l

What do Regional Rural Banks me-an?

R('9iom1I Rllt nl 13onks. Ali~o k11own ao Grarrn n HAnk:~. an! r/Jrri m~r,A;JI t ar~s ~t,~ ;,~''?-
set up under the Ministry ol n nance by the Government of Ind,~ Ti"lf:-; a,~ ¾>-~-:,3 /
established with the intent to f'u nd the rura l population of our oountr;

History and Recent Advancements

M. Narsimham 's working group, which was active during 1975 under the Ind ira Gana'.
government, suggested forming these Gramin banks to provide the und-erprivi 1eg....c-o
population with enough credit. Hence, the ordinance was passed in 1975 and rn 1975
the RRB Act was passed , which legalized the status of RRBs. The fi rst RRB was
created on 2nd October 1975, ca lled the 'Prathama Gramin Bank·. By 1976. five more
RRBs were established , with a tota l capitalization of 100 Crores . 50% was owned by
the central government, 15% by the state government and 35% was owned by the
sponsored bank. Sponsored banks provided the newly formed regional banks wrth an
kinds of help like tra ining , hiring etc. and took care of them .

A s more than 60% of the population was involved in farming in the 1970s. and the
Gramin banks were basica lly created to serve the farmers, the number of Gramin 8-an~s
increased drastically soon after their set up. By the year ·1980. there were 85 banks by
1985 , 180 banks and by 1990 , the numbers grew up to 190 banks.

However , due to so many RR Bs, the fun ding was very difficult to manage . so to
compensate fo r the loss , the Gramin Banks started ama lgamation . Amalgamation is
simply a process in wh ich two or more banks are combi ned to be operated as one
Hence , in 2006, due to amalgamation , the number of RRBs decreEil sed to 133. and
according to th e rece nt survey in 2020 , the number of Grnmin banks 1s found to be\ 43

Regiona l Ru ral Banks (2020)

S.no.
Nnmc of RRH SponMJr Bank.

