IBS Campus, Donthanpally

Shankarpally road
Hyderabad - 501203
Telangana, India

IFS PROJECT REPORT

REGIONAL RURAL BANKS

Done by:
Jayesh Agarwal
21FMUCHH010215

1
 CONTENTS

S.NO TOPIC PAGE.NO

1 INTRODUCTION 3

2 GENESIS AND EVOLUTION 5

3 REGULATORY ENVIRONMENT 10

4 FEATURES AND PLAYERS 15

5 IMPACT OF TECHONOLOGY 19

2
REGIONAL RURAL BANKS:

Introduction:
Regional Rural Banks (RRBs) are government owned scheduled commercial banks of India
that operate at regional level in different states of India. They have been created with a view
of serving primarily the rural areas of India with basic banking and financial services. These
banks are under the ownership of Ministry of Finance and Government of India. There are
total 43 RRB’s in India and PRATHAMA BANK the first Regional Rural Bank of our
country established in 1975.
The area of operation is limited to the area notified by the government of India covering, and
it covers one or more districts in the State. RRBs perform various functions such as providing
banking facilities to rural and semi-urban areas, carrying out government operations like
disbursement of wages of MGNREGA workers and distribution of pensions, providing para-
banking facilities like locker facilities, debit and credit cards, mobile banking, internet
banking, and UPI services.
A review of the RRBs in August 2009 by the Union Finance Minister revealed that a large
number of RRBs had a low Capital to Risk weighted Assets Ratio (CRAR). A committee was
constituted in September 2009 under the chairmanship of K C Chakrabarty, the deputy
governor of the Reserve Bank of India (RBI) to analyse the financials of the RRBs and
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 committee recommended RRBs to have a CRAR of at least 7% on 31 March 2011 and at
least 9% from 31 March 2012 onwards. The recapitalization requirement of Rs 2,200.00 crore
for 40 of the 82 RRBs were to be released in two instalments 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% as of 31 March 2012 and thereafter, on their own. A fund of ₹100 crore to be set up for
training and capacity building of the RRB staff.
The Government of India approved the recapitalization of the RRBs to improve their CRAR
in the following manner:
Share of central government, that is, ₹1,100 crore will be released as per provisions made by
the Department of Expenditure in 2010-11 and 2011–12. However, release of the funds will
be contingent on proportionate release of the state government and sponsor bank share.
A capacity building fund with a corpus of ₹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 and sent
to the government for approval.
An additional amount of ₹700 crore was set up as a contingency fund to meet the requirement
of the weak RRBs, particularly those in the north-eastern and the eastern region

3
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 nine departments. The following is the decision-making hierarchy of officials in a RRB.

• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

Amalgamation of Regional Rural Banks:

The merging of two or more Banks together is known as amalgamation. In the early, 1990s
more than 190 RRBs were in existence. The authorities amalgamated these banks in a phased
manner.
Accordingly, in January 2013, 25 RRBs were merged into 10 banks. Thus, reducing the
number from 190 to 67 in phase 1 itself. They were further reduced to 56 banks in March
2016 in phase 2. In the third phase, the RRBs were merged and the number reduced to 43.
Hence, there are 43 RRBs currently operating in the country.

4
GENESIS AND EVOLUTION:
Regional Rural Banks were established under the provisions of an ordinance passed on 26
September 1975 and the RRB Act 1976 to provide sufficient banking and credit facility for
agriculture and other rural sectors. As a result, five RRBs were set up on 2 October 1975 on
the recommendations of the Narsimhan Committee on Rural Credit, during the tenure
of Indira Gandhi's government. The purpose was to include rural areas into the economic
mainstream since around 70% of the Indian population was rural.
Prathama Bank, with head office in Moradabad, Uttar Pradesh was the first RRB. It was
sponsored by Syndicate Bank and had an authorised capital of Rs. 5 crore. The other four
RRBs were Gaur Gramin Bank (sponsored by UCO Bank), Gorakhpur Kshetriya Gramin
Bank (sponsored by State Bank of India), Haryana Kshetriya Gramin Bank (sponsored
by Punjab National Bank), and Jaipur-Nagaur Anchalik Gramin Bank (sponsored by UCO
Bank).
The RRBs were owned by the central government, state government, and the sponsoring
bank with 50%, 15%, and 35% shareholding respectively.

