Origin and Performance of Regional Rural Bank of India

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A Project Report

Regional Rural Bank


Submitted to:

Shree H. K. Parekh college of Management


Under the guidance of

Mr.Devang Mehta
Submitted by:

Hetvi Tank
Std: Sy,BBA(sem3)

Roll no.: 11
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INDEX
SR.No Particulars Page
no.
1 Introduction of RRB 03
2 Origin of RRB 05
3 Development of RRB 07
4 Performance of RRB 08
5 Conclusion 12
6 References 12
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Introduction to Regional Rural Bank of India:

Rural banking institutions are playing a very important role for all-
round development of rural areas of the country. In order to support the rural
banking sector in recent years, Regional Rural Banks have been set up all over the
country with the objective of meeting the credit needs of the most under privileged
sections of the society.

These Regional Rural Banks (RRBs) have been receiving a high degree
of importance and attention in the rural credit system.

Considering the gross absence of banking facilities in the rural areas


of the country, the Reserve Bank of India in consultation with the Central
Government, State Governments and some major nationalized sponsored banks had
set up some Regional Rural Banks in the late 1970s with a view to elevate the
economic status of the rural poor as well as to inculcate a habit of saving among the
rural masses.

As per the recommendations of the Working Group on Rural Banks,


the regional rural banks were established in 1975 for supplementing the commercial
banks and co-operatives in supplying rural credit. The main objective of regional
rural banks in India is to advance credit and other facilities, especially to small and
marginal farmers, agricultural labourers, artisans and small entrepreneurs in order to
develop agriculture, trade, commerce, industry and other usual productive activities
in different rural areas of the country.

At the initial stage, five regional rural banks were established on


October 2, 1975 at Gorakhpur and Moradabad in Uttar Pradesh, Jaipur in Rajasthan,
Bhiwani in Haryana and Malda in West Bengal under the sponsorship of State Bank
of India, the Syndicate Bank, United Commercial Bank, Punjab National Bank and
United Bank of India respectively.

All these five RRBs have an authorised capital of Rs 1crore and paid-
up capital of Rs 25 lakh. The share capital of RRB is subscribed in the following
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manner as the Central Government 50%, the State Government concerned 15% and
the sponsoring commercial bank 35%.

The regional rural banks are maintaining its special charter it their of
operation is very much limited to a definite region, grant direct loan to rural people
at concessional rates and receive subsidies and concessions from the Reserve Bank
and the sponsoring bank.
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Origin of the Regional Rural Bank of India:

Regional Rural banks (RRBs) in India were established by Government


of India, under provisions of RRBs Act 1976, enacted by the Indian Parliament.

With a view to develop the rural economy by catering the basic banking
needs 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 Labourers, Artisans and
small entrepreneurs and for matters connected therewith and individuals thereto.

RRBs have now become an Integral part of the Indian banking System.
Like other public sector Banks RRBs are established by Govt. of. India and are
scheduled & notified by Reserve Bank of India.

RRBs are jointly owned by Government of India (GOI), Sponsor Bank


and the concerned State Government and with share proportion 50%,35% & 15%
respectively.

Government of India with a view to improve the operational viability


and efficiency of RRBs, initiated the process of Structural Consolidation by
amalgamating RRBS. The amalgamated RRBs were expected to provide better
customer service with improved infrastructure, expanding area of operation with
combined network, Improved technology with innovative IT, improvement of
combined workforce, strategic marketing efforts. etc.

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, common publicity and
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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.
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Development of Regional Rural Bank of India:

A perusal of the table reveal that the expansion of RRBs in India


during the study period. The number of registered RRBs has gradually declining
trend from 82 in the year 2009-10, to 57 in 2013-14; in detail, table shows that
during the period of 2009-10 to 2011-12 the number of RRBs 82 is constant and
highly declined to 64 in 2012-13 and 57 in 2013-14 respectively; the number of
branches established was increased from 15303 to 19082 in an continuous increasing
manner during the study and it was gradually increases year by year; number of
districts covered by RRBs in India are registered in 2009- 10 was 618 districts and it
was progressively increased year by year and reached to 642 districts in the end year
of the study 2013-14. The percentage of change in number of RRBs registered in
India were not accounted during the years of 2009-10 to 2011-12 due to the number
of RRBs are stable. The number of branches established was increased.

Table:1 Evaluation of branch expansion of RRBs in India

Year No. of RRBs No. of Branches No. of Districts


covered
2001-02 196 14486 511
2002-03 196 14462 516
2003-04 196 14484 518
2004-05 196 14433 523
2005-06 133 14372 525
2006-07 96 14422 534
2007-08 91 14558 594
2008-09 86 15010 616
2009-10 82 15303 618
2010-11 82 15658 620
2011-12 82 16170 620
2012-13 64 17856 635
2013-14 57 19082 642
Source: Annual reports of NABARD
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Performance of Regional Rural Bank:

The growth and development of RRBs performance in India during the


study period. The table revealed that the investment of RRBs in India are
tremendously increased from Rs. 33,063.42 crore in 2002-03 to Rs. 1,10,514.00
crore in 2013-14 respectively. The performance loans and advances of RRBs in
India are aggressively increased year by year from Rs. 22,157.85 crore in 2002-03 to
Rs. 1,59,660.00 crore in the end of the year 2013-14. The profitability performance
of RRBs are also highly increased from Rs. 733.97 crore in 2002-03 to Rs. 2,833.00
crore in 2013-14

