STUDY OF RURAL BANKING IN INDIA

INTRODUCTION

Agriculture and rural sectors play an important role in India's overall development strategy in
terms of income and employment generation and poverty alleviation.Great significance has,
therefore,been accorded to developing appropriate institutions and mechanisms for catering to
the credit requirements of these sectors. In spite of the various measures taken by the
government and RBI through social control and nationalization of major commercial banks in
1969,a large proportion of rural poor remained outside the banking fold.

A Working group (Chairman:M.Narasimham) was set up in 1975 to explore the possibilities

of evolving an alternative rural credit agency benefit to rural poor. The Group recommended
formation of a new set of regionally-oriented rural banks which would combine the local feel and
familiarity of rural problems characteristic of cooperatives and the professionalism and large
resource base of commercial banks, Regional Rural Banks(RRBs) were set up as sequel to this
recommendation. The Government of India promoted RRBs through the RRBs Act of 1976 to
bridge the gap in the flow of credit to the rural poor.

The RRBs have a special place in the multi agency approach adopted to provide agricultural
and rural credit india. These banks are state-sponsored,regionally based and rural-oriented.
Regional Rural Banks (RRBs) form an important segment of the rural financial sector. They
were conceived as institutions that combine the local familiarity of the cooperatives with the
business capabilities of commercial banks. This sector has an exclusive role in improving
financial inclusion and catering to vital sectors like agriculture and allied economic
activities.Public policy, therefore ,aims at keeping this sector viable and strong through various
forms of active intervention.

Besides the RRBs, commercial and cooperative banks have been catering to the credit
requirements of the rural sector. While the commercial banks, with their focus on profitability had
certain limitations in accelerating agricultural credit, the cooperative banks efforts were also
hampered by several financial weaknesses. Though over the years RRBs have been able to
expand their outreach and business and meet the credit requirements of the poor, several
weaknesses have emerged, eroding their profitability and viability.

The recent focus of the government of India on doubling the flow of credit to the agricultural
sector has warranted a re-look at the relative roles of cooperatives banks,RRBs and commercial
banks. As the very objective of setting RRBs was to extend adequate credit to the rural
borrowers and particularly the economically weaker sections, owing to their rural orientation,
there is a growing realization that RRBs could be used as an effective vehicle for credit delivery
in the rural areas. There is therefore.

Need to devise ways and means to improve the health and viability of RRBs so as to
reposition them in the credit delivery mechanism in india. With their increasing strength and
spread, RRBs would have to enlarge their client base and the principal vehicles for financial
inclusion and rural banking in the country. However,technological changes are sweeping the
banking sector.In order to survive effectively in the present scenario,the RRBs need to be
adequately equipped in terms of technology to provide efficient customer service to their
clientele, while the commercial banks have gone ahead in computerisation of their operations
and mosts banks are in an advanced stage of implementing total core banking solutions(CBS),
the RRBs are lagging behind in this area.

The expectations of the central and the state governments from RRBs are also increasing.It is
envisaged that RRBs are able to render the same quality of service that commercial banks are
able to give to their clients. Further, the government , in order to reduce intermediation and
reach out directly to the beneficiaries under several of its programmes, proposes to reach these
persons through the electronic mechanisms. It is thus becoming imperative for RRBs to become
increasingly technologically sound so as to offer competitive services to their clients. The
renewed emphasis on agricultural and rural development by the government of India would lead
to a growing demand for different types of financial needs of the rural economy becoming
diversified.The present structure of rural credit may not be able to cater to the same.

RRBs would be called upon to play a greater role in providing such services due their rural
character and feel. RRBs have to take over a larger of credit disbursements calling for much
resource mobilization, as also greater efforts for much larger resources mobilization, also
greater efforts for their institutional strengthening. Rural Sector in the Indian economy
developing economies lives in rural areas and 69 percent of the total working regarded as one
of thewhere 76 percent of the total Working Population depends on agriculture for their
livelihood (Statistics on Indian Economy, RBI, 2006). Report on human development has ranked
India's development index at 126 out of 177 countries (Human Development Report, 2006) The
economy in India is very much influenced by the development of its rural sector and the
government has been initiating various programmes during the Plan Periods for its overall
development. The entire planning period for rural development is divided into four phases
encompassing different approaches.

The first phase (1951-1966), the initial three Plan Periods, laid emphasis on Restructuring
agrarian Relations, institution building and community development. The second phase
(1966-1985), beginning with the Fourth Five Year Plan,focused primarily on technology-based
growth for agricultural development and helped the country to become self-sufficient in
food-grains. During the third phase, from the late eighties early nineties,the focus shifted to
growth with equality. The variousProgrammes initiated during this period included Integrated
Rural Development Programme (IRDP), Drought Prone Area Development Programme (DPAP)
and others. During the fourth phase, which began in the nineties, the government Started
endeavoring for economic reforms not only in the banking sector.

1.2 Post-Independence History of Banking in India

 The history of Indian banking, during the post-Independence Era, can be divided into three
distinct phases. During phase I(1947-1969), banks under private ownership were forced to cater
services to a special category of clientele. The second phase (1969-1991) was characterized by
social banking,resulting in the emergence of large public sector banks with rapid expansion of
branch networks. The third phase (1991 onwards) portrayed prudential higher accounting and
disclosure standards at par with the best practices of international standards.

Necessity is regarded as the mother of all inventions. In1991, the Indian economy was facing
a grave crisis on all fronts-forex reserves touched an abysmal low, increased deficit in oil pool
account and severe resource crunch had a throttle hold on the economy. It was at that juncture,
the new Parliament under the stewardship of Shri P.V. Narasimha Raodecided to go in for
sweeping changes on the economic frontand with Dr. Manmohan Singh, as Finance Minister,
the government unveiled the economic reforms package. The Package was framed to serve as
a boost for an ailing economy.

Financial and banking sector reforms were also a part of thepackage.Moreover, in the wake
of economic liberalization and increased global integration, there was a constant need for
greater transparency in banking operations including supplying correct and timely data of vital
parameters reflecting the strengths and weaknesses of banking institutions.

Until1991,institutions were functioning in an environment with restricted interest rates,

government control and skewed development.During the post-liberalisation era, restrictions
were relaxed,resulting in growing financial disintermediation, emergence of new financial
products and services, greater need for professional acumen and wider use of technology.

