INDIAN RURAL BANKING – EMERGING TRENDS AND CHALLENGES – ROLE OF REGIONAL RURAL BANKS (RRB) IN THIS CONTEXT.

DR. SANJAY K. KATAIT _{(Asst. Prof.)}

M.COM., MBA., MIRPM., Ph.D.

VIDYA BHARATI MAHAVIDYALAYA,

CAMP, AMRAVATI. (M.S.) 444602.

PHONE NO. (O) 0721- 2662740, (R) 0721- 2562525

ABSTRACT

After independence, the major aim of rural credit policy in our country has been to expand of institutional financing with a view to curtail the role of indigenous financial agencies like moneylenders.  The All – India Rural Credit Survey Committee (AIRCSC) perceived that only multi-purpose co-operatives can be a viable solution to the problem of rural finance.

 

INTRODUCTION:

 

The Narasimham Committee on rural credit recommended the establishment of Regional Rural Banks (RRB) on the ground that they would be much better suited than the commercial banks or co-operative banks in meeting the needs of rural areas.  They would combine the local feel and familiarity with rural problems which cooperative possess and the degree of business organization, ability to mobilize deposit, access to central money markets and modernized outlook which the commercial banks have.

On Narasimham Committees recommendation, the Government passed the Regional Rural Banks Act, 1976.  The main objective of RRB is to provide credit and other facilities particularly to small and marginal farmers, agricultural laborers, artisian and small entrepreneurs and develop agriculture, trade, commerce, industry, and other productive activities in the rural areas. 

The first five RRB were set up on October 2 1975, at Moradabad and Gorakhpur in Uttar Pradesh, Bhiwani in Haryana, Jaipur and Rajasthan and Malda in West Bengal.  These banks were sponsored by the Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India.

 

ROLE OF REGIONAL RURAL BANKS (RRB) IN THE PRESENT SCENERIO:

 

• To accept deposit
• To grant advances
• To provide ancillary banking services
• To supply inputs and equipments to farmers
• To provide assistance in the marketing of their products
• To maintain godowns

 

STRUCTURE AND ORGANISATION OF RRB :

 

The authorized capital of RRB is fixed at Rs. 1crore, and its issued capital at Rs. 2 lakhs.  Of the issued capital, 50% is to be subscribed by the Central Government, 15% by the concerned State Government and the rest 35% by the sponsoring bank.

The working and the affairs of the RRB are directed and managed by a Board of Directors.  The Board of Directors consists of chairman, three directors to be nominated by the Central Government concerned, and not more than 3 directors to be nominated by the Central Government and his term of office does not exceed five years.

 

PROGRESS OF REGIONAL RURAL BANKS – CURRENT SCENERIO (RRB):

 

The progress of RRB in the initial stages was quite rapid.  At present 196 RRB in 23 states with 14500 branches operating in the country.  The total deposit with RRB in 2004-05 amounted to Rs. 58350 crores and their advances came to Rs.31770 crores.  Over 95 % of the advances of the RRB are direct advances to small marginal farmers, landless laborers and rural artisian or, in other words to weaker section of the society.

 

More especially about 48% of RRB loan assistance is to agricultural and 52% for non-agriculture (rural artisian, retail trade, etc).

 

State wise, the largest number of offices in a single State is to be found in Uttar Pradesh (3100) followed by Bihar (1950) and Madhya Pradesh (1620).

RRB has an important role to play in our rural economy, as they have to act as alternative agencies to provide institutional credit in rural areas.  In course of time it is necessary to remember that they have not been set up to replace cooperative credit societies but act as a supplement to them.  RRB has always been active participant in programmes designed to provide credit assistance to weaker sections.

 

PROBLEMS FACED BY RRB:

 

1.      Haste and lack of coordination in branch expansion.

2. Difficulties in deposit mobilization.
3. Constraints in deposit mobilization.
4. Slow progress in lending activity.
5. Urban orientation of staff.
6. Procedural rigidities.

 

SUGGESTION FOR REORGANISATION AND 

IMPROVEMENT IN THE WORKING OF RRB:

 

1.      The unique role of RRB in providing credit facilities to weaker sections in the villages must be preserved.  The RRB should exist as rural banks of the rural poor.

