Hello and welcome to exampundit. Here is another Banking Awareness Article on All About Regional Rural Banks. This is helpful for the IBPS PO VII and also IBPS RRB and PO VI Interviews.
In the multiagency 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. 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 Working Group identified various weaknesses of the co-operative credit agencies and the commercial banks and felt that these institutions would not be able to fill the regional and functional gaps in the rural credit system within a reasonable period of time. These were set up on the recommendations of The M. Narasimham Working Group.
The development process of RRBs started on 2 October 1975 with the forming of the first RRB, the Prathama Bank with authorised capital of Rs. 5 crore at its starting.
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.
Every RRB may undertake the following types of functions:
The granting of loans and advances particularly to small and marginal farmers and agricultural labourers 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.
Highlights of RRBs:
The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank.
The equity of a regional rural bank is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial resources. Each RRB operates within the local limits as notified by Government.
The main objectives of RRB’s are to provide credit and other facilities‚ especially to the small and marginal farmers‚ agricultural labourers artisans and small entrepreneurs in rural areas with the objective of bridging the credit gap in rural areas, checking the outflow of rural deposits to urban areas and reduce regional imbalances and increase rural employment generation.
Priority Sector Lending:
As per the guidelines, domestic banks 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 should go to the weaker section .
Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled tribes, small and marginal farmers, artisans and self help groups.
Main highlights of Amendments to Regional Rural Banks Act, 1976
- It amends the RRB Act, 1976 which mainly provides for the incorporation, regulation and winding up of Regional Rural Banks (RRBs).
- It removes the five year limit cap that was put on the sponsor banks to assist the upcoming RRBs under the RRB Act, 1976. As per the Act, sponsor banks were liable to train personnel and provide managerial and financial assistance for the first five years.
- It raises the amount of authorized capital to 2000 crore rupees and it is not to be reduced below one crore rupees. In the 1976 Act the authorised capital of each RRB was five crore rupees which was not permitted to be reduced below 25 lakh rupees.
- It allows Union government to specify that the capital issued by a RRB should be at least one crore rupees. Under the Act, a RRB was to issue capital between 25 lakh rupees and one crore rupees.
- It allows RRBs to raise their capital from sources other than the central and state governments, and sponsor banks as was mandated under the RRB Act. As per the Act, 50% of capital issued was held by Union government, 15% by concerned state government and 35% by the sponsor banks.
- It also provides that in case of raising of capital from other sources by a RRB, the combined shareholding of the central government and the sponsor bank cannot be less than 51%.
- The term of the non-official directors appointed by the Central Government will be fixed not exceeding three years.
- Further, if the shareholding of the state government in a RRB is reduced below 15%, the Union government would have to consult the concerned state government.