1.3 Rural financial institution

Rural banking forms one of the significant parts in Indian Banking. Many economists and
policy makers opine that thefuture growth of banking sector in India depends to a large extent
on the robust performance of the Rural FinancialInstitutions (RFIs). Among the factors
responsible for economic development and poverty alleviation in rural sector,the role of the RFIs
is considered very significant, as a substantial portion of the institutional rural credit by the RFIs
is used for rural development to support formation of ruralcapital. While increased investment
generally leads to higher productivity, the majority of the rural people in our country find
themselves in the vicious circle, where low productivity leads to low savings, resulting in low
capital formation and ultimately low investment.

This low-level income equilibrium(Nelson, 1956) can only be broken by what Leibenstein
termed as Critical Minimum Effort (Chakravarthi, 1967). The preRequisites for this effort include
availability of appropriate technology and adequate supply of capital.However, the rural banking
sector is still under penetrated in our country. According to RBI (2005), of the total branch
network of scheduled commercial banks in the country(roughly 68,300), nearly 48 percent of the
branches(approximately 32,400) are in the rural sector. But in terms of business, the rural
branches have mobilized only 14 percent of the total deposits.Similarly, the rural advances
constitute only14 percent of the total advances banking system, just prior to the introduction of
the concept of doubling of credit in ruralIndia. In the year 2001 the per capita rural deposits of
Rs.2150 formed only 1/10" of the per capita GDP; while the per capita deposits were 160
percent of per capita GDP for urbanIndia. In the same year, the per capita credit in rural India
was only Rs. 900 or 4 percent of GDP; while it was 100 percent ofGDP(1.e. Rs. 20,600) for
urban India. The number of credit accounts in rural areas was only 3.4 percent of the rural
population as against 10 percent of population in urban areas. Nachiket Mor, Deputy MD of
ICICI Bank, pointed out that the credit demand in rural India is expected to touch Rs.
1,330billion, whereas the supply is justRelease, November 07, 2006).about Rs. 40 billion
(PressThe government recognising the importance of an efficient the rural financial system has
taken several steps over the past years to build an extensive formal rural credit structure. There
Is a bank branch or a primary credit co-operative in every third village in India (Census, 2001).
Generally speaking, physical outreach of RFIs is not an issue in India, however, sustainable
growth of these institutions is very much in demand as less comes from than half of the credit
usage by rural households the formal sources till now. Hence, there is a need for degradation of
the rural banking system in India through performance evaluation in the context of the necessity
of institutional rural credit.

1.4 Regional Rural Banks (RRBs)

In India, institutional rural credit is usually arranged by c0-operative banks, commercial banks
and regional rural banks orRRBs (popularly known as gramin banks) through their
various wings. Since 1975, RRBs have been regarded as one of the most important sources of
institutional financing for rural credit in India.

These institutions are established exclusively to meet the excess demand for institutional
credit in the unbanked rural areas, particularly among the economically and socially
marginalized sections. In other words, RRBs have emerged, as institutions that combine local
feel and familiarity with the rural problems which the co-operatives possess and the degree of
business organization, ability to mobilize deposits, access to central money markets and
modernized outlook which the commercial banks have.

Among the 196 RRBs operating as scheduled commercial banks within the framework of
multi-agency systems in India,nine are functioning in West Bengal (March, 2005). These
specialized institutions after much experimentation have ultimately emerged as development
inducing institutions with a network of branches spread over the remote villages of the
country.

It has been documented from the studies on the performance of RRBs, that they are
undergoing a continuous improvement in services in many areas and have also made their
presence felt among the rural people in the areas of agriculture credit (Wadhva 1980; Sudhakar
1984; Mehta 1984;Singh 1985; Parmar et al. 1988; Pariyan 1988; Savaraiah 1988; Bapna 1989;
Kalkundrikar 1990; Krishnan 1990; Dixit et al.1994). These institutions have emerged as an
instrument to salvage the poorest among the poor from the mire of squalor.The emancipation of
rural poor in India is greatly influenced by successful discharge of duties by the RRBs.

Although the performance of RRBs may be gauged from the success of poverty alleviation
programmes for which they are dedicated as catalysts, their achievements as commerCial
banking organizations can never be ignored. The objective of social equity cannot be
accomplished unless the RRBs register a sustainable growth in terms of expansion of credit
facilities through earning profit. There is a strong belief that the banks have social responsibility
– not only to meet the credit needs of the society but also to extend facilities at concessional
rate of interest. As such, to respond to the socio-economic need, there should be a continuous
urge to reconcile efficiency and social equity consideration and combine social banking with
efficient banking.

At the end of the expansion phase (the year 1987 marks the end of addition to the number of
RRBs) commercial viability of the RRBs emerged as an important issue for the policymakers. It
was pointed out that the RRBs to survive as a credit institution, could not remain viable for long
time(Agriculture Credit Review Committee or Khusro Committee1989; Velayudham and
Sankaranarayanan 1990; Committee On Financial Systems or Narasimham Committee, 1991).
Thus,it was perceived that the RRBs should come out as leading financial institutions to change
the rural economy and also to fulfill the objectives for which they emerged. Failure of the
RRBs, it was opined, in delivering goods or providing inadequate in meeting the challenges of
growing credit needs of the toiling rural masses, would lead to drain on public exchequer and
consequently, a burden on our economy as a whole. Since the past few years, a huge public
fund has been with the RRBs for rural people.

Therefore, it is quite necessary to examine the working of RRBs and appraise their
performance,since in a demographic set up, every citizen has the right to know how the public
money is being used.In view of the divergent services rendered by the RRBs, an evaluation on
the performance of RRBs in West Bengal is seriously felt. The present study aspires to make an
overall evaluation on region-wise performance of RRBs in India,particularly in West Bengal, in
respect to restructuring of rural banking and also in satisfying the financial needs of the poor
rural folk.

Development of Regional Rural Banks (RRBs) in India

2.1 The Genesis

The idea of setting up RRBs cropped up when the Maclagan Committee (1915) and many other
important commissions and committees went into the question of agricultural finance. The
Royal Commission on Agriculture (1926), the Indian CentralBanking Enquiry Committee (1931),
the Bhansali Mehta Committee (1938) and the Agricultural Finance Sub-Committee, popularly
known as Gadgil Committee (1944)initially recommended the creation of Agricultural
CreditCooperation, where cooperatives performed very unsatisfactorily. The Cooperative
Planning Committee (1949)and the Rural Banking Enquiry Committee (1949)
recommended the importance and role of cooperative credit structure in rural credit and their
supplementary role in the commercial banking structure.