Chaitanya Godavari Gramee na Oank Andhra 9 ank

")
Andhra Pragathi Grameena Bank Syndicate .Bank

.,,
.)
Saptagiri Grameena Bank Indian Bank

4 Arunachal Pragathi Grameena Bank SBI

5 Assam Gramin Vikash Bank United Bank of Indi:.

6 Dakshin Bihar Gramin Bank Punjab National Banl

7 Uttar Bihar Gramin Bank Central Bank of Indi

8 Chhattisgarh Rajya Gramin Bank SBI

9 Baroda Gujarat Gramin Bank Bank of Baroda

10 Saurashtra Gramin Bank SBI

I1 Sarva Haryana Gramin Bank Punjab National Ban

12 Himachal Pradesh Gramin Bank Punjab National Ban

13 Ellaquai Dehati Bank SBI

14 J&K Grameen Bank J&K Bank Ltd .

15 Jharkhand Rajya Grnmin bank sm

 16
Karn ut.aka Gramin Bank
Canara Bank
l7
Kamataka Vika s Grameena Bank
Syndicate Bank
~

I
l 18
I Kerala Grami n Bank Canara Bank

19
Madhya Pradesh Gramin Bank
B01

20 Madhyanchal Gramin Bank

SBI

21 Vidharbha Konkan Gramin Bank

Bank of India

22 Maharashtra Gramin Bank

Bank of Maharash1

23 Manipur Rural Bank

United Bank of lrn

24 Meghalaya Gramin Bank

SBI

25 Mizoram Rural Bank

SBI

26 Nagaland Rural Bank

SBI

27 Odisha Gramya Bank

Indian Overseas B

28 Utkal Grameen Bank

SBI

29 Punjab Gramin Bank

Pu1tj ab National F

30 Puduvai Bharthiar Grarna Bank

Indian Bank

31 Baroda Rajasthan Kshe triya Bank

Bank of Barod
 31 Ri\ji.H,thnn Mnn,dhnru ( irumin l1ank sm

Tam il Nndu Orunrn Bank fndian Bank

Telangana Gramcena Bank -;m

35 Andhra Pradesh Grameena Vikas Bank SBf

36 Tripura Gramin Bank United Bank of Indi

37 Aryavart Bank Bank of lndia (BOI

38 Baroda UP Bank Bank of Baroda

39 Prathama UP Gramin Bank Punjab N ational Ban

40 Uttarakhand Gramin Bank SBI

41 Paschim Banga Gramin Bank UCO Bank

42 Uttar Banga Gramin Kshetriya Bank Central Bank of lndi

43 Bangiya Gramin Vikash Bank United Bank of lndi

The RRBs are regulated by the National Bank for Agriculture and Rural Development .
Previously NABARD was owned by the Reserve Bank of India, but, in 2010, the
Government of India purchased NABARD from the RBI and took complete control of it.
RRBs not only provide aid for the farmers but also give out salaries for MNREGA.

Recently, a new act was passed, named the Regional Rural Bank Amendment Act
2015 , which came into force on 14th February 2016 . According to this act. the
authorized capital was raised to 2000 Crore. Hence, for one bank, the fund should not
be less than 1 Crore. It also gave permission to RRBs to get funding from other sources
 l
other than their existing shareholders (Central bank, State bank and Sponsor Bank), on
only one condition that the two shares owned by the central bank should not be less
than 51% . Also, earlier sponsor banks were only allowed to look after an RRB for not
f more than five years, but now there is no such limitation .

i
l
Conclusion
I The Gramin Banks have also started serving in the urban areas these days. Now they
are also involved in para banking, i.e., they have started providing people with other
facilities like lockers to keep their valuable possessions safely, also with credit cards
and debit cards.

Regional Rural Banks

Regional Rural Banks (RRBs) are financial institutions in India that are designed to provide banking
services in rural areas. They were established under the Regional Rural Banks Act of 1976, with the aim
of bringing banking services closer to rural and agricultural communities and promoting rural
development.

RRBs are structured as scheduled commercial banks and are regulated by the Reserve Bank of India
(RBI). They operate in a specific region, generally consisting of districts within a state. Each RRB is
sponsored by a commerc ial bank, which provides necessary support and assistance.

RRBs are jointly owned by the Central Government, the State Government, and the sponsoring
commercial bank in a specific ratio. The central government holds a 50% stake, the state government
holds a 15% stake, and the sponsoring commercial bank holds a 35% stakeRegional Rural Banks
Functions

The functions of Regional Rural Banks (RRBs) can be summarized as follows:

Regional Rural Banks Functions

Function Details

Banking Services RRBs provide banking services li ke savings accounts, current accounts, deposits,
and basic transactions to rural areas .

Credit Facilities RRBs offer loans to fa rmers, agricultural laborers, artisans, and small entrepreneurs for
agriculture, livestock, machinery, housing, and small businesses.
 7

Agricultura l and Rural Development RRB

1O· pment and s. II . I . s support agrlcu ltural activi ties, rural infrastructure
deve • ma -sea e industries for overall rural growth.
Financial Inclusion RRBs p f
. . . . . . . remote lnancial inclusion by opening bank accounts, encouraging
savings, and providing mst1tut1onal credit to unbanked and d b k d .
un er an e rura 1areas.
Cooperative Banking Activities RRBs k ·th ·
. . wor w1 agricultural cooperatives and self-help groups to
provide financial support and foster cooperat· n amo
10 ng rura I communit· ies.
·
Priority Sector l ending RRBs pr1or·1t·1ze I d' t
en mg o sectors 1·1ke agriculture
· · · s,
, micro and small enterprise
and weaker sections of society as mandated by the RBI. The mandatory target for priority sector
lending
by RRBs is currently set at 75%.

Regional Rural Banks Achievements

RRBs have played a crucial role in providing credit to the agricultural sector, which is vital fo r rural
developm ent. As of March 2021, RRBs had a total agricultural credit outstanding of over Rs. 2.4
lakh
crore (approxim ately USO 32.7 billion).

