Regional Rural Banks

Regional Rural Banks (RRBs) are Indian Scheduled Commercial Banks (Government Banks) operating at regional level in different States of India. They have been created with a view of serving primarily the rural areas of India with basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.

The Regional Rural Banks were established on the recommendations of Narsimha Committee on Rural Credit. The committee was of the view that RRBs would be much better suited than the commercial banks or Co-Operative Banks in meeting the needs of rural areas. Considering the recommendations of the committee the Government of India passed Regional Rural Banks Act 1976. After passing the Act within a year at least 25 RRBs were established in different parts of India.

The Regional Rural Banks were established with a view to develop such type of banking institutions which could function as a commercial organization in rural areas.

The Regional Rural Banks Act 1976 provide for incorporation, regulation and winding up 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 individuals thereto.

Priority Sector Lending: RBI mandates that all domestic Banks must ensure that 40% of their loans and advances are given to the priority sector. Priority sector comprises the areas of economy that require banking assistance but gets neglected by banks due to various reasons.

The Reserve Bank of India categorizes agriculture, retail trade, education, housing and small business as Priority sector.

The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. RRBs perform various functions in following heads:

• Providing banking facilities to rural and semi-urban areas.
• Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
• Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.
• Small financial banks.

The Objectives of Regional Rural Banks:

1) Bridging the credit gaps in rural areas.

2) To develop such measures which could restrict the outflow of rural deposits to urban areas.

3) To reduce regional imbalances and increase rural employment generation activities.

For achieving its objectives the RRBs provide financial assistance to different segments of rural population engaged in rural activities.

Characteristic features of RRBs:

• RRBs have knowledge of rural constraints and problems like a cooperative because it operates in familiar rural environment.
• RRBs show professionalism in mobilising financial resources like a commercial bank.
• RRBs are supposed to work in its prescribed local limits.
• It provides banking facilities as well as credit to small and marginal farmers, small entrepreneurs, labourers, artisans in rural areas.
• RRBs have to fullfil the priority sector lending norms as applicable on other commercial banks.

Objectives of Regional Rural Banks (RRB):

• To bridge the credit gap in rural regions in India.
• To check rural credit outflow to urban areas.
• To reduce regional imbalances in terms of availability of financial facilities.
• To increase rural employment generation.

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 nine departments.

The following is the decision-making hierarchy of officials in a Regional Rural Bank.

• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

Ownership of RRBs:

The equity of RRBs is held by the stakeholders in fixed proportions of 50:15:35 distributed among the following:

• Central Government has 50% share.
• State Government has 15% share.
• The Sponsor Bank has 35% share.