The Rural Credit Survey Committee (1954) advised reorganization of the commercial banking
system to unfold the problem of rural credit and was later supplemented by the state sponsored
State Bank of India. The Committee on CooperativeCredit, commonly known as Vaikuntha
Mehta Committee(1960), the study group on RBI on Agricultural CreditArrangements for
Cooperatively Less Developed States in theNorthern and Eastern Region (1963-64), the
Cooperative Credit Review Committee (popularly known as theVenkatappiah Committee (1969)
and the Gadgil Committee Studied the institutional arrangements for agricultural credit in
the context of social objectives. The All India Rural CreditReview Committee (1969) finally
inferred that commercial banks must supplement the rural credit work of the cooperatives.

2.2 Banking Commission (Chairman: R.G. Saraiya), 1972 The proposal for setting up of a chain
of 'rural banks' was FIrst mooted by the Banking Commission, appointed by the government of
India under the chairmanship of Shri R.G.Saraiva during 1972.

The Banking Commission was set up in1072 for a comprehensive reconsideration of the
structure and operations of the commercial banks in tune with the credit institutions during that
period and to suggest suitable measures for their operations. The terms of reference of the
Commission included the review of the working of the cooperative banks and to make
recommendations with a view to ensuring a coordinated development of commercial and
cooperative banks particularly in the context of its 'recommendation for extending the
geographical and functional coverage of the commercial banking system'.

After investigating various issues for expansion of activities of commercial banks in rural
areas and their limitations, the Banking Commission expressed serious concerns on the
initiatives of these institutions to promote rural financing in India. It was opined that in the large
and complex situation in the field of rural credit in India, there remains a large gap even after the
maximum possible branch expansion has been tried by the commercial banks'. This gap
was interpreted not only in quantitative terms by meeting the credit needs of the rural folk but
also towards spreading the concept of banking in all rural areas for developing banking
habits in the unbanked and under-banked areas.

The Commission also conceived that there could not be "any onesolution to this extensive
residual problem, rather, all possible alternatives should be tried'. In this context, it was
proposed to introduce a newW genus of 'rural banking' in areas 'where thecOoperative credit
structure is found weak'. According to the Banking Commission, the concept of such 'rural
banks' could be framed in one of the following three ways:
by converting certain viable primary agricultural societies in 'rural cooperative banks' offering a
full range of banking facilities as well as certain closely allied non-banking services;by
structuring a good primary agricultural credit society as a subsidiary of a commercial bank; or
by establishing an exclusive type of 'rural banks sponsored by the commercial banks and
supported by the local participation.
 Hence, the Commission proposed a multi-pronged programme for banking development in
rural areas through promoting cooperative credit societies, rural branches of commercial banks
and sponsored rural banks.

A rural bank established under the second and third mode was named as a rural subsidiary
bank for maintaining its unique feature with that of the rural cooperative bank created in the first
way. It was envisaged that 51 percent of capital of a rural subsidiary bank would be held by the
sponsoring bank and the balance by people of the areas of its functioning. It was further
specified that the rural banks, whether a rural cooperative bank or a rural subsidiary bank,
should extend their banking facilities,including credit, not only to their members (or
shareholders)but also to the general public within their respective areas of operations by
creating a new class of 'associate members'. The Proportion of credit and other related
conditions for granting such credit would be determined in advance along with certain favorable
terms and conditions.

The Commission further expressed the possibility to organize rural banks for a compact group
of villages covering a population ranging from 5000 to 20,000. However, 'in sparsely populated
areas, it may be necessary to organize a rural bank as a development bank to start with'. The
Commission believed that, the banking entity in rural areas should essentially be cooperative in
character and would provide a wider range of services than those of primary agricultural credit
societies

The Commission also explained further the details of capital structure, management structure,
personnel policies,dividend policy for shareholders, deposit insurance, interest policy, linkages
with other government bodies, including government corporations in respect to its procurement
functions in rural areas, terms of borrowing, minimums of liquidity to be prescribed etc.
Considering the initial practical difficulties in opening up such banks and its
phased expansion the Commission recommended that as a requirement of hsi diary of
commercial banks, a very limited number of rural banks should start their operations during an
initial phase of 5 years. The main objective of these institutions should be:

(a) lowering the costs of rural banking

(b) operating such banks with local staff in an environment that the poor people in the
villages would find most homely

(c) increasing awareness to the weaker sections of the rural society about the newly formed
credit institutions rectifying the present deficiency inoperation and (d) furthering development of
the rural poor.

2.3 New Economic Programme

The Union Government, however, made little effort on the Banking Commission's proposal for
establishing a chain of rural banks till middle of June, 1975. The Twenty-PointProgramme (also
called Twenty-Point Economic Programme For the New Economic Programme) announced by
the Government, provided an opportunity for rethinking on setting up rural banks for providing
rural credit. Some of the points recommended in this Programme, specifically aimed at
ameliorating the lot of the weaker sections of the rural society,covered a 'plan for liquidation of
rural indebtedness and legislation for moratorium on recovery of debts from landless laborers,
small farmers and rural artisans'.

The CentralGovernment also issued guidelines to the concerned state governments with the
instructions of discharging debts of the
marginal farmers holding up to 2.5 acres of irrigated land and scaling down the debts of small
farmers holding between 2.5 and 5 acres of such land.

A moratorium on the recovery of debts through the courts for both categories of farmers for a
period of one year was also suggested.It was further recommended that the debts of those
holding irrigated land should be scaled down as per currently defined conversion ratios
(between holdings of irrigated vs. non-irrigated land) in the concerned state. As per the
guidelines.several state governments also enacted legislation discharging and scaling down of
the debts of the small and marginal farmers, rural artisans, landless laborers and other weaker
sections of the rural society. Such legislation led to a vacuum for meeting both the production
and consumption of credit to the weaker sections of the society.

2.4 Working Group (Chairman: M. Narasimham), 1975 The Union Government, as a part of
New EconomicProgramme, seriously considered the idea of setting up rural banks as an
alternative source of credit to meet the requirements of weaker sections of the rural society. As
per the programme, these specialized institutions with attitudinal and operational ethos entirely
different from those of the traditional banks would act as the subsidiaries of public sector banks
to cater to the credit needs of the rural poor. The Working Group,under the Chairmanship of M.
Narasimham was appointed onJuly 1, 1975 and was asked to submit its report within one
month. On July 30, 1975, the report was submitted by the working group.

The Group perceived the existence of a large vacuum in the rural credit market in India
between its demand and supply both in terms of functional needs (especially of the weaker
sections of the society) and adequate geographical coverage in far-flung villages of the country.
It believed that the existing
credit institutions, neither in their present form of execution nor with any possible adaptation or
reorganization would be able to meet the gap.

Moreover, a degree of adaptation and improvisation was called for to contribute towards rural
upliftment essentially through the provision of credit to the weaker sections of the society.