Performance of RRBs:
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 1990 and 2004, deposits and advances grew by 14 times and 7 times,
respectively (Table 1). Between the year 2000 and 2004, loans disbursed by RRBs more than
doubled reflecting the efforts taken by the banks6 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.
The presence of RRBs shows wide variation both across States and sponsor banks. Although
RRBs are spread over twenty-six States, they have most of their presence in seven States, i.e.,
Andhra Pradesh, Bihar, Karnataka, Madhya Pradesh, Maharastra, Rajasthan and Uttar
Pradesh. Uttar Pradesh has the highest number of RRBs, i.e., thirtysix and Kerala has got
only two amongst the major States of the country (Table 2). The north-eastern States like
Manipur, Meghalya, Mizoram and Nagaland have got only one RRB. Like-wise, seven
sponsor banks amongst twenty-eight, viz., Bank of Baroda, Bank of India, Central Bank of
India, Punjab National Bank, State Bank of India, United Bank of India and UCO bank
account for more than three fifths of the RRBs. More than 160 RRBs earned profit in March
2004 while 150 RRBs were found to be earning profits for three consecutive years beginning
with the year 2000-01. More than half of these loss-making RRBs are found to be operating
in four States, i.e., Bihar, Madhya Pradesh, Maharastra and Orissa. Seen at the level of
sponsor banks, three banks, i.e., Bank of India, Central Bank of India and State Bank of India
accounted for more than half of the loss making RRBs. As a number of sponsor banks have

5
promoted RRBs in more than one State, it becomes natural to ask whether the presence of
RRBs sponsored by a few banks whose area of operation is confined to some specific States
is camouflaging the performance of better run RRBs. There can be three possibilities in such
a situation. One, irrespective of the State, the RRBs sponsored by some banks are incurring
losses; second, irrespective of sponsor banks, certain States are simply not conducive to
better performance for RRBs; and third, there is nothing inherent either with a sponsor bank
or a particular State in which the RRBs operate to contribute towards the performance of
RRBs and it is a combination of some other factors. To answer these possibilities, one needs
to assess the presence of RRBs sponsored by different banks across the States and their
performance. Such an attempt is made in Table 3 where performance of sponsor banks across
regions is depicted. Seen from the perspective of the State in which they are operating, five
out of the eight-loss making RRBs in Bihar are sponsored by the Central Bank of India and
one each by the Punjab National Bank, SBI and the UCO bank. Of the five-loss making
RRBs found in Madhya Pradesh, two are sponsored by Bank of Baroda and one each by the
Bank of India, the Central Bank of India and the UCO Bank. Likewise, of the five-loss
making RRBs found in Maharastra, three are sponsored by Bank of India and two by Bank of
Maharastra. From the sponsor bank’s perspective, one finds that the RRBs in which they have
a stake and which are not earning profits, are not confined to a single State. It is spread across
the States in which they have a presence. For instance, the eight-loss making RRBs for which
the Central Bank of India is the sponsor bank, are spread over Bihar, Madhya Pradesh, Uttar
Pradesh and West Bengal. Similarly, the twelve-loss making RRBs sponsored by the SBI are
spread across Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Jharkhand,
Nagaland and Orissa. The same is the case with the RRBs sponsored by Bank of India and
UCO bank. Hence, one finds no strong systematic pattern so as to infer whether or not the
peculiarities of any particular sponsor bank or a specific State in which they operate drives
the performance of RRBs. In such a situation, financial performance of the RRBs has been
modeled based on balance sheet information of the RRBs for a ten-year period to decipher,
what all factors that contribute to their financial health. The modalities of the econometric
estimation have been taken up in the next section.

