REGIONAL RURAL BANKS

INDTRODUCTION
Rural banking in India started since the establishment of banking

sector in India. Rural Banks in those days mainly focused upon the
agro sector. Banking Regulation Act,1949 brought cooperative banks and regional rural banks under the Reserve Banks jurisdiction.

Regional Rural Banks (RRB)are Regulated by the Rural Planning and

Credit Department of Government of India and supervised by NABARD.

The Government of India set up Regional Rural Banks (RRBs) on

October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs .

 Initially it started with Capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank. The total authorized capital was fixed at 1 crore which has since been raised to 5 Crore. Till date in rural banking in India, there are 14,475 rural

banks in the country of which 2126 (91%) are

located in remote rural areas.

 RRBs were originally conceived as low cost institutions having a rural ethos, local feel, pro poor focus & most of them made losses. The Government in consultation with RBI and NABARD started the reform process through cleansing their balance sheets and recapitalising them. Extant lending restrictions were removed and space and variety available for investment of their surplus funds was expanded. Simultaneously, a number of human resource development and

Organisational Development Initiatives (ODI) were taken up by

NABARD with funding support of the Swiss Development Corporation (SDC) and with the tools of training and exposure visits, ODI,

technology support, computerization and use of IT, system

development, etc. for business development and productivity improvement .

 They also too up amalgamation for betterment of RRBs. The amalgamated RRBs were expected to provide better customer service due to better infrastructure, computerization of branches, pooling of experienced work force, common publicity / marketing efforts, etc. and also derive the benefits of a large area of operation, enhanced credit exposure limits and more diverse banking activities .

 There are several concessions enjoyed by the RRBs by

Reserve Bank of India such as lower interest rates and

refinancing facilities from NABARD like lower cash ratio,lower statutory liquidity ratio, lower rate of interest on

loans taken from sponsoring banks, managerial and staff

assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABARD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend their problems .

RRB's Potential Role in Financial Inclusion

Post-merger RRBs represent a powerful instrument for financial inclusion. Their outreach vis--vis other scheduled commercial banks particularly in regions facing the brunt of financial exclusion is impressive, as observed from an analysis of Basic Statistical Returns of the RBI. With merger infusing the much needed financial strength in RRBs coupled with the local feel and familiarity they command, RRBs are in a unique position to

play a decisive role in financial inclusion. The microfinance services

provided through Self Help Groups(SHG )- bank linkage has so far been the most successful initiative in financial inclusion .

RRBs as Self Help Promotion Institutions (SHPI)

RBB plays a vital role as SHPIs in areas where there is non-availability of good NGOs. RRBs were originally created to cater to the neglected sections / areas as they were expected to have sound financial management combined with local feel and familiarity. With the amalgamation of RRBs, they have acquired the critical mass in terms of financial strength to widen and deepen their outreach. RRBs may be provided adequate promotional and developmental

assistance to contribute substantially to financial inclusion in a way

that the business generated out of inclusion efforts add positively to their performance.