Table 2: Performance evaluation of RRBs in India during 2001-02 to 2013-14

Year Investment Loans and Advances Profit


2001-02 A A A
2002-03 33063.42 22157.85 733.97
2003-04 36135.40 26113.86 952.33
2004-05 36767.66 32870.03 902.60
2005-06 41182.45 39712.57 807.79
2006-07 45666.14 33043.49 926.40
2007-08 48559.14 38581.97 1383.69
2008-09 65909.92 43367.13 1787.64
2009-10 79379.16 56079.24 2509.18
2010-11 86510.44 71724.19 2349.43
2011-12 89145.79 78546.55 2443.41
2012-13 110683.47 139837.00 2382.52
2013-14 110514.00 159660.00 2833.00
Capital gearing ratio 14.475
SUM(Ei2) 0.886
R2 0.335
Source: Annual reports of NABARD

Sources of fund: 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.
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Owned Funds:

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.

Deposits:

Deposits of RRBs increased from 186336 crore to 211458 crore during


the year registering growth rate of 13.48 %. There are Thirty three (33) RRBs
having deposits of more than 3000 crore each.

Borrowings:

Borrowings of RRBs increased from 30289 crore as on 31 March 2012 to


38268 crore as on 31 March 2013 registering an increase of 26.34%. Borrowings
viz-a-viz the gross loan outstanding constituted 27.37% as against 26.02% in the
previous year.

Uses of Fund

Investment:

The investment of RRBs increased from 95975 crore as on 31 March


2012 to 110683 crore as on 31 March 2013 registering an increase of 15.32%.
SLR investments amounted to 49938 crore where as non-SLR investments stood
at 60746 crore. The Investment Deposit Ratio (IDR) of RRBs progressively
declined over the years from 72% as on 31.3.2001 to 52.34% as on 31 March
2013.

Loans and Advances:

During the year the loans outstanding increased by 23452 crore to


139837 crore as on 31 March 2013 registering a growth rate of 20.15% over the
previous year.
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Loans Issued:

Total loans issued by RRBs during the year increased to 102162 crore
from 82538 crore during the previous year registering a growth of 23.78%.

Working Results

Profitability:

63 RRBs (out of 64 RRBs) have earned profit (before tax) to the extent
of 3281 crore during the year 2012-2013. The profit was higher than the previous
year. After payment of Income Tax of 896 crore, the net profit aggregated to 2385
crore. One RRB viz. Nagaland Rural Bank incurred loss to the tune of 2.07 crore.

Accumulated Losses:

As on 31 March 2013, 11 of the 64 RRBs continued to have


accumulated losses to the tune of 1012 crore as against 1333 crore (22 RRBs) as on
31 March 2012. The accumulated loss decreased by 321 crore during the year under
review.

Non-performing Assets (NPA):

The Gross NPA of RRBs stood at 7907 crore as on 31.03.2013


(i.e.5.65%). The percentage of Net NPA of RRBs has shown an increase from 2.98%
to 3.40% during the year. The data revealed that 10 RRBs had gross NPA percentage
of less than 2%, whereas 32 RRBs had it above 5%.

Recovery Report:

There has been an improvement in the recovery percentage during


2011-12 from 81.60% as on 30 June 2011 to 81.32% as on 30 June 2012. The
aggregate overdues, however, increased by 1802 crore to 13567 crore as on 30 June
2012.

Credit Deposit Ratio:

The aggregate CDR of RRBs increased over the years from 41.83% as
on 31 March 2002 to 66.13% as on 31 March 2013. Nine of the RRBs reported CDR
of more than 100%.
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Financial Inclusion:

As envisaged by the Government of India, RRBs as a group have become


a strong intermediary for financial inclusion in rural areas by opening a large
number of “No frills” accounts and by financing under General Credit Card (GCC),
as per RBI guidelines. As on 31 March 2013 there were 319.59 lakh No Frills
accounts. The number of branches of RRBs increased to 17856 as on 31 March 2013
from 16909 as on 31 March 2012.
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Conclusion:
For the purpose of rural development and meeting the credit needs
of rural people, RRB came into existence on the basis of the recommendation of
Narashimhan committee. The regional rural banks have been highly successful in the
mobilising rural savings. RRBs are providing loans to small and marginal farmers,
artisans, self-employed persons etc. RRBs recruit local persons which creates the
employment at the door steps of the rural peoples. Out of 56 RRBs 49 RRBS earning
profits. To improve the functioning of RRBs Union cabinet approved extension of
scheme of recapitalization of RRBs up to 2019-20. This will enable RRBs to
maintain minimum prescribed capital to risk weighted asset ratio (CRAR) of 9%. It
will help RRBs in ensuring strong capital structure and minimum required level of
CRAR. It will also helps in financial stability of RRBs and helps it to plays greater
role in financial inclusion and meeting the credit requirements of rural area.

References:
https://madhavuniversity.edu.in/rrb-of-india.html

https://financialservices.gov.in/banking-divisions/Regional-Rural-Bank

https://karnatakagraminbank.com/organisational-information/origin

http://wwjmrd.com/archive/2016/7/107/performance-evaluation-of-regional-rural-
banks-in-india
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