SR.
NO
1
CONTENX
INTRODUCTION
1.1:- BANKING
1.2:-RURAL BANKING
1.3:-HISTORY OF RRBs
2
3
4
5
6
2.1:-ORGANIZATION & STRUCTURE OF RRBs
3.1:- FUNCTION OF RRBs
4.1:- PROBLEMS FACED BY RRBs OF INDIA
5.1:-Difference between RRB and Commercial Banks
6.1:-Rural Shares Of Banks
1.1:-What is banking
Banking is one of the key drivers of the U.S. economy. Why? It
provides the liquidity needed for families and businesses to invest
for the future. Bank loans and credit means families don't have to
save up before going to college or buying a house, and companies
can start hiring immediately to build for future demand and
expansion. Credit has gotten a bad name, thanks to the 2008
financial crisis, but that's only because it was unregulated, used
for consumption instead of investment, and allowed to create a
bubble.
Here's how banking works. Banks provides a safe place to save
excess cash, known as deposits. That's because deposits are
insured by the Federal Deposit Insurance Corporation. Instead of
sitting uselessly under the mattress, banks can turn every one of
those dollars into ten. That's because they only have to keep 10%
of your deposit on hand. They lend the other 90% out. Banks
primarily make money by charging higher interest rates on their
loans than they pay for deposits.
1.2:- Rural Banking
Regional Rural Banks (also RRBs) are local
level banking organizations operating in different States of India.
They have been created with a view to serve primarily the rural
areas of India with basic banking and financial services. However,
RRBs may have branches set up for urban operations and their
area of operation may include urban areas too.
The area of operation of RRBs is limited to the area as notified by
Government of India covering one or more districts in the State.
RRBs also perform a variety of different functions. RRBs perform
various functions in following heads.
Providing banking facilities to rural and semi-urban areas.
Carrying out government operations like disbursement of wages
of MGNREGA workers, distribution of pensions etc.
Providing Para-Banking facilities like locker facilities, debit and
credit cards.
The Regional Rural Banks (RRBs) aimed at providing credit and other
facilities to the small and marginal farmers, agricultural labourers, artisans and
small entrepreneurs in rural areas.
The RRB Act, 1986, empowers the Central Government to establish in a State
or Union Territory one or more RRBs when any sponsor bank makes such a
request The sponsor bank assists the RRB in many ways by subscribing to its
share capital, by helping in its establishment, by assisting in recruitment and
training of its cadre, and in general providing such managerial and financial
assistance sought by the RRB.
The RRB functions within the local limits as specified by government
notification. It can have its branches at any place as notified by the
government.
1.3:-History of RRBs
Regional Rural Banks were established under the provisions of an
Ordinance passed on September 1975 and the RRB Act. 1976 to
provide sufficient banking and credit facility for agriculture and
other rural sectors. These were set up on the recommendations of
The M. Narasimham Working Group[1] during the tenure of Indira
Gandhi's government with a view to include rural areas into
economic mainstream since that time about 70% of the Indian
Population was of Rural Orientation. The development process of
RRBs started on 2 October 1975 with the forming of the first RRB,
the Prathama Bank with authorized capital of Rs. 5 crore at its
starting. Also on 2 October 1976 five regional rural banks were set
up with a total authorised capital Rs. 100 crore ($10 Million) which
later augmented to 500 crore ($50 Million). The Regional Rural
Bank were owned by the Central Government, the State
Government and the Sponsor Bank(There were five commercial
banks, Punjab National Bank, State Bank of India, Syndicate
Bank, United Bank of India and United Commercial Bank, which
sponsored the regional rural banks) who held shares in the ratios
as follows Central Government-50%, State Government- 15% and
Sponsor Banks- 35[2]%.. Earlier, Reserve Bank of India had laid
down ceilings on the rate of interest to be charged by these RRBs.
2.1:-Organizational & Structure of RRRs
The authorized capital of an RRB is fixed at Rs. 1 crore and its
issued capital at Rs. 2 lakhs. Of the issued capital, 50 per cent is
to be subscribed by the Central Government, 15 per cent by the
concerned State Government and the rest 35 per cent by the
sponsoring bank.
The working and affairs of the RRB are directed and managed by
a Board of Directors consists of a Chairman, three directors to be
nominated by the Central Government, and not more than two
directors to be nominated by the State Government concerned,
and not more than 3 directors to be nominated by the sponsoring
bank. The chairman is appointed by the Central Government and
his term of office does not exceed five years.
