A Short Note On The Regional Rural Banks

What do Regional Rural Banks mean?

Regional Rural Banks, also known as Gramin Banks, are commercial banks that were set up under the Ministry of Finance by the Government of India. They are specially established with the intent to fund the rural population of our country. 

History and Recent Advancements

M. Narsimham’s working group, which was active during 1975 under the Indira Gandhi government, suggested forming these Gramin banks to provide the underprivileged population with enough credit. Hence, the ordinance was passed in 1975, and in 1975, the RRB Act was passed, which legalized the status of RRBs. The first RRB was created on 2nd October 1975, called the ‘Prathama Gramin Bank’. By 1976, five more RRBs were established, with a total capitalization of 100 Crores.  50% was owned by the central government, 15% by the state government and 35% was owned by the sponsored bank. Sponsored banks provided the newly formed regional banks with all kinds of help like training, hiring etc. and took care of them. 

As more than 60% of the population was involved in farming in the 1970s, and the Gramin banks were basically created to serve the farmers, the number of Gramin Banks increased drastically soon after their set up. By the year 1980, there were 85 banks; by 1985, 180 banks and by 1990, the numbers grew up to 190 banks. 

However, due to so many RRBs, the funding was very difficult to manage, so to compensate for the loss, the Gramin Banks started amalgamation. Amalgamation is simply a process in which two or more banks are combined to be operated as one. Hence, in 2006, due to amalgamation, the number of RRBs decreased to 133, and according to the recent survey in 2020, the number of Gramin banks is found to be 43. 

Regional Rural Banks (2020)

The RRBs are regulated by the National Bank for Agriculture and Rural Development. Previously NABARD was owned by the Reserve Bank of India, but, in 2010, the Government of India purchased NABARD from the RBI and took complete control of it. RRBs not only provide aid for the farmers but also give out salaries for MNREGA.

Recently, a new act was passed, named the Regional Rural Bank Amendment Act 2015, which came into force on 14th February 2016. According to this act, the authorized capital was raised to 2000 Crore. Hence, for one bank, the fund should not be less than 1 Crore. It also gave permission to RRBs to get funding from other sources other than their existing shareholders (Central bank, State bank and Sponsor Bank), on only one condition that the two shares owned by the central bank should not be less than 51%. Also, earlier sponsor banks were only allowed to look after an RRB for not more than five years, but now there is no such limitation. 

Conclusion

The Gramin Banks have also started serving in the urban areas these days. Now they are also involved in para banking, i.e., they have started providing people with other facilities like lockers to keep their valuable possessions safely, also with credit cards and debit cards.