2. The RRB may be permitted to lend up to 25% of their total advances to the richer section of the village society.
3. The State Government should also take keen interest in the growth of RRB.
4. Participation of local people in the equity share capital of the RRB should be allowed encouraged.
5. Local staff may be appointed as far as possible.
6. Cooperative societies may be allowed to sponsor or co-sponsor with commercial banks in the establishment of the RRB.
7. A uniform pattern of interest rate structure should be devised for the rural financial agencies.
8. The RRB must strengthen effective credit administration by way of credit appraisal, monitoring the progress of loans and their efficient recovery.
9. The credit policy of the RRB should be based on the group approach of financing rural activities.
10. The RRB may initiate certain new insurable policies like deposit-linked cattle and other animals insurance policy, crop insurance policy or the life insurance policy for the rural depositors.
11. The RRB may relax their procedure for lending and make them more easy for village borrowers.
12. Co-ordination between district level development planning and district level credit planning is also required in order to chart out the specific role of the RRB as a development agency of the rural areas.

 

RECOMMENDATIONS OF THE DIFFERENT COMMITTEES ON RRB:

 

1. Dantwala Committee 1977.
2. Narasimham Committee 1991.
3. Khusro Committee.

 

1. Dantwala Committee 1977.

 

In June 1977, the Reserve Bank of India appointed a committee to review the working of RRB.  Professor M.L.Dantwala headed it and the committee submitted report to the Reserve Bank of India with some important recommendations.

 

1. The RRB with some modification in their organization and function become a very useful component in the totality of the rural credit structure.  The RRB can make a substantial contribution to improving quality and quantity of credit flows to the rural areas by becoming an integral part of the rural credit structure.
2. Providing rural credit in a more efficient manner.
3. The RRB should function at the intermediate level.  It should progressively fill the credit gap in the rural sector.
4. The jurisdiction of a RRB should be confined to one district.
5. The RRB should be allowed to provide full banking facilities in the areas of their operation.
6. Forms and procedure of the RRB should be simplified.
7. Sponsoring banks should provide training to the staff of the RRB.
8. The RRB should adequately recruit technical staff.
9. The RRB should ensure uniformity in the interest rate policy on par with all rural financial agencies in the organized sector of the money market.

 

2. Narasimham Committee 1991.

 

RRB were establish mainly to provide a low cost alternative to the operation of commercial bank branches but the functioning of the RRB gives much cause for concern.  According to Narasimham committee, there are basic three problems faced by the RRB.

 

1. Because of the many restriction placed on the businesses they can undertake, RRB have low earning capacity.
2. The wage and salary scales of RRB have been rising and, in fact with the recent award of Tribunal, their salary scales, an important rationale for the setting up of RRB has ceased to exist.
3. The sponsoring bank are also running their own rural branches in the every area of operation of the RRB.  This has given rise to certain anamolies and to avoidable expenditure on controls and administration.

           

                        Recommendation of Narasimham Committee:

                

1. Commercial bank should segregate the operation of their rural branches through the formation of one or more subsidiaries.
2. Each rural subsidiary should have compact area of operation so as to facilitate recruitment and development of manpower apart from providing the needed trust in business operations and effective improvement in the control and the supervision and information system.
3. The rural subsidiaries should be treated at par with RRB in regard to cash reserves and statutory liquidity requirements (SLR) and refinance facilities from NABARD.
4. All concession in lending to agriculture and to small industry should be phased out, and there would be saving in cost of administration brought through the process of rationalization.
5. NABARD should help RRB to earn higher level of interest income for their surplus cash balances and for their funds presently invested in Government securities or in Government guaranteed securities for SLR compliance.

  

3. Khusro Committee:

 

           The Agriculture Credit Review Committee under the chairmanship of Dr. A.M. Khusro observed that weakness of RRB were endemic and non – viability was built in to their structure. RRB has accumulated huge losses over the year and, in some cases, the losses have eroded even a part of their deposits.  There was, thus, a strong case of winding up of such insolvent institutions.  Besides, RRB would not be able to serve the interest of the largest groups in the manner expected of them.  According to the Khusro Committee, there was no place for RRB in the country rural system in near future and they should be merged with sponsored banks.

 

CONCLUSION:

 

RRB is mainly established to solve the problem of the weaker section of the society and also to settle various problems which cooperative and business organization faces. With the help of this research paper an attempt is made to throw light on the working, problems and role of RRB in this context with some suggestion.

 

REFERENCES:

 

1.      Banking And Financial System – Sundaram and Varshney – Sultan  Chand and Sons – 2005 .

 

2.  Banking and Financial System -  Mithani and Gordon –Himalaya Publishing House – 2005.