The Working Group finally went in favor of the establishment of a new type of rural financial
institution,popularly known as 'regional rural bank' (RRB) or gramin bank', which would be, state
sponsored regionally based, rural oriented and would combine the local feel of village
cooperatives as well as degree of professionalism of the commercial banks. The areas of
operations of these institutions should be judiciously planned and demarcated and would
operate to avoid duplication of works and perform efficiently enough to cope up with the
socio-economic conditions and requirements.

The Group clarified further that the role ofRRBs would be to supplement and not to supplant
the other rural financial institutions in the field. The region-wise performance of these institutions
as suggested by the Group Referred to the 'region' not necessarily a 'district', but an economic'
region, possibly a backward region with homogenous' agro-climatic and socio-economic
condition.The primary objectives would be to promote rural development through institutional
rural credit system and also to get rid of rural poverty. These RRBs should be to mobilize
resources from the respective areas (region) of operation and deploy them within the same
region, lending mainly to small and marginal farmers, landless laborers, the small traders and
the rural artisans for productive purposes.

The Group envisaged that every RRB should enjoy the status of a 'scheduled commercial
bank' with its authorized capital of Rs. 1 crore and issued and paid-up capital initially at Rs. 25
lakh. The whole of the equity would comprise of contribution by the Government, the sponsoring
commercial bank or banks , the concerned state government and other institutions and
individuals (interested in the local area) in proportion of 50:25: 10: 15.

The lead bank in the respective areas of operation would act as the sponsoring commercialbank
of a RRB. The Working Group, however, highly emphasized the need for active participation of
the concerned state governments for the success of the bank. In the matter of absolute lending
rates to individual borrowers, the Group Recommended that the rate charged by the RRBs
should be the same as that of the cooperative of farmers' service societies and land mortgage
banks within their areas of operations.

Managerial personnel as well as some staff, initially, would have to be borrowed from the
sponsor bank on a definite pay scales and allowances as applicable to employees of concerned
state governments; but the RRBs should gradually set up long-term plans to employ and train
the needed staff preferably from neighboring manpower resources, especially the rural educated
young person.

The recommendations, ultimately, for setting up of RRBs were accepted by the Government.
The first five recommended RRBs commenced their business on and
from 2nd October, 1975 in four states at Moradabad andGorakhpur in Uttar Pradesh, at Bhiwani
in Haryana, at Jaipur In Rajasthan and at Malda in West Bengal, under the RRBordinance,
1975. The ordinance was subsequently replaced by the Regional Rural Banks Act, 1976 (9th
February, 1976).

2.5 Establishing a RRB: The Basic Requirements The basic requirements for setting up RRBs
as recommended by the Union Government are discussed below:

2.5.1 Objective:
 The Regional Rural Bank Act, 1976 discusses in detail about incorporation, regulation and
winding up of RRBs. According to this Act, the RRBs have been set up
'with a view to developing rural economy by providing 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 for the purpose of development of
agriculture, trade, commerce, industry and other productive activities in the rural areas'.

Thus, the key objectives of RRBs include comprehensive development of weaker sections of
rural society and enhancement of existing institutional credit infrastructure and the role of
informal credit agencies, particularly the moneylenders.

25.2 Jurisdiction: The operations of RRBs are restricted in particular districts of a state with their
control branches, the performance of which will be confined to the local limits of the said district.
Usually, a RRB for its activities will have a compact area of one to five districts with homogeneity
in agro-climatic conditions and rural patrons. Its branch offices will usually cover one to three
blocks and be in a position to finance five to ten farmer service societies (FSSs).

2.5.3 Sponsorship: A scheduled commercial bank (mainly public sector bank) will sponsor a
RRB. The sponsor bank will introduce such an entity in consultation with the concerned State
Government and the Central Government and must have authorization from the Reserve Bank
of India.

The Sponsor bank will provide necessary support to RRB in multiple ways like, subscription to
share capital, making adequate provision for managerial and other staff assistance (to be
mutually agreed upon within the first five years of existence)and financial help (refinancing
facilities) on mutually negotiable terms.

2.5,4 Capital Structure: The authorized capital of caRB should be Rs, I error and its issued
capital would be Rs25 lakh. The three contributions to the issued capital will include the Central
Government, the respective state governments and the sponsor bank.

2.5.5 Management Structure: A nine-member Board ofDirectors headed by a Chairman will run
the operation of aRRB. The Board will constitute with the following members:Chairman to be
nominated by the Central Government- 1;Not more than three directors to be nominated by
theCentral Government'- 3;Not more than two directors to be nominated by the state
government' - 2;Not more than three directors to be nominated by theSponsor Bank'- 3.
The Central Government may raise the strength of theBoard to 15 and suggest the manner in
which the additional numbers are to be filled in.

The remuneration, as applicable to the employees of RRBs, should be at par with the
employees of the state government and local authorities of comparable level and status in the
area of operation of the institute.
2.5.6 Training Facilities for RRB Staff: Understanding The demand for specialized staff, the
Reserve Bank of Indiamakes necessary arrangement for training at its own College of
Agricultural Banking in Pune. In this regard, the RBI also arranges zonal training centers for the
officers of RRBs.

2.5.7 Banking Business: Since RRBs enjoy the equal status of scheduled commercial banks,
they are empowered to mobilize deposits and to grant short-term and medium loans (both for
production and consumption) directly (whether individually or in groups) to the small and
marginal farmers,agricultural laborers, rural artisans, small entrepreneurs andalso (indirectly) to
all types of cooperative societies and the persons of small means engaged in any productive
activity and farmers service societies (FSSs) functioning within their areas of jurisdiction. It was
expected that 60 RRBs, as explained byGOL, w would be capable enough to lend more than
Rs.300 crore within one year of their functioning.26 Special I Concessions and Privileges
allowed to RRBs

The Reserve Bank of India, in order to support these specialized institutions in their formative
years, has sanctioned a number of concessions for their smooth functioning. The
major features of these concessions and privileges are summarized below:

1. The RRBs can offer a uniformly higher rate of interest on deposits for all periods of maturity
up to five years. The Interest rate may be fixed by half a percent over the rates payable by the
scheduled commercial bank; however, there should be at par with those offered by the District
Central Cooperative Banks (DCCBs) functioning within the same area of operation of the RRBs
and half a percent less than the rates on deposits payable by the village level primary
agricultural credit societies.

2. The rates of interest to be charged by the RRBs on itsdirect advances to the beneficiaries
belonging to the specified categories of the rural society would be at par with the rate charged
by the primary agricultural credit societies operating within the same areas of operation.

