Regional rural bank

Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agro sector.Banking Regulation Act,1949 brought cooperative banks and regional rural banks under the Reserve Bank’s jurisdiction, while amendments to the Reserve Bank of India Act. Regional Rural Banks (RRB)are Regulated by the Rural Planning and Credit Department of Government of India and supervised by NABARD. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country.The Government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. 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. The total authorized capital was fixed at ₹ 1 crore which has since been raised to ₹ 5 Crore. Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas.

The Conception and the Brief history

The history of regional rural banks in India dates back to the year 1975. It's the Narsimham committee that conceptualized the foundation of regional rural banks in India. The committee felt the need of 'regionally oriented rural banks' that would address the problems and requirements of the rural people with local feel, yet with the same level of professionalism of commercial banks. Five regional rural banks were set up on October 2 with a total authorized capital of ` 1 crore, which later augmented to ` 5 crore. There were five commercial banks, viz. Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural banks. The equities of rural banks were divided in a proportion of 50:35:15 among the Central Government, the Sponsor bank and the concerned State Government.

The following years have not been so easy for the regional rural banks in India, as there were major concern of financial viability. A number of committees were formed to find out solution. Studies were conducted to find out the factors that influence RRBs performance. The roles played by the sponsor banks were also analyzed. RRBs have been established with a view to provide banking services to the rural masses and extending wide variety of financial assistance to the weaker and poorer sections of the rural society.RRBs have been viewed as an important instrument for serving the weaker sections of the society.

Reform Process of Regional Rural Banks

RRBs started their development process with the formation of a single bank (Prathama Grameen Bank) on 2nd October 1975. There were 133 RRBs (post-merger) covering 525 districts with a network of 14,494 branches till 31 March 2006. RRBs were originally conceived as low cost institutions having a rural ethos, local feel and pro poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. When the reform process in the banking sector was initiated, RRBs were taken up for a close look. The GoI in consultation with RBI and NABARD started the reform process through a comprehensive package for RRBs including cleansing their balance sheets and recapitalising them. Extant lending restrictions were removed and space and variety available for investment of their surplus funds was expanded.Simultaneously, a number of human resource development and Organisational Development Initiatives (ODI) were taken up by NABARD with funding support of the Swiss Development Corporation (SDC) and with the tools of training and exposure visits, ODI, technology support, computerization and use of IT, system development, etc. for business development and productivity improvement. By end March 2005, there was a remarkable improvement in the financial performance of RRBs as compared to the position prevailing in 1994-95. The number of banks reporting profits went up to 166 of the 196 RRBs. As on 31 March 2006, of the total 133 RRBs (post merger), 111 posted profits and 75 of these RRBs were sustainably viable organisations having no accumulated losses as also posting current profits. GoI initiated the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a State as per the recommendations of the Vyas Committee (2004). The amalgamated RRBs were expected to provide better customer service due to better infrastructure, computerization of branches, pooling of experienced work force, common publicity / marketing efforts, etc. and also derive the benefits of a large area of operation, enhanced credit exposure limits and more diverse banking activities. As a result of the amalgamation, the number of RRBs was reduced from 196 to 133 as on 31 March, 2006 and to 96 as on 30 April 2007. Thus under the amalgamation process, 145 RRBs have been amalgamated to form 45 new RRBs.

There are several concessions enjoyed by the RRBs by Reserve Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio,lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks, managerial and staff assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABARD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend their problems.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.

RRB's Potential Role in Financial Inclusion

Post-merger RRBs represent a powerful instrument for financial inclusion. Their outreach vis-à-vis other scheduled commercial banks particularly in regions and across population groups facing the brunt of financial exclusion is impressive, as observed from an analysis of Basic Statistical Returns of the RBI and indicated in the following paragraphs. With merger infusing the much needed financial strength in RRBs coupled with the local feel and familiarity they command, RRBs are in a unique position to play a decisive role in financial inclusion.

Self Help Groups - Bank Linkage

The microfinance services provided through SHG - bank linkage has so far been the most successful initiative in financial inclusion. Therefore, an analysis of RRB’s involvement in the SHG movement will be an important indicator of the kind of mandate which RRBs could be given for further widening and deepening of financial inclusion.

RRBs as Self Help Promotion Institutions (SHPI)

RRBs have not only provided financial services to the SHG-Bank Linkage Programme, but have also played a significant role as SHPIs. As many as 104 RRBs (31 March 2006) are also functioning as SHPIs with grant assistance from NABARD. Non-availability of good NGOs is a matter of concern especially in North-Eastern, Central and Eastern Regions. RRBs can play a vital role as SHPIs in such areas. The foregoing paragraphs conclusively indicate that RRBs are well positioned to play a major role in financial inclusion particularly in areas / regions with high rates of financial exclusion. RRBs were originally created to cater to neglected sections / areas as they were expected to have sound financial management combined with local feel and familiarity. With the amalgamation of RRBs, they have acquired the critical mass in terms of financial strength to widen and deepen their outreach. With the requisite strength having been developed, RRBs are the best suited vehicles to widen and deepen the process of financial inclusion. However, utmost care must be taken to ensure that in the process of fulfilling the socio-economic objective of financial inclusion, RRBs' do not again fall into the vicious circle of deteriorating financial performance and deviation from their mandate. RRBs may be provided adequate promotional and developmental assistance to contribute substantially to financial inclusion in a way that the business generated out of inclusion efforts add positively to their performance.