6
7
8
Data and Methodology:
Net income as a percentage to total assets (NITA)8 is taken to be the indicator of financial
performance of the RRBs. NITA measures how profitably and efficiently the RRB is making
use of its total assets. Deflating the net income by total assets also takes account of the
variation in the absolute magnitude of the profits, which may be size related. The
performance of RRBs is postulated to depend upon two broad sets of factors, internal to the
RRBs as well as external to them. The internal factors are represented through the balance
sheet information of the individual RRBs. RRBs are scheduled commercial banks whose
source of income arises primarily from lending and investment. Balance sheet management
on part of RRBs requires a judicious mix between lending and investment. As such, loans and
advances of each RRB as a percentage of total assets (LOTA) and investments in securities of
each RRB as a percentage of total assets (INTA) are included as explanatory variables. In
terms of liquidity management, since banks are involved in the business of transforming
short-term deposits into long-term credit, they would be constantly faced with the risks
associated with the maturity mismatch. In order to hedge against liquidity deficits, which can
lead to insolvency problems, banks often hold liquid assets, which can be easily converted to
cash. However, liquid assets are often associated with lower rates of return. Hence, high
liquidity is expected to be associated with lower profitability (Molyneux and Thornton,
1992). The impact of liquidity on profitability is captured through the variable LIQ, which is
represented through Cash in Hand of the RRBs as a proportion of their Assets. Another
internal factor that can be expected to have a significant effect on the financial health of the
RRBs is their efficiency in expense management. The ‘total expenses’ shown in profit & loss
account of the RRBs is the sum of ‘interest expenses’ and ‘operating expenses’. While rising
operating costs to support increasing business activities is natural, increasing operating costs
relative to non operating expenses is a matter of concern and reflects poor expense
management. To judge the impact of expense management on balance sheet health, the
variable operating expenses as a percentage of total expenditure (OE) has been taken as
another independent variable. Apart from the internal factors, the literature recognises the
influence of the sponsor bank on a RRB’s health through what is termed as the umbilical cord
(Malhotra, 2002). According to the umbilical cord hypothesis, given the very close
relationship9 between the RRB and its sponsor bank, the attitude of the sponsor bank would
have a bearing on the performance of the RRB. As it is quite complex to quantify the attitude
of the sponsor bank towards the concerned RRB, the impact of the sponsor bank has been
subsumed under a single indicator and it is the financial health of the sponsor bank. Financial
health of the sponsor bank reflected through its net income as a percentage of its total assets
(NITASPON) has been included as one of the regressors. Based on the above discussion, to
ascertain the impact of the internal and the external factors on bank profitability, panel data
regression models have been used. Equation (1) describes the general specification of the
model. Equation (1) can be estimated either by least squares or through a procedure that
accounts for fixed/ random effects.

9
REGULATORY ENVIRONMENT:
The Reserve Bank of India (RBI) and the NABARD (National Bank for Agricultural and
Rural Development) are the two prime regulators of the RRBs in India.
1. RBI: The RBI Act of 1934 and the Banking Regulation Act 1949 are the two main
regulating statutes for commercial banks in India.

2. NABARD: It is the chief body set up for the regulation of the rural banking sector in
India. It was established on 12th July 1982 with an objective to improve the flow of
funds from the urban areas to semi-urban and rural parts of the country. NABARD is
mainly responsible for monitoring, planning, activities and policymaking of the credit
system of the rural banks. It also helps rural banks in their development and
supervises such activities on a regular basis.

10
In exercise of the powers conferred by section 29 read with section 17 of the Regional Rural
Banks Act, 1976 (21 of 1976) and in supersession of the Regional Rural Banks (Appointment
and Promotion of Officers and Employees) Rules, 2010, except as respects things done or
omitted to be done before such supersession, the Central Government, after consultation with
the National Bank and the Sponsor Banks, hereby makes the following rules, namely: -
1. Short title and commencement. - (1) These Rules may be called the Regional Rural
Banks (Appointment of Officers and Employees) Rules, 2017.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. Definitions. - (1) In these rules, unless the context otherwise requires, -
(a) “Act” means the Regional Rural Banks Act, 1976 (21 of 1976);
(b) “approved agency” means the Institute of Banking Personnel Selection or any other
agency approved by the Central Government for –
(i) conducting examination (written or on-line) and interview for selection of the candidates
by direct recruitment to the Group ‘A’ posts specified in column (3), against serial numbers
1, 2 and 3, of the First Schedule; and
(ii) for conducting examination (written or on-line) to Group ‘B’ posts specified in column
(3), against serial number 6, of the First Schedule;
(c) “Committee” means the Committee constituted by the Board under rule 8;
(d) “Schedule” means any one of the Schedules to these rules;
(e) “Sponsor Bank” means the Sponsor Bank specified in column (3) of the Second Schedule
which sponsors the Regional Rural Banks specified in the corresponding column (2) thereof.
(2) All other words and expressions used in these rules and not defined but defined in the Act
shall have the meanings respectively assigned to them in the Act.
3. Category of posts. - The category of posts to which officers and employees of the
Regional Rural Banks may be appointed shall be as specified in column (3) of the First
Schedule.
Explanation. – For the purpose of these rules, the officers may be functionally designated by
the Chairman as Branch Manager, Regional Manager or General Manager, depending on the
work or functions assigned and the Scale of the Officer.
4. Creation of posts. - The Board may create such number of posts as are necessary and may
determine the number of vacancies to be filled by direct recruitment or promotion, keeping in
view the provisions of these rules and the guidelines issued by the Central Government from
time to time.
5. Method of appointment. - (1) The appointment to the posts specified in the First Schedule
may be made in accordance with the provisions contained in these rules and as laid down in
the Third Schedule, and subject to such guidelines as may be issued by the Central
Government, from time to time.