Also, RRBs have supported rural entrepreneurship and small businesses, contributing to employme
nt
generation in rural areas. According to the National Bank for Agriculture and Rural Development
(NABARD), RRBs have created over 4 million jobs through their credit and support to small-scale
industries.

RRBs impact can also be gauged from the role they have played in promoting financial inclusion
in rural
areas. They have opened a significant number of accounts for previously unbanked individuals.
According to the NABARD, RRBs have opened over 140 million accounts as of March 2021, providing
banking services to previously underserved rural populations.

Challenges Faced by Regional Rural Banks

The challenges faced by RRBs can be summed as follows:

Financial Viability

Maintaining financial viability is a challenge for RRBs due to factors such as low-profit margins,
high
operating costs, and loan recovery issues in rural areas.

Asset Quality
 l

RR!h oftPn fatl" c:hall r;11BPs Ir, 11,:.r-,ngl R . . ,.

Jc'ault''- ca l'\ oc-t uf du" 1·of"' l 111- n AS~P1 q1:1altty, f'f!PN ltllly it, thfl '1Wit,nlrurttl ~,,, rnr wh,:,r" ltl)~ tl
(1 ' - , ~ "' ors ,lfe crop f ii . . , , .
· :l IJI<\ n,1t11r~I ,llM~tN~, Of ptir,11 f!IJ(fWlfitJ f'i...,

capital ( r,11st1ai r,t s

RRBs mav face capit al co nst raints Ii . ·r -. ·· , ..

, d , . __ ' m, ing their abi lity to mee t the increasing credit demand 1r1 rtJr;;I
,,,ea~ an . comp 1y wit h regul atory requirements.

Technological Advancements

Adopt i~g and integrating new technologies pose a challenge for RRBs, part icularly in remo·te rural areas
where infrastructure and connectivity are limited.

Human Resource Development

RRBs face challenges in attracting and retaining skilled personnel in rural areas, which can impact t heir
ability to deliver efficient banking services and implement effective risk management practices.

Governance and Management

Effective governance and management practices are essential for the smooth functioning of RRBs.
However, challenges related to governance, leadership, and internal controls may arise, impacting
operational efficiency and transparency.

Regional Rural Banks Reforms Needed

Several committees have been constituted to recommend reforms for Regional Rural Banks (RRBs). Here
are recommendations of some notable committees:

Vyas Committee (2004)

Recommended th e conversion of RRBs into full-fledged commercial banks to enhance t heir fina ncial
strength and operational efficiency.

Suggested raisi ng th e capital adequacy ratio to 9% t o ensure the financi al stability of RRBs.

Advocated for t he strengtheni ng of governance and man agement pract ices in RRBs.

C.hore Committee (2015)

.J
 .
Recommended measures to impro ve t he fmanc,a
t d l viabilit y of RRBs, including capital infusio n by the
govern me n an spons orship by strong comm ercial banks.

· d·
Em phasized t he need for performan ce-base ·
incentives and a robust business strateg y fo r RR Bs.
·
Suggested the adoption of technol ogy- driven b ·
anking practices and enhanced risk management
frameworks.

Nayak Comm ittee (2018)

including the recapitalization of financ ially

Recommended a comprehensive reform package for RRBs,
weak RRBs.
sustainable entities.
Suggested consolidation of RRBs to create stronger and more
ilities and financial inclusion efforts .
Emphasized the importance of enhancing digital banking capab

Sudarshan Sen Committee (2019)

"Universal Banks for Rural India."
Recommended a roadmap for the transformation of RRBs into
and internal controls in RRBs.
Advocated for the strengthening of governance, risk management,
banking practices to enhance operational
Suggested the adoption of digital technologies and innovative
efficiency and customer service .

Introduction
merc ial
Regional Rura l Banks are gove rnme nt owned scheduled com
of Indi a.
bank s of Indi a that oper ate at regional level in different state s
These bank s are unde r the ownership of Ministry of Finance,
basic
Gov ernm ent of India. They were crea ted to serve rural area s with
bank ing and financial services.

