Agro Money

Regional Rural Banks

In the multi-agency approach to provide credit to agriculture, Regional Rural Banks (RRB's) have special place. They are state sponsored, regionally based and rural oriented commercial banks. An effort was made to integrate commercial banking within the broad policy thrust towards social banking keeping in view the local peculiarities. The genesis of the RRBs can be traced to the need for a stronger institutional arrangement for providing rural credit.

RRBs were supposed to evolve as specialised rural financial institutions for developing the rural economy by providing credit to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs.

Formation

The Govt. of India, in July 1975, appointed a Working Group to study in depth the problem of devising alternative agencies to provide institutional credit to the rural people in the context of steps then initiated under the 20 Point Economic Programme. The Narsimham committee conceptualized the creation of RRBs in 1975 as a new set of regionally oriented rural banks, which would combine the local feel and familiarity of rural problems characteristic of cooperatives with the professionalism and large resource base of commercial banks. The Government of India promulgated the Regional Rural Banks Ordinance on 26th September 1975, which was later replaced by the Regional Rural Bank Act 1976.

Objectives
The RRBs have following objectives:
1. to develop rural economy;
2. to provide credit for agriculture and allied activities;
3. to encourage village industries, artisans, carpenters, craftsmen, etc.;
4. to reduce dependence of weaker sections on money-lenders;
5. to identify a specific and functional gap in the present institutional structure;
6. to supplement the other institutional agencies in credit delivery to rural areas, and
7. to make backward and tribal areas economically better by opening new branches.

Capital Structure
Their equity is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35. A Regional Rural Bank is jointly owned by the Govt. of India, the Government of concerned state and public sector bank, which sponsored it. Each bank carries the banking business within the local limits specified by the Govt. notification.

Organizational structure:
The management of a RRB is vested in a nine-member Board of Directors headed by

Chairman who is an officer deputed by a sponsor bank but appointed by the Govt. of India.
Three directors to be nominated the Central Govt.
Two directors to be nominated by the concerned State Govt.
Three directors to be nominated by the sponsor bank.

The sponsor bank, besides subscribing to the capital and deputing one of its official as chairman, provides assistance to RRB in several ways such as financial accommodation, deputing managerial and other staff and arranging the recruitment of staff and their training.

Functions
Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. The importance of the rural banking in the economic development of a country cannot be overlooked. As Gandhiji said "Real India lies in villages," and village economy is the backbone of Indian economy.
Every RRB may undertake the following types of functions:
The granting of loans and advances particularly to small and marginal farmers and agricultural laboursers individually or to a group, co-operative societies, agricultural processing societies, co-operative farming societies, etc.
The Granting of loans and advances to artisans, small entrepreneurs and small traders, businessmen, etc.


The Reserve Bank of India has brought RRB's under the ambit of priority sector lending on par with the commercial banks. They have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances to go to weaker section.