11
(2) The National Bank shall frame, from time to time, in consultation with the Central
Government, broad policies which will cover manner of conducting examinations and
interviews by the approved agency including the stages of examination, composition of the
interview panel for direct recruitment and determining the percentage of reserve list of
candidates under the proviso to sub-rule (1) of rule 9.
(3) Where an examination for any post specified in column (3), against serial numbers 1, 2, 3
and 6 of the First Schedule is conducted by the approved agency in two stages, the marks
obtained at the second stage examination shall be taken into consideration for calculating
weightage for the examination (written or online) and the candidates shall be called for
interview, wherever applicable, on the basis of the marks obtained in that examination.
(4) The approved agency shall, after conduct of examination and interview, forward the final
list of candidates for appointment to the concerned Regional Rural Bank.
(5) The minimum years of service for promotion to the Group ‘A’ posts specified in column
(3), against serial numbers 1, 2, 3, 4, and 5 of the First Schedule and Group ‘B’ posts
specified in column (3), against serial number 6, of the First Schedule shall be reckoned as on
the 1st day of April of the year in which the vacancy is expected to arise or has actually
arisen.
6. Appointing authority. - The Chairman shall be the appointing authority in respect of
Group ‘A’ posts and the General Manager shall be the appointing authority in respect of
Group ‘B’ and Group ‘C’ posts, if so authorised by the Board:
Provided that if there is no incumbent to the post of the General Manager, the Chairman shall
be the appointing authority in respect of Group ‘B’ and Group ‘C’ posts also.
Explanation. - For the purposes of these rules, the expression “General Manager” means an
officer of the Regional Rural Bank not below the rank of Officer Senior Management (Scale
IV) specified in column (3), against serial number 4 of the First Schedule and designated as
such by the Regional Rural Bank or an officer of the Sponsor Bank deputed as such under the
first proviso to sub-section (1) of section 17 of the Act.
7. Recruitment to Group ‘C’ posts. - The Regional Rural Bank shall, in making recruitment
to Group ‘C’ posts, make a reference to the Employment Exchange, the Sainik Board or such
other agencies catering to the welfare of the Scheduled Castes, the Scheduled Tribes,
Physically Challenged Persons or other special category of persons as are recognised by the
Central Government or the State Government having jurisdiction over the Regional Rural
Bank:
Provided that preference shall be given to candidates belonging to the Scheduled Castes, the
Scheduled Tribes or any other special category of persons, in accordance with the instructions
or guidelines issued by the Central Government in this regard, from time to time:
Provided further that the instructions on ‘recruitment of staff through Employment Exchange’
of the Department of Personnel and Training, Government of India, issued from time to time,
to the extent relevant in the context of Regional Rural Banks, shall apply to these rules.

