Draft Guidelines for Listing of Regional Rural Banks

Why in the News?

The Government has issued draft guidelines for listing Regional Rural Banks in the stock market.

Regional Rural Banks (RRBs) should have earned an operating profit of a minimum ₹15 crores for at least three out of the previous five years.
There should not be any accumulated loss and the lender should have given a return on equity of a minimum of 10% in three out of the preceding five years.

The concept of RRBs was proposed by the Narasimham committee.
Objective: To provide credit and banking facilities to the rural poor, who were hitherto not served by commercial banks.
RRBs were established under the provisions of an ordinance passed on 26 September 1975 and the RRB Act 1976.
These were envisaged as low-cost institutions combining the local feel and familiarity of cooperatives and the professionalism of commercial banks.
These banks are under the ownership of the Ministry of Finance, Government of India.
The equity of the Regional Rural Banks:
- Central Government – 50%
- Sponsor Bank – 35%
- State Government – 15%

Provide easy and accessible banking
Support and promote local artisans, MSMEs (Medium-Small Sized Businesses), and agricultural farmers
Mobilise regional financial resources
Operate on the district as well as state-level

They provide
- ancillary banking services.
- deposit and grant advance.
- supply inputs and equipment to farmers
- Assist in the marketing of products and services of farmers.

They provide banking facilities to the rural people who were hitherto not served by commercial banks.
They help in the development of agriculture and small-scale industries in rural areas.
They promote thrift and entrepreneurship among rural people.
They create employment opportunities in rural areas.
They help in checking Migration from rural to urban areas

Many of the RRBs branches do not have enough business as they cater mainly to government schemes in rural areas.
RRBs are unable to collect sufficient deposits due to the low level of savings of rural customers.
The branches of RRBs are concentrated more in some specific states and districts which causes a Regional imbalance in banking facilities.
The authorised capital of RRBs is very low compared to that of commercial banks.
RRBs are generally dependent on their sponsor banks for day-to-day operations as well as for financial assistance.

There is a need to increase their authorised capital to expand their business and serve the rural people effectively.
RRBs should be given more autonomy so that they can make decisions without depending on their sponsor banks.
Further, to reduce the cost of operations of RRBs their branch network should be by rationalised using technology.