REGIONAL RURAL BANK IN INDIA

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 REGIONAL RURAL BANKS ACT 1976

• An Act to provide for the incorporation,

regulation and winding up of Regional Rural
Banks with a view to developing the rural
economy by providing, 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 incidental
thereof.
Establishment and incorporation of Regional Rural Banks
• Establishment and incorporation of Regional
Rural Banks.- (1) The Central Government may,
if requested so to do by a Sponsor Bank, by
notification in the Official Gazette, establish in a
State or Union territory, one or more Regional
Rural Banks with such name as may be
specified in the notification and may, by the said
or subsequent notification, specify the local
limits within which each Regional Rural Bank
shall operate.
• Authorised capital.-
The authorised capital of each Regional Rural Bank shall
be five crores of rupees dividend into five lakhs] of fully
paid-up shares of one hundred rupees each: Provided
that the Central Government may, after consultation with
the [National Bank] and the Sponsor Bank, increase or
reduce such authorised capital; so, however, that the
authorised capital shall not be reduced below twenty-five
lakhs of rupees, and the shares shall be, in all cases,
fully paid-up shares of one hundred rupees each.
Issued capital.- (1) The issued capital of each Regional
Rural Bank shall, in the first instance , be such as may be
fixed by the Central Government in this behalf, but it shall
in no case be less than twenty-five lakhs of rupees or
exceed one crore of rupees.

Out of the capital issued by a Regional Rural Bank under

sub- section (1), fifty per cent. shall be subscribed by
the Central Government; fifteen per cent. by the
concerned State Government and thirty-five per cent.
by the Sponsor Bank.
 Organizational Structure
The Organizational Structure for RRB's varies from branch to
branch and depends upon the nature and size of business
done by the branch. The Head Office of an RRB normally had
three to seven departments.
The following is the list of officers in decreasing order of their
rank in the organization.
• Chairman & Managing Director
• Executive Director
• General Manager
• Deputy General Manager
• Assistant General Manager
• Chief Manager
• Senior Manager
 Management
• Management.- (1) Subject to the provisions of
this Act, the general superintendence, direction
and management of the affairs and business of
a Regional Rural Bank shall vest in a Board of
directors who may exercise all the powers and
discharge all the functions which may be
exercised or discharged by the Regional Rural
Bank.
• (2) In discharging its functions, the Board shall
act on business principles and shall have due
regard to public interest.
 Objectives
• The objectives of RRBs can be summarized as follows:
• (i) To provide cheap and liberal credit facilities to small and
marginal farmers, agri­culture labourers, artisans, small
entrepreneurs and other weaker sections.
• (ii) To save the rural poor from the moneylenders.
• (iii) To act as a catalyst element and thereby accelerate the
economic growth in the particular region.
• (iv) To cultivate the banking habits among the rural people and
mobilize savings for the economic development of rural areas.
• (v) To increase employment opportunities by encouraging trade
and commerce in rural areas.
• (vi) To encourage entrepreneurship in rural areas.
• (vii) To cater to the needs of the backward areas which are not
covered by the other efforts of the Government?
• (viii) To develop underdeveloped regions and thereby strive to
remove economic dispar­ity between regions.
 Functions
Functions of RRBs are as follows
• RRBs grant loans and advances to small farmers and
agricultural laborers so that they can start their own farming
activities including purchase of land, seeds and manure.
• RRBs provides banking services at the doorsteps of the rural
people ,particularly in those area which are not served by
any commercial Bank
• The RRBs charges a lower rate of Interest and thus they
reduce the cost of credit in the rural areas.
• RRBs provide loan and other financial assistance to
entrepreneurs in villages, sub-urban areas and small
towns .So that they become able to enlarge their business.
• Loans to artisans to encourage them for the production of
artistic and related goods.
• Encourage the saving habit among the rural and semi-urban
population.
 Major Problems of RRB
The following were the main problems faced by the RRBs till
recently.
• (i) Running into losses:
During 1997-98, out of 196 RRBs, 70 RRBs incurred losses amount­
ing to Rs. 230.76 crore in total. The accumulated losses of all RRBs
up to the end of March 1998 amount to Rs. 3116.00 crore. This may
be due to heavy overhead costs, reduction in lending rates, lower
profit margins, heavy increase in salaries and allowances of staff,
etc. During 2001-02, out of 196 RRBs, 167 made net profit of Rs.
699.93 crore while 29 suffered losses amounting to Rs. 92.05 crore.
The accumulated losses of all RRBs declined to Rs. 2792.59 crore
as on March, 2001.
• (ii) Slow progress:
The progress of RRBs is not up to the expectation and is slow when
comparing with other types of banks because of many restrictions
on their operations. For example till 1996, RRBS were permitted to
lend only under priority sector schemes.
(iii) Limited scope of investment:
The basic objective of RRBs was to provide credit
facilities to poor and weaker sections of society, i.e., to
small and marginal farmers and other weaker sections.
They were originally having limited scope to invest their
surplus funds freely.
(iv) Delay in decision making:
The RRBs are controlled directly and indirectly by
various agencies, i.e., the sponsoring bank, NABARD,
RBI, besides Central Government. Thus, it takes long time
to take decisions on some important issues. This, in turn
affects the progress of RRBs. However, since end 1997,
the operational responsibility of RRBs has been passed
on to sponsor bank.
• (v) Lack of co-ordination:
• Lack of co-ordination between the RRBs and sports or
banks regarding branch expansion, policy making, etc., are
also the important causes for the slow progress of RRBs.
• (vi) Difficulties in deposit mobilization:
• The RRBs are aiming at catering to the needs of poor and
are not serving the needs of the rich. So, the RRBs are not
able to attract the deposit from that potential sector.
• (vii) Lack of training facilities:
• Generally the staff of RRBs is urban-oriented and they may
not know the problems and conditions of rural areas. Lack
of training facility concerning these areas also affects the
growth of RRBs.
(viii) Poor recovery rate:
The recovery performance of the RRBs is not up to the
mark. The /ate of recovery in respect of many RRBs is
around 55 per cent only.
(ix) Capital inadequacy:
The capital adequacy is the very basis to financial
soundness. There is capital inadequacy in RRBs as
most of the RRBs have huge losses in their 3alance
Sheet eating away all the Capital of RRBs.
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