Regional Rural Banks

Regional Rural Banks are scheduled banks. These are the banks that are owned by the government. They run at the regional level in different states of the country. All the Regional Rural Banks are owned by the Ministry of Finance of the Indian Government. The purpose of setting up these banks is that they should serve rural areas providing basic banking there. Some of the regional rural banks also have branches in the urban areas.

Each of the Regional Rural Banks has to run only within the stipulated areas that are stipulated when they are formed. It usually covers one or more districts within a state. Regional rural banks serve the rural areas with basic banking requirements like disbursing the wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA), distributing pension, and supplying locker services to the local citizens. These banks also offer the services of supplying debit and credit cards, internet banking, Unified payment interface (UPI) services among several other similar services. 

Purpose of the Regional Rural Banks

The primary purpose of setting up the Regional rural banks was to supply savings and credit facilities to the farmers and others in the rural areas. These were first set up in 1975 under the Indira Gandhi Government prompted by the reports submitted by the Narsimha Committee on Rural Credit. The aim was to include people in the rural areas as more than 70% of the population was in these rural areas. 

The ownership of the Regional Rural banks is always between the Central Government, Sponsoring bank, and the state government. They have a 50%, 35%, and 15% stake in the Regional Rural Banks. 

Review of the Performance 

A review of the functioning of the Regional Rural Banks was organized under the leadership of the then Finance Minister in August 2009. This review revealed that many of these banks had low Capital to Risk-Weighted Assets Ratio (CRAR). 

A committee was formed under the stewardship of the then Deputy Governor of the Reserve Bank of India, KC Chakrabarty, to analyze the performance and suggest means to improve it. The aim was to bring the CRAR to 9% by 2012 gradually and sustain it thereafter. This committee gave its report in May 2010.

The committee suggested that the Regional Rural Banks have a minimum CRAR of 7% by March 2011 and 9% by March 2012. This created a recapitalization needs to the tune of Rupees 22,000 crores for 40 of the 82 Regional Rural Banks. The rest it was estimated would meet the requirements on their own. This capital was released in two installments. The committee also further recommended setting up a corpus of Rupees 100 crores to meet the training needs of the staff of the Regional Rural Banks.  

The Amalgamation of Regional Rural Banks

Regional Rural Banks undergo periodic amalgamation processes. In January 2013, 25 Regional Rural Banks were amalgamated into 10 of them. By March 2016, 56 Regional Rural Banks were servicing a total of 525 districts across the country. There were almost 14,500 branches operational of all the banks. 

The Legality of the Regional Rural Banks

The Regional Rural Banks are set up under a law specifically enacted for this purpose. This law is the Regional Rural Banks Act 1976. This law allows for the incorporation of these banks to promote the development of the rural economy.  The purpose is for the development of agriculture, commerce, trade, and industry in specifically the rural areas.  The targeted customers are specifically small and marginal farmers, rural laborers, small entrepreneurs, and other artisans. These banks are to provide credit and other banking facilities.

Conclusion

Regional Rural Banks are Government-Owned banks that are established predominantly in the rural areas to serve the interests of the rural population. The majority of the population at that point was in the rural areas. These banks are owned jointly by the Central Government (Ministry of Finance), the sponsoring bank, and the State government. These banks are established to provide basic banking services to rural areas (some even have urban branches). They are established under the Regional Rural Banks Act 1976.