Regional rural bank

The Government of India set up Regional Rural Banks (RRBs) on October 2, 1975.

Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India. Capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.

Earlier Reserve Bank of India had laid down ceilings on the rate of interest to be charged by these RRBs. However from August 1996 the RRBs have been granted freedom to fix rates of interest, which is usually in the range of 14-18% for advances.

Conception, reforms and the progress.

The establishment of regional rural banks was done to overcome basic rural credit problems like availability of cheap institutional credit to help overcome the financial problem of small and medium scale farmers. They came into being under the provisions of an Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976. The ownership of RBI stays with the Government of India, the respective State Government and Sponsor Banks. These three components hold the issued share capital of the regional rural bank in the proportion of 50%, 15% and 35% respectively. The process of formulation of RRB’s started on 2nd October 1975. During this process only a single bank was formed namely Prathama Grameen Bank. Statistics show that as on march 2006 , India had 133 RRBs (post-merger) covering 525 districts with a network of 14,494 branches. RRB’s came with a pre conceived notion as institutions with keeping only the poor in focus and having local ethos. With the success of RRB’s the Government of India in consultation with RBI and NABARD started their reform process through a wide-ranging package which also included their recapitalisation and auditing of their financial statements. As a part of their reforms process they were allowed to have variations in their investment schemes and were allowed to lend extensively. Studies show that the number of regional rural banks who were functioning well and were making a profit were about 166 of the 196 RRB’s. RRBs have become quite large covering most parts of the State in many cases. Assam Gramin Vikas Bank, an amalgamated RRB, covers 25 districts, the highest in the country. 40 RRBs covered two districts and 16 RRBs covered a single district each in 2005-06. The entire rural credit system comprises of 37% of all scheduled commercial bank offices and in semi urban regions their share goes upto a 15%. At all India level, RRBs account for 12% of all deposit accounts of scheduled commercial banks and a meagre 3.5% of deposit amount. Studies regarding the deposit and credit show that the success of regional rural banks is more as compared to that of scheduled commercial banks.