Some of RRBs are

(1) Madhya Bharat Gramin Bank (Madhya Pradesh, India)

A joint venture of Government of India, State Bank of India & State Government of Madhya Pradesh. Madhya Bharat Gramin Bank is established on 30.06.2006 by amalgamation of 3 Regional Rural Banks sponsored by State Bank of India namely Damoh Panna Sagar Kshetriya Gramin Bank, Shivpuri Guna Kshetriya Gramin Bank & Bundelkhand Kshetriya Gramin Bank under the notification issued by Govt. of India (Ministry of Finance). These amalgamated RRBs were joint venture company established under Regional Rural Bank Act 1976 (23 of 1976). The capital structure consisted of Govt. of India (50%), State Bank of India (35%) & State Government of Madhya Pradesh (15%).

The Head office of the bank is at Sagar (M.P.). The Bank is serving rural masses through its 221 branches covering 8 districts of state of Madhya Pradesh namely Sagar, Damoh, Panna, Shivpuri, Guna, Ashoknagar, Tikamgarh & Chhatarpur.

(2) Assam Gramin Vikash Bank (Assam, India)

In Assam all together five RRBs were opened at different point of time beginning with Pragjyotish Gaonlia Bank. The pro-active attitude and the rural bias of these banks culminated not only in the creation of thrift habit among the rural masses but also in the dispensation of credit to such people mostly for priority sector activities. Govt. of India vide Notification No. F.1.(25)/2005 dated 12th January 2006 amalgamated the four Regional Rural Banks sponsored by the United Bank Of India in the state of Assam to form Assam Gramin Vikash Bank (AGVB).

The erstwhile RRBs amalgamated were Pragjyotish Gaonlia Bank (Estd. 06-07-1976), Lakhimi Gaonlia Bank (Estd. 29-07-1980), Cachar Gramin Bank (Estd. 31-03-1981) and Subansiri Gaonlia Bank (Estd. 30-03-1982).

Thus Assam Gramin Vikash Bank (AGVB) has come into existence from 12th January 2006 covering the areas of operation of the of the pre-amalgamated RRBs with its Head Office at Guwahati. The Bank covers 25 out of 27 districts of the State through its strong network of 355 branches. While AGVB’s genesis has its roots in the interest of the customers, stakeholders and the staff, the broader objectives of the amalgamation are: »Better customer service from better infrastructure, branch computerization, pool of experienced work force, unified publicity and marketing efforts. »Reaping economies of scale with larger area of operation, enhanced credit exposer limits. »Opportunities for diverse banking activities, leading to higher business growth. Looking back at the post amalgamation period, it is noteworthy that the metamorphosis of the RRBs with different cultures and practices, into a single large entity with shared culture has been extremely smooth. The advent of AGVB had a positive impact, particularly in the areas of Business growth and operational matters.

(3) Durg Rajnandgaon Gramin Bank(Chattishgarh, India)

The Bank was established on 12th March 1980, under the provisions of Section 3 of the Regional Rural Banks Act, 1976, and in terms of Extra Ordinary Gazette Notification No. F1-1/80 RRBs (1)&(2) dated 12-03-1980.The Bank is a Scheduled Bank, vide Reserve Bank of India Notification NO. RPCD No. 176/ INCL/311-80 dated 12-03-1980, listed under the Second schedule of Reserve Bank of India. The Bank is a joint undertaking of Government of India, Government of Chhattisgarh and Dena Bank. The Bank is sponsored by Dena Bank.At present, the area of operation of the Bank is situated in Durg, Rajnandgaon and Kawardha Districts in the State of Chhattisgarh.The Bank is having 110 branches, the largest network of branches in the area, there are 63 branches in Durg, 38 in Rajnandgaon and 9 in Kawardha District.

(4) Himachal Gramin Bank (Himachal Pradesh, India)

The Bank came into existence on 23 December 1976, under the provisions of Section 3 of the Regional Rural Banks Act, 1976 (No. 21 of 1976) with its Head Office at Mandi (H.P.). The Bank is sponsored by Punjab National Bank. The Bank is incorporated as a Scheduled Bank in Schedule - II of Reserve Bank of India Act, 1934 and is authorized to affect banking transactions as permitted under section 5(b) of Banking Regulations Act, 1949.

(5) South Malabar Gramin Bank (Kerela, India)

Established in December 1976, with Head Quarters at Malappuram, Kerala state in South India. Equity of Rs 1Crore held by Government of India (50%),Government of Kerala (15%) and Canara Bank (35%).Management expertise provided by Canara Bank, a leading Public Sector Bank. The Primary objective of the Bank is to finance farm & non-farm sectors and other employment generation programs. Operates in 8 Districts with, 229 Branches, 5 REGIONAL/Area offices. A staff strength of 1555. A Clientele base of nearly 2 million depositors and one million borrower clients Rated as one of the World's 50 largest Micro Credit Institutions. A novel project "SNEHAGRAMAM" clubbing twin objective of Total Financial Inclusion and Money-lender-free villages launched.

Reserve Bank India page for Regional Rural Banks of India==References==

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