The RBBs Act has mad e various provisions regarding the

this Act,
inco rpor ation , regulation and working of RRBs. According to
the RRBs are to be set-u p mainly with a view to develop rura l
econon1y
by providing cred it facili ties for the purp ose of developm ent of
agriculture, trade , com1ncrcc, industry and other productive activitie'i
in the rural areas.

Such facility is provided particularly to the small and marginal fa rmers,

agricultural laborer's, artisans, and small entrepreneurs and for other
related n1atters.

Objectives

The objective of regional rural banks is to develop the rural economy

by providing credit and other facilities for agricultu re an<l other
productive activities in rural areas. They provide th( se facilities to
1
 ers . . b -,
sm all an d m argina l farm , rura1artis.ans ' agric uIt·ura 1a orer s and
1·

othe r s1nall en t rep1~ en eu rs w or•k·ing in

· the rural areas.

b . ws:
The objectives of RRB 8 can e summarized as follo

backw ard class public

• To pr ov id e lo an for
of bank in rural areas.
• To op en in g br an ch es
or from the moneylenders.
• To save th e ru ra l po
in g ha bi ts am on g th e rural people and
• To cultivate th e bank
r th e econ om ic de ve lo pment of rural areas.
mobilize savings fo
en t op po rt un iti es by en couraging trade and
• To in cr ea se employm
s.
co m m er ce in rural area
s.
To en co ur ag e en tr ep reneurship in rural area
•
e ba ck w ar d ar ea s w hich are not covered
s of th
• To ca te r to th e need
e Government?
by th e ot he r efforts of th
ev el op ed re gi on s an d thereby strive to ren1ove
• To develop underd
een regions.
economic disparity betw
en t op po rt un iti es by en couraging trade an d
• To increase employm
s.
co m m er ce in rural area

Features

j
The Featu res of RRB scan 1)e surnman.zcd as follows:

• The area of opera tion of a rural bank is lim ited to a specifi ed region
which comp rises of one or more districts.

• These banks canno t have a lendin g rate which is higher than the
preva iling lendin g rate of cooperative credit societies in any
partic ular state.

• The salary struct ure of the employees of these banks is fixed in

conso nance with the salary struct ure of the employees of the state
gover nmen t, local autho rities of comp arable level and status in the
area.

• They are public sector banks . The paid-u p capital of each bank is
Rs. 25 lakhs. 50 perce nt of the capital is contri buted by the Centr al
Gove rnmen t. The conce rned state gover nmen t contri butes 15
perce nt. 35 perce nt is contri buted by the spons oring public -secto r
comm ercial banks .

• It grant s loans and advance only to the small and margi nal farme rs ,
agricu ltural labore r's, small trade rs\ entrep reneu rs.

• This is spons ored bank. It is spons ored by a sched uled comn1ercia l

bank.

• The RRB charg es intere st rates as adopt ed by the co-operative

soci ety in the state.
· Functions

• Providing of loa ns an d advance to the far

me rs and oth er pe rso n
alr ead y eng age d in agriculture activities.

• Pro vid ing of loa ns an d advance to the co-

op erative societies an d
oth er society which are involved in agricultu
re processing .
• Accepting the various types of deposits fro
m the rur al an d oth er
co nn ect ed areas.

• pro vid ing loa ns an d advances to small en

tre pre ne urs an d oth ers
wh o are eng age d in trade, commerce an d ind
ust ry.
• Se ttin g up an d Maintenance of godowns an
d wa reh ou se.
• Reducing the dependency of weaker sectio
n of mo ne y len der s.
• Un der tak ing of the supply of agricultural
inp uts & eq uip me nt' s to
farmers.

• Making backward an d tribal are as economi

cally be tte r by op en ing
new bra nch es an d extending micro cre dit fac
ilities an d op era tin g
the scheme of inclusion.