regional reserve bank

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Regional Rural Banks

In the multi-agency approach to provide credit to

agriculture, Regional Rural Banks (RRB's) have specialplace. They are state sponsored, regionally based andrural oriented commercial banks. An effort was made tointegrate commercial banking within the broad policythrust towards social banking keeping in view the localpeculiarities. The genesis of the RRBs can be traced tothe need for a stronger institutional arrangement for

providing rural credit.

RRBs were supposed to evolve as specialised ruralfinancial institutions for developing the rural economyby providing credit to small and marginal farmers,agricultural labourers, artisans and small entrepreneurs.

Formation

The Govt. of India, in July 1975, appointed a WorkingGroup to study in depth the problem of devisingalternative agencies to provide institutional credit to therural people in the context of steps then initiated underthe 20 Point Economic Programme. The Narsimhamcommittee conceptualized the creation of RRBs in 1975as a new set of regionally oriented rural banks, whichwould combine the local feel and familiarity of ruralproblems characteristic of cooperatives with theprofessionalism and large resource base of commercialbanks. The Government of India promulgated the

Regional Rural Banks Ordinance on 26th September1975, which was later replaced by the Regional Rural


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Bank Act 1976.

Objectives

The RRBs have following objectives:1. to develop rural economy;2. to provide credit for agriculture and allied activities;3. to encourage village industries, artisans, carpenters,craftsmen, etc.;4. to reduce dependence of weaker sections on money-lenders;

5. to identify a specific and functional gap in the presentinstitutional structure;6. to supplement the other institutional agencies incredit delivery to rural areas, and7. to make backward and tribal areas economicallybetter by opening newbranches.

Capital StructureTheir equity is held by the Central Government,concerned State Government and the Sponsor Bank inthe proportion of 50:15:35. A Regional Rural Bank is

jointly owned by the Govt. of India, the Government ofconcerned state and public sector bank, whichsponsored it. Each bank carries the banking businesswithin the local limits specified by the Govt. notification.

Organizational structure:The management of a RRB is vested in a nine-memberBoard of Directors headed by

Chairman who is an officer deputed by a sponsor bankbut appointed by the Govt. of India.


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Three directors to be nominated the Central Govt.Two directors to be nominated by the concerned StateGovt.

Three directors to be nominated by the sponsor bank.

The sponsor bank, besides subscribing to the capital anddeputing one of its official as chairman, providesassistance to RRB in several ways such as financialaccommodation, deputing managerial and other staffand arranging therecruitment of staff and their training.

FunctionsRegional rural banks in India penetrated every corner ofthe country and extended a helping hand in the growthprocess of the country. The importance of the ruralbanking in the economic development of a countrycannot be overlooked. As Gandhiji said "Real India lies

in villages," and village economy is the backbone ofIndian economy.Every RRB may undertake the following types offunctions:The granting of loans and advances particularly to smalland marginal farmers and agricultural laboursersindividually or to a group, co-operative societies,agricultural processing societies, co-operative farmingsocieties, etc.The Granting of loans and advances to artisans, smallentrepreneurs and smalltraders, businessmen, etc.

The Reserve Bank of India has brought RRB's under theambit of priority sector lending on par with the


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commercial banks. They have to ensure that fortypercent of their advances are accounted for the prioritysector. Within the 40% priority target, 25% should go to

weaker section or 10% of their total advances to go toweaker section.

Documents

regional reserve bank