12
8. Constitution of Committee. - (1) The Board may, from time to time, constitute
Committees, consisting of the members specified in column (9) or column (6) of the Third
Schedule, against the posts in the corresponding column (2) of the said Schedule, for the
purpose of recommending to the appointing authority, candidates for appointment by direct
recruitment to Group ‘C’ posts and for promotion to Group ‘A’ and Group ‘B’ posts, in
accordance with the provisions contained in the said Schedule.
(2) The Board shall determine the tenure of each such Committee constituted under sub-rule
(1).
9. Validity of panel for direct recruitment and for promotion.- (1) A panel of selected
candidates in respect of direct recruitment to the Group ‘A’ posts specified in column (3),
against serial numbers 1, 2 and 3, of the First Schedule and Group ‘B’ posts specified in
column (3), against serial number 6, of the First Schedule shall be prepared by the approved
agency and a panel of selected candidates in the case of direct recruitment to the Group ‘C’
posts specified in column (3), against serial number 7, of the First Schedule and promotion
for Group ‘A’ and Group ‘B’ posts shall be prepared by the Committee:
Provided that in the case of direct recruitment, a reserve list of candidates, not exceeding fifty
per cent of the notified vacancies, subject to a minimum of two candidates in each category
(General, Scheduled Castes, Scheduled Tribes and other special category), shall be drawn up
to meet exigencies.
(2) The panel of selected candidates referred to in sub-rule (1) including the reserve list shall
be valid for a period of one year from the date of issue of the merit list or until a fresh panel is
drawn, whichever is earlier.
10. Zone of consideration for promotion. - Where promotion to a post is made both under
the normal channel as well as the fast-track channel, the zone of consideration shall be three
times the number of vacancies available in the normal channel; and in case of fast-track
channel, all eligible candidates including repeaters shall be considered:
Provided that the candidates who are eligible under the normal channel shall also be
considered under the fast track channel.
11. Filling up of vacancies to promotional posts. - (1) The vacancies earmarked for the
normal channel shall be filled up after the vacancies under the fast track channel are filled up.
(2) The vacancies earmarked for the fast track channel which remain unfilled for want of
selection of adequate number of candidates from that channel shall lapse and the said
vacancies shall be filled up by way of normal channel.
12. Inter se seniority in promotion.- The inter se seniority in the case of promotion to the
posts specified in column (2) of the Third Schedule, in respect of all the empanelled
candidates selected through the normal channel or the fast track channel in their feeder posts,
shall remain unchanged.
13. Reservation and relaxation. - (1) The provisions of reservation policy for the Scheduled
Castes, the Scheduled Tribes and other Special category of persons as per the guidelines of
the Department of Personnel and Training, Government of India issued from time to time, to
the extent relevant in the context of the Regional Rural Banks, shall apply to these rules.

13
(2) The provisions of relaxation of various conditions for the Scheduled Castes, the
Scheduled Tribes and other special category of persons as per the guidelines of the
Department of Personnel and Training, Government of India issued from time to time, to the
extent relevant in the context of the Regional Rural Banks, shall apply to these rules.
(3) A one-time relaxation of one year service during the entire service period will be given to
such candidates who have passed Junior Associate of the Indian Institute of Bankers (JAIIB)
of Indian Institute of Banking and Finance for promotion both under the normal channel and
fast track channel to the Group ‘A’ posts specified in column (3), against serial numbers 1, 2
and 3, of the First Schedule and one more year in case of such candidates who have passed
Certified Associate of the Indian Institute of Bankers (CAIIB) of Indian Institute of Banking
and Finance.
14. Power to interpret. - The power to interpret these rules shall vest in the Central
Government and the Central Government may issue such administrative instructions or
guidelines in consultation with the National Bank as may be necessary to give effect to and to
carry out the provisions of these rules or to remove any difficulty in their implementation.

14
FEATURES AND PLAYERS:

Objectives:
The objective of regional rural banks is to develop the rural economy by providing credit and
other facilities for agriculture and other productive activities in rural areas. They provide these
facilities to small and marginal farmers, rural artisans, agricultural labourer’s and other small
entrepreneurs working in the rural areas.

The objectives of RRBs can be summarized as follows:

• To provide loan for backward class public

• To opening branches of bank in rural areas.

• To save the rural poor from the moneylenders.

• To cultivate the banking habits among the rural people and mobilize savings for
the economic development of rural areas.

• To increase employment opportunities by encouraging trade and commerce in

rural areas.

15
 • To encourage entrepreneurship in rural areas.

• To cater to the needs of the backward areas which are not covered by the other
efforts of the Government?

• To develop underdeveloped regions and thereby strive to remove economic

disparity between regions.

• To increase employment opportunities by encouraging trade and commerce in

rural areas.

Features:
The Features of RRBs can be summarized as follows:

• The area of operation of a rural bank is limited to a specified region which

comprises of one or more districts.

• These banks cannot have a lending rate which is higher than the prevailing
lending rate of cooperative credit societies in any particular state.

• The salary structure of the employees of these banks is fixed in consonance with
the salary structure of the employees of the state government, local authorities of
comparable level and status in the area.

• They are public sector banks. The paid-up capital of each bank is Rs. 25 lakhs. 50
percent of the capital is contributed by the Central Government. The concerned
state government contributes 15 percent. 35 percent is contributed by the
sponsoring public-sector commercial banks.

