks (RRBs)
 Provides recommendations to Reserve Bank of India on opening of new branches
by State Cooperative Banks and Regional Rural Banks (RRBs)
 Administering the Credit Monitoring Arrangements in SCBs and CCBs.
Institutional and capacity building functions To ensure smooth functioning and
strengthening of cooperative banks and RRBs, NABARD has always been
instrumental and helping all those financial institutions working in the field of rural
and agriculture credit. Following are the points providing evidence in this support. 
Help cooperative banks and RRBs to prepare development actions plans for
themselves.
 Help RRBs and the sponsor banks to enter into MOUs specifying their respective
obligations to improve the affairs of the RRBs in a stipulated timeframe.  Provide
financial assistance to cooperatives and RRBs for establishment of technical,
monitoring and evaluations cells.
 Provide organization development intervention (ODI) through reputed training
institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National
Bank Staff College, Lucknow, College of Agriculture Banking, Pune, etc.
 Provide training for senior and middle level executives of commercial banks, RRBs
and cooperative banks. Training functions Another important area of functions
performed well by this bank is to impart with different kinds of training such as legal,
technical, financial and marketing training and consultancy which is well written in

32
the NABARD Act itself. This can be summarized under the following points:
 Maintain expert staff to study all problems relating to agriculture and rural
development and be available for consultation to the Central Government, the
Reserve Bank, the State Governments and the other institutions engaged in the field
of rural development.
 Provide facilities for training, for dissemination of information and the promotion
of research including the undertaking of studies, researches, techno-economic and
other surveys in the field of rural banking, agriculture and rural development.
 Provide technical, legal, financial, marketing and administrative assistance to any
person engaged in agriculture and rural development activities.
 May provide consultancy services in the field of agriculture and rural development
and other related matters in or outside India, on such terms and against such
remuneration, as may be agreed upon. Miscellaneous other functions are as follows:
 Conduct inspections of the RRBs and the co-operative societies, without any
prejudice to the authority of the RBI.
 All the applications for opening a branch by RRBs or co-operative societies should
be forwarded to the RBI through the NABARD.
 Copies of all returns submitted by the RRBs and co-operative societies to the RBI
should also be furnished to the NABARD.
 NABARD is also empowered to obtain any information or statement from the
RRBs and the co-operative societies.

 NABARD should undertake research and training programs. These comprehensive

training programs should be targeted towards NABARD's own staff and the staff of
SCBs and RRBs as well. The R&D department of NABARD should take the lead in

33
promoting research concerning problems associated with India's agriculture and rural
development and also other allied aspects. For this purpose the NABARD has been
authorized to maintain and R&D fund out of profits earned by it every year.
 NABARD is responsible for coordinating with the Government of India, the
Planning Commission, State Governments and other agencies concerned with the
development of rural industrialization. It is also responsible for ensuring the
implementation of various policies and programs meant for providing finance to the
rural industries. Overview of major rural infrastructural development programs started
by NABARD Rural Infrastructure Development Fund Rural Infrastructure
Development Fund (RIDF), has emerged as NABARD‟s major partnership with the
State Governments over the years. The Fund has continued with yearly allocations in
the successive Union Budgets. It has become a major source of finance which
channelizes the shortfall in the mandatory involvement of commercial banks in the
priority sector lending to the State Governments in the form of loans. With the
experience gained, in addition to its role of managing the RIDF, NABARD has made
efforts in looking at rural infrastructure as an independent discipline for financing and
facilitating creation of rural infrastructure through various other initiatives.
Allocations from the Union Budget toward RIDF are depicted as follows:
Sectors/activities covered under RIDF In the initial years focus was on incomplete
irrigation, flood protection and watershed management projects. Over the years,
financing has become more broad based.