3. The RRBs are also allowed to lend up to 15 percent of its aggregate of paid-up capital and
deposit mobilized; the rest are to be arranged through refinancing from theGovernment (50
percent) and from the sponsoring bank(up to 35 percent)

4.The RRBs are allowed to avail refinancing facilities from the RBI as is enjoyed by the
cooperative banks. The RBI formulated a moderate refinancing scheme (with effect since
01.10.1976) by which the RRBs could avail themselves of refinancing facilities at 2 percent
below the bank rate.

5 The RBI enabled the RRBs, through amendment of the relevant act, to enjoy refinance
facilities from the two special funds of the Government e.g., the National Agricultural Credit
(Long-term operations) Fund and the National Agricultural Credit (Stabilization) Fund.
6. The facilities accessible from the Deposit InsuranceCorporation of India have also been
extended to the RRBs subject to the condition that their depositors can avail insurance up to
maximum Rs. 20,000 of deposits.

7. From January 1977, the RBI designed a special scheme under which a RRB could freely
transfer its own funds from its head office to the different branches through the branches of the
public sector banks functioning within the areas of operation of the respective RRBs.

8. The RBI permitted certain relaxation, as well, to the RRBsin respect to cash and liquidity
requirements as applicable for the scheduled commercial banks. The cash reserve to
be maintained by RRBs was fixed at 3 percent of their aggregate of total demand and time
liabilities as compared to 6 percent applicable to the commercial banks.Moreover, the definition
of cash for determining the cash reserve was broadened to embrace the balance to be
maintained by RRBs with the State Bank of India and also with any nationalized bank (i.e. all
public sector banks).For minimum statutory liquidity requirements of eligible assets, the RRBs
are required to maintain a ratio of only 25 percent of their aggregate of total demand and time
liabilities as compared to 33 percent as followed by the commercial banks
.
9. For income tax benefits, the RRBs are treated as equivalent in status to the cooperative
credit institutions under the Regional Rural Banks accounts.

2.7 Steering Committee for Framing up Policies of the RRBs at National Level
The Union Government set up a Steering Committee (1976) at the national level to prepare and
coordinate policies and operational details of the RRBs. The objective of the committee was to
frame necessary guidelines and also to monitor and review the progress and problems of these
entities in their functioning. It was suggested that the RRBs would be located in such areas
where:

(a) the existing cooperative banks and commercial banks were not competent enough to cater
to the need of satisfying the large credit gap

(b) a majority of the population belonged to the weaker section of the society and

(c) the potential for future agricultural development of the area was bright. In defining an
'under-banked' district, the SteeringCommittee adopted the operational norm of a minimum
population of 75,000 per branch office of the commercial bank in the concerned district. A
district having a population of less than 75,000 per branch of commercial bank was considered
a comparatively well-banked district.

2.8 Development of Regional Rural Banks in India

As on July 31, 2009, the total number of RRBs in India Stood at 84. The GOI initially set up
five RRBs since the promulgation of the Regional Rural Banks Ordinance onOctober 2, 1975.
The sixth RRB was set up during December1975 in Bihar (Bhojpur Rohtas Gramin Bank). By
the end ofDecember 31, 1976, there were 40 RRBs functioning in 16 states across India with
489 operating branches.

The number ofRRBs in the country went up to 48 by the end of December 31,1977 in 16
states with a total number of 1187 branches. Sincethen there had been a continuous growth in
number of RRBstill 31" December, 1987 (Table 2.2) Since 1987, no new RRBwas set up in
India. However, the number of operating branches increased from 17 to 14,484 during the 30
year period from 1975 to 2005, registering an increase of 852 times; and most importantly, the
number of districts covered advanced from 12 to 523 during the same period.

Conceptual Issues Related to Regional Rural Banks (RRBs)

Role of RRBs:-

The RRBs combine the local feel and familiarity with the rural problems at par with the
cooperatives, on one hand. and with a strategic business environment, commercial discipline,
ability to mobilize deposits, access to control money market and the modern outlook of the
commercial banks, on the other hand.Generally these institutions are regional based, rural
oriented and commercially organized. The role of RRBs is to supplement the other regional
institutional agencies in this arena and not to supplant them. These institutions are aimed to
assist in fulfilling the lead bank's role.

Actually, the operation of the lead banks and the RRBs are complementary to each other.
The establishment of these entities, as such, has created new vistas in the agricultural credit
structure which is instrumental in the development of the rural economy in India.This chapter
endeavors to discuss the various conceptual 2SSUes on RRBs.

A regional rural bank means a bank established under section 3 of the Regional Rural
Banks Act, 1976 The Regional Rural Bank Act 1976 These organizations are rural financial
institutions and are referred to as distinguished segment of the multi-agency credit structure in
India, set up for the purpose of providing credit and other incidental services at reasonable term
and conditions to uplift the rural poor of the unbanked and underbanked areas.

objectives of Setting up RRBs:-

The main objective behind setting up of RRBs was to attain rural development through
betterment of weaker sections of the rural society. The novelty of rural credit aims at providing
finance and other facilities in development of agriculture and allied activities to renovate the
rural economy.These institutions serve as supplement to the existing institutional credit
infrastructure and participation of informal credit agencies, especially thealso to reduce
unscrupulous money lenders.
According to RRBs Act, 1976,the RRBs are established, with a view to developing, the rural
economy and providing assistancę in the advancement 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.

A large segment of the rural economy remained unbanked and under-banked despite a
remarkable expansion of the rural branches of the commercial banks, particularly after the
nationalization of banks in 1969.

In order to achieve the aforesaid objective, the following operational objectives were
identified and conceived at the time of establishment of theRRBs:

● to reach the remote backward and tribal areas of the villages and also to make these
areas economically stable and sound,
● to initiate employment opportunities to local youth. This initiative, as was perceived
would not only change the social, economic, cultural and political environment but also
the lifestyle and standard of living of rural poor,
● to eradicate the existence of usurious money-lenders in the rural credit market,
● to bridge the credit slit in the rural areas,
● to liberate the rural people from the curse of poverty,
● to mitigate poverty through generation of surplus income and better planned productive
activities
● To make an impression as a specialized agency for extension of credit facilities to small
farmers and other small borrowers in the rural areas
● To provide the most needed credit at the doorstep of the rural poor on reasonable terms
and conditions so that the weaker sections of people in rural areas could raise their total
productivity and their standard of living
● to mobilize rural savings of the poor villagers even in small amounts and to inculcate in
them the habit of frugality in replacing the money lenders,
● to establish a center for overall economic development and social change by integrating
and coordinating credit activities in the rural areas.