• It grants loans and advance only to the small and marginal farmers, agricultural
labourer’s, small traders\ entrepreneurs.

• This is sponsored bank. It is sponsored by a scheduled commercial bank.

• The RRB charges interest rates as adopted by the co-operative society in the state.

16
Functions:
• Providing of loans and advance to the farmers and other person already engaged
in agriculture activities.

• Providing of loans and advance to the co-operative societies and other society
which are involved in agriculture processing.

• Accepting the various types of deposits from the rural and other connected areas.

• providing loans and advances to small entrepreneurs and others who are engaged
in trade, commerce and industry.

• Setting up and Maintenance of godown and warehouse.

• Reducing the dependency of weaker section of money lenders.

• Undertaking of the supply of agricultural inputs & equipment's to farmers.

• Making backward and tribal areas economically better by opening new branches
and extending micro credit facilities and operating the scheme of inclusion.

17
18
IMPACT OF TECHONOLOGY;
With the advancement of technology, the initiation of digitization and e-banking has been
formulated in a global world. India is one of the developing countries that has significantly
initiated the revolution of digital payment system a lot faster by joining other countries,
specifically in the financial sector. In addition, as the revolution of digital payments has been
spread into rural areas, its impact is transformative in nature based on exploring the
opportunities in the technological era. Based on statistical terms, it has been analyzed that
around 86.6 per cent of payments were made through cash in India in the financial year 2012
and in the years 2012–2013 more than 7,600 crore of float was seen in the economy. As per
such statistics, the initiation of a cashless economy evolved among policymakers leading to
the digitalization of the economy As per the World Bank’s report, ‘India is the second largest
telecommunication market. Despite 25 per cent of mobile users in India, digital literacy is
merely 6 per cent of India’s total mobile users’ population’. Although the government has
declared zero balance accounts, people are not reciprocating equivalently in terms of
transactions or account usage.
Information technology (IT) is one of the key aspects of an efficient banking system, and
Indian banks are playing hard to explore the opportunities. However, there are significant
risks to security, based on online banking or digitization, but its effects are being appreciated
by Indians extensively. Mr Narendra Modi initiated the campaign for ‘Digital India’, which
forecasted that more than 12,000 rural post offices are being linked with payment banking
through digitization. In addition, the prime reason for initiating digitization in India is to
control the flow of black money.
The technology development in the field of banks has changed its face of banking system.
Banks from the traditional activities walked into non-banking activities like financial services
and customer satisfaction and giving importance to Customer Relationship Management
(CRM)also. Which helped banks to shift from mass banking to class banking with introduction
of value added and customized products. Technology now allows banks to create what looks
like a branch in a business building, lobby without having to hire man power from manual
operations. This technology driven delivery channels are used to reach maximum customers at
lower cost and in most efficient manner. The need of an hour is to design a system to promote
marginal efficiency of investment in technology and widen the gap between marginal benefits
and marginal costs involved in banking transformation with special reference of technological
up gradation. Role of banks, which is central to formal credit in rural areas, is fast changing.
The emergence of new technology allows access to banking and banking services
without physical direct recourse to the bank premise by the customer. The concept of
Automated Teller Machines (ATMs) is the best example. At present, ATMs are city oriented
in our country. It is inevitable that ATMs will be widely used, in semi-urban and rural areas.
The technology-led process is leading us to what has been described as virtual banking. The
benefits of such virtual banking services are manifold. First, it confers the advantage of lower
cost of handling a transaction. Second, the increased speed of response to customer
requirements under virtual banking vis-à-vis branch banking can enhance customer
satisfaction. Third, the lower cost of operating branch network along with reduced staff costs
leads to cost efficiency. Fourth, it allows the possibility of improved quality and an enlarged
range of services being available to the customer more rapidly and accurately at his
convenience. It may not be possible to deny these facilities to rural areas in our country since,
if banks do not provide them, some non-banks will do it.

