Regional Rural Banks

The Regional Rural Banks were set up to meet the credit needs of small farmers, artisans, and rural entrepreneurs. However, over some time it has been observed that these banks are not able to meet the desired objectives mainly because of certain problems which have been discussed in this article. Some improvement strategies have also been suggested that would help these banks to tide over their current problems and function more effectively for the benefit of the rural economy.

What are Regional Rural Banks:

Regional Rural Banks (RRBs) are Indian public sector banks operating in the different states of India. They have been created to serve the rural areas of the country by providing them with credit and other financial services.

Brief History: 

The history of Regional Rural Banks dates back to 1975 when the first RRB, called Prathama Bank, was set up in Moradabad, Uttar Pradesh. The idea of setting up RRBs was first mooted by the Morarji Desai government, and it was implemented by the then Prime Minister, Indira Gandhi.

Objectives: 

The main objective of establishing RRBs was to provide credit and banking facilities to the rural poor, who were hitherto not served by the commercial banks.

Functions: 

The functions of Regional Rural Banks are similar to that of any other commercial bank. They accept deposits, provide loans and advances, and undertake government and other banking business.

Ownership: 

RRBs are jointly owned by the Central Government (50%), State Government(15%), and Sponsor Banks(35%).

Sponsor Banks: 

The Sponsor Banks of RRBs are generally large public sector banks. The lead bank in each state identifies the potential RRB sites and assists the Government in their establishment.

Problems of RRBs: 

The major problems faced by Regional Rural Banks are as follows:

1. a) Lack of capital: The authorised capital of RRBs is very low as compared to that of commercial banks. This limits their ability to expand their business and serve the rural people effectively.
2. b) Lack of trained personnel: Most of the RRBs are located in remote and backward areas, where it is difficult to attract and retain trained personnel. As a result, they have to depend heavily on their sponsor banks for advice and guidance.
3. c) High cost of operations: The high cost of operations is another problem faced by RRBs. This is due to the small size of their business and the lack of economies of scale.
4. d) Dependence on Sponsor Banks: RRBs are generally dependent on their sponsor banks for day-to-day operations as well as for financial assistance. This dependence often leads to a conflict of interest between the two institutions.
5. e) Political interference: Another major problem faced by RRBs is political interference. This is because they are often used as a tool for political patronage.

Advantages of Regional Rural Banks:

Despite the above-mentioned problems, RRBs also have certain advantages. These are as follows:

1. a) They provide banking facilities to the rural people who were hitherto not served by the commercial banks.
2. b) They help in the development of agriculture and small-scale industries in rural areas.
3. c) They promote thrift and entrepreneurship among the rural people.
4. d) They create employment opportunities in rural areas.
5. e) They help in checking Migration from rural to urban areas.
6. f) They play an important role in the implementation of government schemes like the Integrated Rural Development Programme (IRDP), Minimum Support Price (MSP) scheme, etc.
7. g) They help in the development of social and economic infrastructure in rural areas.
8. h) They help in checking the monopoly of moneylenders and traders in rural areas.
9. i) They provide credit at reasonable rates to rural people.
10. j) They promote financial inclusion by providing banking facilities to the marginalised sections of society such as women, SC/STs, and minorities.

Improvement Strategies:

The following measures can be taken to improve the functioning of Regional Rural Banks:

1. a) There is a need to increase their authorised capital so that they can expand their business and serve the rural people effectively.
2. b) There is a need to provide them with adequate financial assistance so that they can meet their day-to-day expenses.
3. c) There is a need to attract and retain trained personnel in RRBs by providing them with better working conditions and salaries.
4. d) There is a need to reduce the cost of operations of RRBs by rationalising their branch network and using technology.
5. e) There is a need to make RRBs more autonomous so that they can make decisions without depending on their sponsor banks.
6. f) There is a need to check political interference in the functioning of RRBs so that they can serve the rural people impartially.
7. g) There is a need to provide RRBs with adequate resources so that they can play their role effectively in the development of rural areas.
8. h) There is a need to increase public awareness about the functioning of RRBs so that more people can avail themselves of their services.
9. i) There is a need to make RRBs more customer-friendly so that they can attract more customers.
10. j) There is a need to use technology effectively to improve the efficiency and reach of Regional Rural Banks.

k)There is also a need for consolidation in the banking sector which would help reduce the number of small banks and enable them to serve the rural people more effectively.

Conclusion

In Conclusion, it can be said that despite the problems faced by Regional Rural Banks, they have played an important role in the development of rural areas. There is a need to take measures to improve their functioning so that they can serve the rural people more effectively. With the help of technology and consolidation, it is possible to make RRBs more efficient and reach a larger number of people.