3.3 Prominent Postulates of the RRBs

At the time of constitution, the following postulates were promulgated for the RRBs:The
regional character is an adopted feature where the areas of operation of these banks are to be
restricted to region' comprising of one or more districts in a state.In order to ensure local feel of
the cooperatives, the employees are usually be recruited from the areas of operation of the
respective banks.

These institutions are to be conceived as a low cost alternative credit agency in the rural
areas with smaller branch offices without the complicated paraphernalia.RRBs are to be
regarded as small replica of scheduled commercial banks and would combine the advantages
of the local feel of the cooperatives and financial strength,organizational and managerial skills of
the commercial banks
 RRBs are 'small men's ban's' and would cater exclusively to the credit requirement of small
and marginal farmers,agricultural laborers, rural; artisans, petty traders,transport operators like
camel/bullock/buffalo/carts etC.,referred to as the target group.RRBs are beneficiaries oriented
rural development banks for poverty alleviation programme linked with credit

3.4 Business of RRBs

As RRBs enjoy the status of scheduled commercial banks,they are empowered to undertake
all types of banking business ie The business of banking as is defined in section 5(b) of
theBanking Regulation Act, 1949 and engage in one or more forms of business specified in
section 6(1) of this Act.

Inpursuance of section 18(2) of the RRB Act, 1976, a regional rural bank can undertake the
following business in addition toGranting loans and advances, particularly to small and marginal
farmers and agricultural laborers, whether individually or in groups and to cooperative
societies,including agricultural marketing societies, agriculture processing societies, cooperative
farming societies,primary agriculture credit societies or farmers' service societies for agricultural
operations or for other purposes connected therewith Granting loans and advances, particularly
to artisans, small entrepreneurs and persons of small means engaged intrade, commerce or
industry or other productive activities,within the notified area in relation to the regional rural
bank.

3.5 Capital Structure of the RRBs

The authorized capital of each RRB is an amount of Rs. 1 crore comprising one lakh Rs. 100
each fully paid up.However, the Central Government may increase or decrease the authorized
capital in consultation with the RBI and the sponsoring bank subject to the minimum of Rs. 25
lakh and the face value of shares, in no case, should not exceed Rs. 100 fully paid up. The
issued, subscribed and paid up capital foreach RRB is Rs. 25 lakh, divided into 25,000 fully paid
up shares of Rs. 100 each.

The Central Government, state government and the sponsored bank subscribed in the issued
normal banking business: capital of each RRB in the ratio of 50:15:35. The Board of Directors of
RRBs may after Consultation With the RBI, the concerned state government and the sponsor
the Government of bank and with the prior approvalIndia, from, time to time increase the issued
capital of theRRBs but the proportion of subscription in the additional capital by the Central
Government, state government and the sponsor bank will remain same (i.e. 50:15:35).

3.6 Management and Staff Pattern of the RRBs

The RRB Act, 1976 had made provisions regarding the management of RRBs. According to
this Act, the general superintendence, direction and management of the affairs business of a
RRB should rest upon the Board of Directors Consisting of the nominees of the Central
Government,concerned state governments and sponsor banks Supervision and monitoring of
RRBs is done by the NUMBER the regulatory functions are looked after by the RBI under the
NABARD Act; and inspection of the RRBs is conducted by the NABARD instead of RBI. Regular
inspections are all undertaken by the sponsoring bank separately.

With prior consultation with the GOI, organizational strategy and policies of advancing loan
etc. are framed by the steering committee appointed for the purpose. At the state level, the
State LevelCoordination Committee (SLCCs) may be formed to have uniformity in the approach
of RRB culture all over IndiaDecisions about the staff matters are monitored by the GOI on the
recommendations of the SLCCs.

Each RRB depends upon the respective sponsoring bank in respect of initial staff support,
training facilities of the staff and refinance up to a prescribed limit. In the matter of growth of the
RRBs, the role and responsibility of sponsoring bank have not been spelt out,but in general,
they are expected to provide all-purpose counseling and support to their RRBs and supervise
the activities so that they may be in a position to achieve the goalS as expected from them.Ihe
sponsoring bank supports the RRBs by subscribing to their share capital, helping in recruitment
of personnel, imparting training to the staff and providing all other managerial and financial
assistance as may have been mutually agreed upon by the sponsoring bank and the RRBs. It is
the responsibility of each respective sponsoring bank of the RRBsto nurture them so that they
may grow up in a healthy manner. From the point of view of the sponsoring bank, it is necessary
Because:

● . the sponsoring bank subscribes 35 percent of the paid up

capital, i.e. Rs. 8.75 lakh of each RRB which is a non-interest bearing amount.

● it pays interest @ 9 percent per annum on the current account balance of the RRBS.

● the sponsoring bank bears the expenditure on salary and allowances of all the staff
members deputed to the RRBs it provides refinance facilities to the RRBs to the extent
of 30 to 35 percent of the outstanding advances at a lower rate of interest (82 percent for
general credit and 2 percent in the case of DIR loan).

● The training cost of all the members of the RRB staff(including those recruited by the
RRB) is borne by the concerned sponsoring bank.

● Free remittance and collection facilities are provided to RRBs.

● RRBs are usually sponsored by the concerned lead bank of the district to open up
branches in rural interior unbanked and under-banked areas in order to reduce the cost
of opening branches of their own in those areas.

● In case a RRB incurs losses in excess of its paid up capital,the sponsoring bank may
have to bear a part of its losses.
3.7 Board of Directors

The Board of Directors of each RRB consists of nine members including the Chairman. The
Chairman is usually an officer of the sponsoring bank, but is appointed by the Government of
India. The Board is constituted in the following manner:

● The Chairman, as nominated by the Central Government

● Three directors nominated by the Central Government
● Two directors nominated by the concerned state government, and
● Three directors nominated by the sponsored bank.

The directors nominated by the Central Government Generally belong to various ministries e.g.
Revenue, Finance,Agriculture or among the Regional Commissioners, DistrictMagistrates,
District Collectors as well the directors nominated by the state government, mostly of the LA.S.
cadre. In cases, however, non-officials are also nominated on behalf of the Government or the
sponsoring bank.

The Government of India may increase the number of members of the Board up to fifteen and
also prescribe the manner in which the additional numbers are to be filled in. The directors hold
office for a period not exceeding two years from the date of assumption of their office or as the
authority in the nominating body. They also enjoy the facility of nomination. The overall
management of the RRBs rests upon the Board of Directors.

The Chairman of the RRBpresides over every meeting of the Board and in absence of the
Chairman, the Director, so authorized and elected among the directors present at the meeting,
presides over the meeting.The Board is required to proceed on business principles and should
have due regard to public interest'.