RIDF now covers 31 activities, which can be classified under three broad categories
i.e.,
(a) Agriculture and related sectors which are eligible for loans up to 95 per cent of
project cost,
34
(b) Social sectors where loans can be up to 90 per cent of project cost in North
Eastern and hilly States and 85 per cent of project cost in all other States
(c) Rural connectivity where loans are extended up to 90 per cent of project cost in
North Eastern and hilly States and 80 per cent of project cost in all other States.
RIDF has emerged as an attractive financing option for the State Governments.
Resources are getting better distributed across the States with greater share going to
the less developed States in Eastern and North Eastern Region (25 per cent at present
as compared to 18 per cent under closed fields). Since inception of RIDF, around 5.37
lakh projects involving an amount of 2,02,606.54 crore were sanctioned under various
fields. Of the cumulative RIDF loans sanctioned as on 31 March 2014, agriculture and
related sectors accounted for 40 per cent (including 26 per cent for irrigation), rural
roads 31 per cent and bridges 13 per cent. The balance 16 per cent of the loans was
sanctioned under social sector projects. The sector wise share in amount sanctioned is
depicted as follows NABARD Infrastructure Development Assistance NABARD
Infrastructure Development Assistance (NIDA) is a line of credit support for funding
rural infrastructure projects. NIDA is designed to fund State owned institutions/
corporations on both on-budget as well as off-budget for creation of rural
infrastructure outside the ambit of RIDF borrowing. The assistance under NIDA is
available on flexible interest terms with longer repayment period. Since inception, 27
projects have been sanctioned under NIDA for various purposes such as warehousing,
power transmission, cyclone damage power restoration, roads, irrigation, etc.
The cumulative sanctions and disbursements under NIDA since inception stood at
4,783.03 crore and 1,857.58 crore, respectively, as on 31 March 2014. During 2013-
14, six projects involving an amount of 1,149 crore was sanctioned and 575 crore was
disbursed. The major States covered under direct assistance through NIDA are
Andhra Pradesh, Bihar, Haryana, Gujarat, Punjab, Karnataka, Rajasthan etc.
35
 CHAPTER NO-4
OBJECTIVE OF REGIONAL RURAL BANK

Activities of modern economy are significantly influenced by the functions and

services of banks. Banking sector constitutes the core part of economic system. Indian
economy is agricultural economy and real India lies in villages. Village economy is
the backbone of Indian economy. Even after 60 years of independence, the rural
economy in India is still handicapped in terms of infrastructure and other chronic
problems of cultivators. In fact, economic progress and industrial development are
determined by the rural sector. More than 70% of Indians depend on agriculture; 60%
of industries are agro based; 50% of national income is contributed by rural sector and
the agricultural sector is the largest foreign exchange earner to India. Such an
essential and key sector is neglected by financial institutions and especially by the
banks. Regional Rural Banks (RRBs) are constituted to meet the financial and
banking needs of weaker sections of the rural areas with a special attention on small
and marginal farmers, agricultural laborers, artisans, landless farmers, small traders,
tint enterprises etc. Hence, RRBs were established in India in 1975 essentially for the
purpose of taking banking service to the doorsteps of rural people, particularly in
places where banking facilities are not available. In general, RRBs are commercial
banks but they adopt some of the principles of cooperatives such as location in areas,
work for rural population in a limited area etc. Thus they are hybrid institutes. RRBs
operate under the control of two institutions, the National Agricultural Bank and
Rural Development (NABARD) and Reserve Bank of India (RBI). The primary
objective of this study is to analyze the performance in terms of loans provided to the
36
priority and non-priority sectors of the country and especially 26 various types of
loans such as crop loans, term loans, loans to rural artisans, retail trade, small scale
industries and self-help groups etc. The paper is divided into six sections. A brief
review of the RRBs in India is given in section-2. In section-3, review of literature is
quoted. Methodology is discussed in section-4. Section-5 presents the results and
analysis and the conclusion of this paper is in the sixth section of the paper.