19
 Another development relates to the increasing popularity of credit cards, which are
bound to reach rural areas. Many Public Sector Banks are already in credit card business. In
fact, multipurpose cards could be a facility that IT could usher in for rural population. The
potential can be illustrated with smart cards. Cards – Smart which are basically cards using
computer circuits in them thereby making them ‘intelligent' – would serve as multipurpose
cards. Smart cards are essentially a technologically improved version of credit and debit cards
and could be used also as ATM cards. They could be used for credit facilities at different
locations by the holders. Smart cards could also be used for personal identification and
incidentally for monitoring credit usage. For the spread of virtual-banking and Smart cards to
rural areas, it is essential that electric power and telecom connectivity are continuous and
supplies do not drop especially during the hours when a bank's transactional activity is at
relatively high levels. RTGS stands for Real Tike Gross Settlement system, it is a fund transfer
mechanism where transfer of money takes place from one bank to another on a real time and
on gross prices. This is fastest money transfer system through the banking channel which is
different form EFT and NEFT. It takes only 2 hours to transfer the funds effectively. The
Electronic payment system such as electronic clearing service (ECS) credit and debit, National
electronic fund transfer (NEFT) for retail transactions and real time gross settlement (RTGS)
for large value, improved the speed of financial transactions across the country. Core Bank
Solutions (CBS) is a centralized platform which creates environment where the entire bank
operations can be controlled and run from a centralized hub. This creates centralized customer
data base, which makes anytime, anywhere banking possible. The internet has emerged as one
of the major distribution channels of banking products and services. Consumers are embracing
the many benefits of the internet banking like improved customer access which facilitates the
offering on more services, attract new customers and reduce customer attrition. The banks
could, under such assured supply conditions acquire the required banking software and also
put in place the necessary networking for providing anywhere banking facilities in rural and
semi-urban areas also. Like banks in other parts of the world, Indian banks will have to get
interested in providing diversified range of financial products and services along with those
that they are already providing, by using technological advances.
As the level of education in rural areas rises and affluence spreads, customers will start
seeking efficient, quicker and low-cost services. As the financial system diversifies and other
types of financial intermediaries become active, in rural areas, savers would turn towards
mutual funds or the savers themselves decide to deploy part of their financial surpluses into
equities and debentures as also other fixed income securities. The bulk of bank deposits in the
rural areas are currently longer-term deposits and as these come down, there would be a distinct
shortening of the average maturity structure of bank deposits with an increase in asset liability
mismatches. The spreads that the banks now enjoy will progressively shrink making it more
difficult for them to survive. As more and more intermediaries enter rural areas with greater
level of technology, traditional banking business will come under pressure. In order to face the
competitive pressures being exerted by the recently set up market savvy banks, banks which
have extensive branch network in most of the existing and potential rich rural and semi-urban
areas may have to provide such services.
Andhra Pragathi Grameena Bank came into existence from 1.6.2006 by amalgamating
Rayalaseema Grameena Bank, Sri Anantha Grameena Bank and Pinakini Grameena Bank
consequent upon the Government of India Notification dt.1.6.2006. the bank is constituted
under Regional Rural Banks Act, 1976. The Bank is having its Head Office at KADAPA with
a jurisdiction of 5 districts namely Anantapur, Y.S.R(Kadapa) Kurnool, Nellore and Prakasam.
The Bank is having 7 Regional offices with its Head quarters at 5 district Head Quarters,
Kadiri of Anantapur district and in Nandyal of Kurnool district. The Bank is providing banking

20
services with its 450 branches as on 31.03.2014. the bank is catering to the needs of Rural Poor
mainly and to all other sectors also. The bank has been playing a pivotal role in economic
development of its operational area by outreaching the people in the countryside. The Bank
earned Net Profit of Rs.160.37Crore as on 31.3.2014 and stood first among all RRBs sponsored
by Syndicate Bank and all RRBs in the Andhra Pradesh State in respect of networth Rs.1306.17
crore.
The paid up capital of the Bank is Rs.300 lakh, contributed by the Govt. of India, Sponsor
Bank(Syndicate Bank) and the Government of Andhra Pradesh in the ratio of 50:35:15
respectively.
The entire area of operation of the Bank, which is mostly in Rayalaseema region, is
characterized by drought and backwardness. About 75% of the population in the area lies in
countryside. The soils are mostly black and red, about 75% of the area is rain fed and farmers
depend on rain fed crops and Irrigation sources canals, tanks, bore wells etc., the major crops
grown are paddy, cotton (hybrid), chilies, vegetables, horticulture crops like banana, papaya,
sweet orange, mango etc., and under rain fed conditions the major grown are ground nut, jowar
Bengal gram, sun-flower, coriander, tobacco, etc.

BANKING
TECHNOLOGY
v : AND RURAL

21