3.7.1 The Chairman: The Government of India appoints an individual as Chairman for every
RRB of a period not exceeding five years under section 11(1) of the RRB Act,1976. The
Chairman of an RRB is the chief executive officer (CEO) of the bank and holds the full-time
responsibility for the affairs relating to supervision, direction and control. 1Chairman is also
eligible for reappointment after the expiry of the period of five years. The Chairman presides
over the meetings of the Board. He plays a crucial role in the workings of RRBs, particularly in
respect to liaison, planning and coordination of all functions. He has to deal with the state
government, the Central Government and the senior officers of the RBI, NABARD and the
sponsoring banks.

Moreover, he holds the responsibility to manage the operation of all the branches located in
the far-flung villages. He enjoys substantial power for smooth running of the bank and is
responsible to periodically put all important details about the development of the bank before the
Board.
.3.7.2 General Manager: RRBs, which have a network of branches and have reached a loaning
business in terms of outstanding of over Rs. 3 crore, may appoint an individual as general
manager on the basis of recommendations of the steering committee as decided by the
Government of India.

A General Manager is second in command and the senior most officer in the ladder of a
RRB. He is responsible for the smooth running of the management and has to maintain effective
control over the banking business, including loans and advances. He is also responsible for
managing the affairs of the bank in absence of chairman. The General Manager has an overall
accountability for all the aspects of the bank's activities.

3.7.3 Area Manager: To assist the general manager, an individual is selected as area manager
for improving effectiveness in the administrative and operational control of RRBs. An area
manager is responsible for the development of respective areas under his command.
are:

3.7.4 Other Employees: The other employees of RRBs are

● Field Supervisors/Assistants,
● Technical officers/Rural Development Officers,
● Clerks
● Driver-cum-Messengers, and*
● Peons.

Review of Literature on Rural Banking in india

Several studies were conducted on the activities of RRRs in India by academicians,

researchers and by the committees appointed by the RBI and NABARD in general.
Sketches the major ones are given below:AB Kalkundrikar (Performance of Regional
Rural Banks,1992, ed. l) evaluates the performance of RRBs in Karnataka ms of deposit
mobilization, credit deployment, branch expansion, recovery performance, profitability,
contribution to economic development, manpower planning and employee welfare and
also examines the comparative role of RRBs with respect to branches of scheduled
commercial banks and co-operatives.