II. Regional Rural Banks (RRBs) in India-An Overview Rural people in India such as
small and marginal farmers, landless agricultural laborers, artisans and socially and
economically backward castes and classes, have been exploited in the name of credit
facility by informal sectors. The rural credit market consists of both formal and
informal financial institutions and agencies that meet the credit needs of the rural
masses in India. The informal sector advances loans at very high rates of interest; the
terms and conditions attached to such loans have given rise to an elaborate structure
of intimidation of both economic and non-economic conditions in the rural population
of India. The supply of total formal credit is inadequate and rural credit markets are
imperfect and fragmented. Moreover, the distribution of formal sector credit has been
unequal, particularly with respect to region and class, cast and gender in the country
side. The history of Regional Rural Banks in India dates back to the year 1975. It‟s
the Narasimham committee that conceptualized the foundation of Regional Rural
Banks in India. The committee felt the need of regionally oriented rural banks‟ that
would address the problems and requirements of the rural people in India. Regional
Rural Banks were established under the provisions of an Ordinance promulgated on
the 26 th September 1975 and the RRB Act, 1975 with an objective to ensure
sufficient institutional credit for agriculture and other rural sectors. The RRBs
mobilize financial resources from rural/semi-urban areas and grant loans and
37
advances mostly to small and marginal farmers, agricultural laborers and rural
artisans. For the purpose of classification of bank branches, the Reserve bank of India
defines rural area as a place with a population of less than 10,000.RRBs are jointly
owned by Government of India, the concerned State Government and Sponsor Banks;
the issued capital of a RRB is shared by the owners in the proportion of 50%, 15%
and 35% respectively. The first five RRBs were set up in five States in Haryana, West
Bengal, Rajasthan, with one each and two in Uttar Pradesh, which were sponsored by
different commercial banks. These banks covered 11 districts of these five states. The
first five Regional Rural Banks are as follows; v Prathama Bank and Gorakhpur
kshetriya Gramin Bank in Uttar Pradesh, v Haryana Krishi Gramin Bank in Haryana,
v Gour Gramin Bank in West Bengal, v Jaipur-Nagpur Anchalik Gramin Bank,
Rajasthan. Priority Sector Lending Introducing priority sector lending is the most
successful and advantageous decision of the Government of India. India is an
agricultural country with predominantly rural economy. Majority of industries are
agro based. To make the agriculture sector more profitable and to increase the scope
of rural industries, the government included the concept of priority sector and
included those sectors by commercial banks. To encourage banks to participate in
agricultural and rural development, the government made priority sector loans as an
important target for banks. Priority sector is a sector which is given priority in
offering financial services by the banks. Reserve Bank of India prescribed guidelines
and targets to all the banks operating in India with regard to priority sector services.
III. Review of Literature The literature available in the working and performance of
RRBs in India is a little limited. The literature obtained by investigators in the form of
reports of various committees, commissions and working groups established by the
Union Government, NABARD and Reserve Bank of India, the research studies,
articles of researchers, bank officials, economists and the comments of economic
38
analysts and news is briefly reviewed in this part. 27 Patel and Shete (1980) of the
National Institute of Banking Management made a valuable analysis of performance
and prospects of RRBs. They also gave a comparative picture of performance in
deposits, branch expansion and credit deployment of the co-operative banks,
commercial banks and RRBs in a specified area. This was an eye opener for many
researchers engaged in this field of rural credit. NABARD (1986) published “A study
on RRBs viability”, which was conducted by Agriculture Finance Corporation in
1986 on behalf of NABARD. The study revealed that viability of RRBs was
essentially dependent upon the fund management strategy, margin between resources
mobility and their deployment and on the control exercised on current and future costs
with advances. The proportion of the establishment costs to total cost and expansion
of branches were the critical factors, which affected their viability. The study further
concluded that RRBs incurred losses due to defects in their systems as such, there was
need to rectify these and make them viable. The main suggestions of the study
included improvement in the infrastructure facilities and opening of branches by
commercial banks in such areas where RRBs were already in function. Naidu, L.K.
(1998) conducted a study on RRBs taking a sample of 48 beneficiaries of rural
artisans in Cuddapah district of Andhra Pradesh under Rayale Seen Gramin Bank. In
this study, it was concluded that the beneficiaries were able to find an increase in their
income because of the finance provided by the bank. Kalkundrickars (1990) in his
study on “Performance and Growth of regional Rural Banks in Karnataka” found that
these banks had benefited the beneficiaries in raising their income, productivity,
employment and use of modern practices and rehabilitate rural artisans. Kumar Raj
(1993) carried out a study on the topic “Growth and Performance of RRBs in
Haryana”. On the basis of the study of RRBs of Haryana, it is found that there was an
enormous increase in deposits and outstanding advances. The researcher felt the need
39
to increase the share capital and to ensure efficient us of distribution channels of
finance to beneficiaries. A. K. Jai Prakash (1996) conducted a study with the
objective of analyzing the role of RRBs in Economic Development and revealed that
RRBs have been playing a vital role in the field of rural development. Moreover,
RRBs were more efficient in disbursal of loans to the rural borrowers as compared to
the commercial banks. Support from the state Governments, local participation, and
proper supervision of loans and opening urban branches were some steps
recommended to make RRBs further efficient. L.K Naidu (1998) conducted a study
on RRBs taking a sample of 48 beneficiaries of rural artisans in Cuddapah district of
Andhra Pradesh state under Rayale Seen Gramin Bank. In this study, it was concluded
that the beneficiaries were able to find an increase in their income because of the
finance provided by the bank. According to Nathan, Swami (2002), policies of current
phase of financial liberalization have had an immediate, direct and dramatic effect on
rural credit. There has been a contraction in rural banking in general and in priority
sector ending and preferential lending to the poor in particular. Chavan and Pallavi
(2004) have examined the growth and regional distribution of rural banking over the
period 1975-2002. Chavan‟s paper documents the gains made by historical
underprivileged region of east, northeast and central part of India during the period of
social and development banking. These gains were reversed in the 1990s: cutbacks in
rural branches in rural credit deposits ratios were the steepest in the eastern and
northeastern states of India. Policies of financial liberalization have unmistakably
worsened regional inequalities in rural banking in India. Professor Dilip Khankhoje
and Dr. Milind Sathye (2008) have analysed to measure the variation in the
performance in terms of productive efficiency of RRBs in India and to assess if the
efficiency of these institutions has increased post-restructuring in 1993-94 or not. 28
Dr. M.Syed Ibrahim (2010) carried out a study on the topic “Performance Evaluation
40
of Regional Rural Banks in India”. In this study, it was concluded that RRBs in India
showed a remarkable performance in the post-merger period. As none of these studies
analyzed the role of RRBs in priority sector lending, there was a need to carry out the
present study.

IV. Methodology/Research Design The present study is diagnostic and exploratory in

nature and makes use of secondary data. The relevant secondary data have been
collected mainly through the data bases of Reserve Bank of India (RBI), National
Bank for Agricultural and Rural Development (NABARD). The journals like the
Banker and the Journal of Indian Institute of Bankers have also been referred. An
attempt is made here in this paper to examine the rural credit structure of the country
and the role played by the RRBs. The study is confined only to the specific area like
loans and advances made by the RRBs especially priority and non-priority sectors for
the seven years period starting from 2002-03 to the year 2008-09. In order to analyze
the data and draw conclusions in this study, various statistical tools like Descriptive
Statistics, „t‟test, Correlation and Anova have been accomplished through EXCEL
and SPSS Software. V.Results and Discussion Sector-wise Loans issued by RRBs
RRBs occupy an important position in the rural credit market. Loans provided to the
needy people have been categorized into two. One is priority sector and the other one
is non-priority sector. Priority sector bank lending is an active instrument of Indian
financial policy with an aim to restore sectoral balance within credit disbursement and
to channel credit to the weaker sections of the society. Priority Sector is a sector
which is given priority in offering financial services by the banks. The concept of
priority sector was first brought into the financial system in 1968, when the
government imposed social control over the banks. Banks were directed to lend some
percentage of loans to the sectors listed in the priority sector. In 1968 there were 3
41
sectors; agriculture, small industry and exports. Gradually, the list of segments under
priority sector increased. At present it consists of agriculture, small scale industry,
small transport operators, exports, small business housing, self employed persons,
professionals, education etc. Recently the micro finance through Self-Help Groups
(SHG) is also included in priority sector. Loans given to priority sectors by RRBs
consists of short-term loans, term loans, loans to rural artisans, small scale industries,
retail trade,

42
 OBJECTIVE OF NABARD

1. To give financial assistance for increasing the agricultural production.

2. To supply the long term needs of the rural areas.

3. To supply loans by way of refinance.

4. To help small industries, cottage industries and also artisans.

5. To achieve overall rural development. The authorized capital of NABARD is Rs.

500 crores and the paid up capital is Rs. 100 crores.

6. The paid up capital is contributed by the Central Government and the Reserve Bank
in equal proportions. At the time of its establishment, loans and advances granted by
the Reserve Bank and outstanding against state co – operative banks and regional
rural banks were transferred to NABARD. Besides, the Reserve Bank has also
sanctioned a credit of Rs. 1220 crores to NABARD. Credits are also received from
the U.K., the U.S.A, the Netherlands, Switzerland and West Germany. Besides these,
NABARD has been raising funds from the market through the issue of debentures.