A. Hadi and K.K. Bagchi (Performance of Regional Rural Banks in West Bengal: An
Evaluation, 2006, Vedam eBooks,2006) analyze the nature and pattern of credit
disbursement.recovery performance, the problems of loan repayment and profitability
problems of RRBs in West Bengal with particular reference to Murshidabad Gramin
Bank.A.M. Khusro (Agricultural Credit Review Committee, 1989, RBI, Bombay) found
that the major factors responsible for erosion of profitabılity were exclusively due to
lending to weaker sections, low interest margins and high operating cost and also
proposed for merger of regional rural banks with their sponsored bank. A.K. Pariyan
(RRBs and Rural Development, ed.1) points out the rationale behind setting up RRBs,
evaluates the performance of the RRBs in the country in general and examines the role
of Shekhawati Gramin Bank for the rural development at Rajasthan.B. Ramesh and D.N.
Thakur (Management of Regional Rural Banks Resources Fund Management: A Key to
Viability,Financing Agriculture, 1984, pp. 40-42) assessed the sources of funds of RRBs
and their effective management for viability.They stressed on the need for examining the
scope of cross subsidization for earning profit of RRBs and suggested that the
investment in fixed assets, which failed to fetch any return,should be kept minimum. In
respect to deployment of resources, the RRBs should keep in mind the prospect of
earning profit along with socio-economic objectives, which will lead to their development.
C. Krishnan (Regional Rural Bank and RuralDevelopment, Yojana, 1990, pp. 32-34)
finds that the regional rural banks have played a vital role in sustaining and rejuvenating
the rural economy despite several odds.G.D. Parmar, R.L. Shiyani and D.B.
Kuchhadiya(Performance of Banaskantha Mehsana Gramin Bank in Gujarat State,
Agricultural Banker, 1988, p. 24) evaluated the performance of Banaskantha Mehsana
Gramin Bank in Gujarat and found positive trends in the number of branches,
deposits,advances per branch and advances per capita of the said bank.G. Savaraiah
and N. Nirmalamani (Rural Banking for the Rural Milieu, Indian Cooperative Review,
1988, pp. 204-213)assessed the performance of Chaitanya Gramin Bank inAndhra
Pradesh and found that investment in agriculture received a lion's share especially crop
loan, which led to a good sign for the development of banking sector in that area.H.R.
Sudhakar, J.V. Venkataram and G. Nagaraj (AnEvaluation of Performance of Regional
Rural Bank in MysoreDistrict, Karnataka, Finaneing Agriculture, 1984, pp.
28-30)evaluated the perfomance of Cauvery Gramin Bank in Mysoredistrict and
compared the performance with PrimaryAgriculture Co-operative Societies (PACSS). It
was found Their study showed that the performance of RRBs was comparatively better
off than PACSs with respect to deposit mobilistics credit deployment, timely sanction of
loan and adequacy of loan amount. The branches of RRBS were earning profit
ascompared to PACSs which were running on a no-loss-no-profit basis.K. Sathya
Sundaram (Capital Adequacy Gaps for Banks-Problems and Prospects, Economic and
Political w Weekly,1994, pp. 37-42), R. Sahaya and M. Sharma (Functioning of the
Regional Rural Banks of India, Agricultural banker, 1986 pp. 14-18), Y. Dongre (For
Rural Growth, Yojana, pp. 11-13)B. Devendra (Regional Rural Bank Need Structural
Change,Kurukshetra, 1988, pp. 4-7) found that the performance of RRBs in terms of
branch expansion, deposit mobilization and credit disbursement was remarkable.
However, the RRBs continued to face similar problems like mounting overdues.lack of
profitability etc.K. Singha (Restructuring Regional Rural Bank. Kurukshetra, 1990, pp.
9-11) calls for changes in the structural and strategic policies to correct the imbalances in
functioning of the RRBs.
M. Narasimham (Report of the Committee on Financial System, 1991, RBI, Bombay)
opined that to impart viability in the operations of the RRBs, they may be permitted to
engage in all types of banking business and also to invest their funds in NABARD or
other agencies to earn more interest to augment their incomes. However, he left the
option of merger open to these institutions and their respective sponsored banks.
 MC Naidu and R.R. Naidu (Impact of Credit on Income and Employment: Case Study of
a Regional Rural Bank,Agricultural Banker, 1988, pp. 24-25) assessed the
accomplishment of the Rayalaseema Grameena Bank on income, profit : and
employment in different categories of beneficiaries. It was found in their study that the
income had increased for paddy, jowar and groundnut crops between pre-loan and
post-loan periods. Same trends were also noticed in the case of dyeing and weaving
where the income was more in case of the latter due to a well established market. It was
also observed that there was an increase in man days of employment to 40, 36.84 and
28.57 percent for small, marginal farmers and landless laborers respectively and the
improvement was comparatively lower in case of agricultural laborers as they could not
afford to employ them outside.M.R. Vyas's (Evolution and Management of RRBs,
1991,ed. 1) study on RRBs is an attempt to bring into limelight the role and contribution
of RRBs in Indian rural development,particularly in Rajasthan and examines the
evolution,functioning, management and workings of RRBs. Dr. Vyas (Financial
performance of Rural Banks, 1991, ed. 1) also evaluates the financial performance of
RRBs in Rajasthan in terms of credit deployment, recovery performance,profitability and
customer reaction. K. Fujita (Credit flowing from the poor to the rich: the financial market
and the role of the Grameen Bank in Rural Bangladesh, Developing Economics, 2000
Pp. 343-373) analyzes the utilization of loans from Grameen banks (GBs) and illustrates
in detail the mechanism used by GBs to alleviate poverty and sheds light on possible
limitations on their functioning. An existence of reversed credit flow from the poor to the
rich in the rural informal financial market is also discussed in this study. L.K. Naidu (Bank
Finance for Rural Development, 1992, points out how far the credit gap can be
minimized by the RRBs in rural India.: P. Bhattacharyya (Problems and Prospect of
Regional Rural Banks: A Case Study of Mayurakshi Gramin Bank,West Bengal.
Agricultural Banker, pp. 28-34) examined the problems of RRBs in West Bengal with
particular reference to Mavrakshi GB and recommended some measures to improve the
performance of RRBs in West Bengal.R. Dasgupta (Rural Banking and Credit - Tale of
ManyCommittees, Economic and Political Weekly, 2001, pp. 733-737) presented a
review of the recommendations of four financial committees on rural banking and credit
in India,R. Singh and V.K. Jain (Rural Banking and its Challenges,Yojana, 1985, pp. 6-8)
assessed the rural banking activities in India and the challenges faced by them and
found that many of the rural branches were becoming an economy. A comparative
analysis of performance and prospects of RRBs among the states in India, Haryana
ranked first with an average deposit of nearly 0.76 crore per branch. However,
mobilization deposits per account varied from Rs. 1000 to Rs. 3000 across the states. In
respect of advances outstanding per branch, Kerala ranked first with Rs. 0.8126 crore
followed by Tripura and Andhra Pradesh. The volume of business per branch was the
highest in Tripura (Rs.1.41 crore) followed by Kerala and Haryana. There was a wide
variation among the RRBs indifferent states in respect to overdue per branch and it was
found to be highest in Manipur (Re.0.7241 crore) followed by Tripura.R.K. Singh and
K.M. Upadhayay (4 Study of Loan Recovery of Regional Rural Banks in Bihar, Financing
Agriculture, 1984, pp. 37-39) conducted a study on the system of loan recovery of RRBs
in Bihar and found that the performance declined sharply. The major reason behind poor
recovery performance was due to inefficient strategies adopted for loan recovery, as was
experienced by the bank officials.The various reasons for non-payment of loans are -
inadequate production of crops, social ceremonies, non-persuasion by the bank,
anticipated declaration of moratorium and remission ofloans by the Government. The
bank officials, however,Suggested some measures for better recovery e.g., lending
incluster, timely reminders, tie-up arrangements with marketing agencies and lastly
stringent legal action against wilful defaulters.R.K.P Sinha and J.N. Choudhary
(Financial Viability of Central Co-operative Bank and Regional Rural Banks in Bihar: A
Case Study, Indian Journal of Agricultural Economics 1994, pp. 515-516), while studying
the comparative performance of central cooperative banks (CCBs)and RRBs in Bihar,
observed that CCBs, operating above BEP, profit while the RRBs incurred losses.S.C.
Srivastava and B. Subramanian (Regional Rural Bank Uperation: An Evaluation, Eastern
Economist, 1982, pp. 28-30) observed a steady growth in the number of RRBs in India.

In 1975, there were six RRBs with 17 branches and by 1979,the number rose to 57 with
1990 branches, indicating an increase by 9.5 times and 117 times in banks and
branches respectively. They pointed out that the coverage by the RRBs was uneven and
the bulk of the assistance by them was distributed disproportionately among the small
and marginal S. Mehta (Jhabua Dhar Kshetriya Gramin Bank: An Experience, Financing
Agriculture, 1984, pp. 51-53) foundthat Jhabua Dhar Kshetriya Gramin Bank in Madhya
Pradesh introduced the performance budget in which the targets and achievements of
deposits were compared each year on the basis of which a corporate plan for the bank
was prepared.Further, he suggested that cheaper funds and advances to non-target
groups may improve the income position of the bank.S.S. Sinha (Funds Management in
Regional Rural Banks,National Bank News Review, 1991, pp. 23-27) recommended that,
the RRBs could mobilize higher deposits by offering extra margin of interest, availing
maximum refinance, investment in approved securities, reduction in non-productive
assets and improving recovery position.Sankaraiah and B.B. Reddy (Recovery
Performance ofRayalaseema Grameena Bank, Agricultural Banker, 1994, pp.38-48)
observed that the recovery rate was good in the case of short-term loans, priority sector
advances and rural industries.The recovery was quite encouraging, as well, in piggery
inRayalaseema Grameena Bank in Andhra Pradesh. They found that by and large,
recoveries were poor in poverty alleviation programmes and a declining trend was
noticed for the bank as a whole.
From the detailed studies of above literature, it is perceived that most of the studies were
conducted to examine the evolution, functioning, management and financial
performance of the RRBs in the country in general and Rajasthan, Punjab, Uttar
Pradesh and Karnataka, in particular.farmers and agricultural laborers. In West Bengal,
studies were made only on Uttarbanga Kshetriya Gramin Bank and Mayurakshi Gramin
Bank with respect to credit disbursement and recovery performance. As such, no in
depth study has been performed for all the RRBsoperating in West Bengal considering
major parameters and also their comparative performance with other rural financial
institutions operating within the same areas. The research in this area has motivated us
to take up the current venture. The present study, as such, makes a humble endeavor to
make an evaluation on the overall performance of all the RRB operating in West Bengal.