7. To meet the loan requirements NABARD draws funds from the Government of
India the World Bank and other agencies. NABARD had raised resources to the
extent of Rs. 11,0000 crores between 1983 and 1999. NABARD has thus sufficient
financial resources for financing all agricultural and rural development programmes.
At present its paid up capital is Rs. 2000 crores. Management NABARD is managed
by a Board of Directors, consisting of a chairman, a managing director and 13 other
directors. They are appointed by the Central Government in consultation with the
Reserve Bank. These will be also an Advisory Council. Functions of NABARD
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does not provide credit directly to farmers and other rural people. It provides
refinance credit of the state co – operative banks, regional rural banks and other
financial institutions as may be approved by the Reserve Bank. It is a single integrated
agency for meeting the credit needs of all types of agricultural and rural development
activities.

1. Apex institution for rural finance. NABARD performs all the functions which has
previously performed by the Reserve Bank of India. It directs the policy, planning and
operations in the field of credit for agriculture and other economic activities in rural
areas. It thus acts as an apex bank in the country for supporting and promoting
agriculture and rural development. It is described as “Rural Reserve Banks”.

2. Refinance Institutions. It serves as an apex refinancing agency for the institutions

providing production and investment credit for promoting various developmental
activities in rural areas. These activities are related to agriculture, small scale
industries, village and cottage industries, handicrafts, small artisans etc. NABARD
has taken over the function of refinancing facilities to state co- operative banks,
regional rural banks, commercial banks and other financial institutions approved by
the Reserve Bank of India.

3. Credit functions. NABARD is empowered to give short term, medium term loans
in a composite form. It looks after the credit requirements of all types of agricultural
and rural development activities.

(a) it provides short term, medium term and long term credits to state co operative
banks, and development banks, regional rural banks and other financial institutions
approved by the Reserve Bank of India.

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(b) It grants long term loans, upto 20 years, to state governments to enable them to
subscribe of the share capital of co operative credit societies.

(c) It gives long term loans to any institution approved by the Central Government.
(d) It provides medium term loans to state co operative banks and regional rural banks
for agricultural and rural development

. 4. Contribution of share capital. NABARD contributes to the share capital of any

institution concerned with agriculture and rural development.

5. Investment in securities. NABARD can invest in securities of any institution

concerned with agricultural and rural development. For promoting innovative
investments, NABARD has started “venture capital fund”.

6. Conversion and rescheduling facilities. NABARD refinance to eligible institutions

for conversion and rescheduling of loans, under conditions of drought, famine or
other natural calamities, military operations etc.

7. Financial help to non agricultural sector. Besides providing credit to agricultural

and allied activities, the NABARD also render financial help to the non agricultural
sector with the aim of promoting integrated rural development. It provides financial
assistance to small scale industries, cottage and village industries and industrial co
operative societies for meeting their working capital and fixed capital needs.

8. Co ordination of activities. NABARD co ordinates the activities of central and state

governments, planning commission and other institutions concerned with
development of small scale industries, village and cottage industries, rural crafts and
industries in the decentralized sector.

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9. Regulatory functions. NABARD has the responsibility to inspect regional rural
banks, and central and state co operative banks.

10. Maintenance of Reserve and Development Fund. NABARD maintains Research

and Development Fund :

(a) to promote reserve in agriculture and rural development,

(b) to formulate programmes to suit the requirements of different areas, and to cover
special activities.

11. Training Programmes NABARD has to provide comprehensive training

programmes to its own staff as well as to the staff of state co operative banks, regional
rural banks etc. The training is to be meant for upgrading the technical skill and
competence of the staff.

12. Evaluation of projects. NABARD undertake monitoring and evaluation of

projects refinanced by it. It is responsible for the development, policy, planning
operational matters, co – operation, monitoring, training consultancy etc.., relating to
rural credit. Achievement of NABARD NABARD is playing a vital role in the
reduction of regional imbalances and providing assistance to small farmers, marginal
farmers and weaker sections. It has been performing its various functions smoothly.

Its performance in extending various types of financial assistance is as follows :

1.Short term assistance.

NABARD sanctioned short term credit limits worth Rs. 6230 crores during 1997 – 98
to state cooperative banks for financing seasonal agriculture operations. The credit
facility is available at a aconcessional rate of 3% below the banks rate.

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2. Long term assistance.

NABARD grants long term credit to State Governments for contribution to the share
capital of co – operative institutions. During 1997 – 1998, it extends long term credit
worth Rs. 210 crores.

3. Schematic lending. During 1997 – 98 NABARD sanctioned 6,810 schemes

involving its own commitments of Rs. 3930 crores. Largest number of scheme
sanctioned were related to minor irrigation followed by those related to farm
mechanism. Land development, farm mechanization, plantations and horticulture,
poultry, sheep breeding, piggery, dairy, fisheries etc., and other important schemes
which are financed by NABARD.

4. Assistance to less developed states. NABARD like ARDC has continued the policy
of promoting agricultural investment in the less developed and unbalanced states.
Uttar Pradesh, Bihar, Madhya Pradesh, Rajasthan and Orissa have been receiving the
largest share of financial benefits from NABARD.

5. Assistance to non farm sector. NABARD has also provided financial help to non
farm activities with a view to promote integrated rural development. Finance has been
provided for production and marketing activities of co operative sugar mills,
handloom weaver‟s societies , industrial co operatives, rural artisans etc.

6. Rehabilitation programme. NABARD has been playing an energetic role in

strengthening and reorganizing the co operative structure in the country. It has
initiated a rehabilitation programme for financially and administratively weak central
and state co operative banks. It has also been providing help in the rehabilitation work
of state land development banks and primary land development banks. State
Government has been asked to take effective steps to ensure functional co ordination
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between short term and long term credit by co operatives. It has also created a “cell”
to monitor the implementation of this directive.

7. Assistance to Research and Development Projects. Every year NABARD has been
providing financial help to a number of banks from its Research and Development
Fund for setting up or strengthening their “Technical Monitoring and Evaluation
Cell”. It has been sanctioning funds for organizing research, conferences and seminars
on subject having relevance to NABARD.

8. Credit plans under the new strategy. Under the “Service Area Approach”, the
annual credit plans are prepared by the bank branches. The district level officers of
the NABARD would help to improve the quality of credit plans preferred by banks
branches and also co ordinate and effectively monitor the credit plans.

9. Integrated rural development programme. NABARD has helped the

implementation of the “integrated rural development programme”. Under the 20 point
economic programme, the NABARD has taken steps to provide adequate financial
facilities to the weaker sections of the society.

Regional Rural Banks. After the establishment of NABARD, all the refinance
facilities earlier available to regional banks have been provided by NABARD. Thus,
NABARD has given a tremendous push to agricultural credit and thus promoted
agriculture

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 CONCLUSION

The performance in every term is having a different connotation and depends in the
framework and its applications. As varied Rural Regional Banks activities, there is a
reason behind for their every performance. This study evaluated several parameters
like growth pattern of RRBs; The credit distribution of RRBs; and the first generation
and second generation‟s reform periods of RRBs. This chapter 5 divided into two
sections, first section describes about the findings of study and second section defines
suggestions that improve RRB‟s performance.

The financial system in India has grown rapidly in the last three decades and more.
The functional and geographical coverage of the system is truly impressive.
Nevertheless, data do show that there is exclusion and that poorer sections of the
society have not been able to access adequately financial services from the organized
financial system. There is an imperative need to modify the credit and financial
services delivery system to achieve greater inclusion. The implementation of the
recommendations made in this Report could go a long way to modify particularly the
credit delivery system of the banks and other related institutions to meet the credit
requirements of marginal and sub-marginal farmers in the rural areas in a fuller
measure. However, creating an appropriate credit delivery system is only a necessary
condition. This needs to be supplemented by efforts to improve the productivity of
small and marginal farmers and other entrepreneurs so that the credit made available
can be productively employed.

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 REFERENCES

https://en.wikipedia.org/wiki/NationalBankforAgricultureandRural_Development

http://bankersadda.in/nabard-introduction-banking-awareness/

https://en.wikipedia.org/wiki/Main_Page

http://www.gktoday.in/blog/regional-rural-banks/

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