3.1:-Functions of the RRB:
The functions of the RRB are as follows:
(1) Granting of loans and advances to small and marginal farmers
and agricultural labourers, whether individually or in groups, and
to co-operative societies, agricultural processing societies, cooperative farming societies, primarily for agricultural purposes or
for agricultural operations and other related purposes;
(2) Granting of loans and advances to artisans, small
entrepreneurs and persons of small means engaged in trade,
commerce and industry or other productive activities within its
area of co-operation; and
(3) Accepsting deposits.
4.1:-Problems Faced by of RRBs
Six major problems faced by regional rural banks are as follows:
1. Haste and Lack of Co-ordination in Branch Expansion 2.
Difficulties in Deposit Mobilisation 3. Constraints in Deposit
Mobilisation 4. Slow Progress in Lending Activity 5. UrbanOrientation of Staff 6. Procedural Rigidities.
The RRBs, in most cases, seemingly have a mixed record of
successes on some fronts and failures on some others in their
business and attainment of goals.
Their failure in achieving their targets may be attributed to
several problems they encounter in practice. Following Professor
Charan Wadhva, we may pinpoint some of the major problems
faced by the RRBs as under.
1. Haste and Lack of Co-ordination in Branch Expansion:
Haste in branch expansion programme in many cases has
resulted in lopsidedness due to lack of co-ordination. In several
cases, it could not be ensured that the branches of the RRBs are
opened at centres where no commercial or co-operative banking
facilities were provided.
2. Difficulties in Deposit Mobilization:
The RRBs encountered a number of practical difficulties in deposit
mobilization. On account of their restrictive lending policy which
excludes richer sections of the village society, these potential
depositors show least interest in depositing their money with
these banks.
3. Constraints in Deposit Mobilization:
The RRBs exclude the richer sections of the village society in
providing direct financial assistance. These sections have
potential savings to deposit. But, they are least interested in
depositing them with the RRBs in view of the restrictive credit
policy of these banks. Further, state and local governments and
their agencies also have not co-operated much by maintaining
their deposit accounts with the RRBs.
In short, the RRBs have failed to mobilize accounts within
themselves.
4. Slow Progress in Lending Activity:
The RRBs pace of growth in loan business is slow. For this the
following reasons may be given: (i) There have been limited scope
for direct lending by RRBs in their fields of operations; (ii) It is
always difficult to identify the potential small borrowers and the
bank staff have been required to make special and sincere efforts
in this regard; (iii) Most of the small borrowers do not like the
bank formalities and prefer to borrow from the
informal/indigenous sources of finance, such as moneylenders;
(iv) The anomalies in the Differential Interest Rate (DIR) Scheme
also posed a special problem to the RRBs. While the RRBs charge
14 per cent interest, the commercial banks charge only 4 per cent
under the DIR Scheme in rural areas.
Thus, no borrower would go to RRBs or co-operative societies in
the area when a loan from the commercial bank is available under
the DIR Scheme; (v) There is no effective link between the RRBs
and PACS and the farmers service societies; (vi) There is lack of
co-ordination between officials of the district credit planning
committees and the RRBs.
5. Urban-Orientation of Staff:
A crucial practical difficulty experienced in their working by the
RRBs is the urban orientation of their staff which is rarely inclined
to serve in rural areas. There is no true local involvement of the
bank staff in the village where they serve.
6. Procedural Rigidities:
The RRBs follow the procedures of the scheduled commercial
banks in the matter of deposits and advancing loans which are
highly complicated and time-consuming from the villagers point
of view. The rural borrowers always appreciate informal ways and
simple procedures as have been followed by the money-lenders
and the indigenous bankers.
Concluding Remarks:
Despite these problems, the RRBs have been trying their level
best to achieve their social objectives. They have succeeded in
projecting their image of small mans bank. They are, in fact,
development banks of the rural poor. They have been trying to fill
regional and functional gaps in rural finance in our country.
5.1:-Difference between RRBs &
commercial banks
RRBs also known as Regional Rural Bank and commercial banks
performs quite similar functions, however there is some difference
between the two. Lets look at the difference between RRB and
commercial banks
1.
While the main reason behind the existence of RRB is the
development of rural and backward areas, and also providing
banking facility to rural population whereas the main reason
behind the existence of commercial banks is to make profits
out of their operations.
2.
Scope of RRB is limited to agriculture finance, small sector
loans, handicrafts and other small sector loans, whereas scope
of commercial banks is wide and it not only provides
agriculture finance but also housing loan, car finance, letter of
credit, credit to big companies and for many activities.
3.
RRB is present in rural and semi urban areas only whereas
commercial banks do operations in all over the country that is
rural, semi urban and urban areas.
4.
While the focus of RRB is more on accepting deposits and
granting of loans to the people whereas the focus of
commercial banks apart from lending and borrowing is on
many other services like stock broking, asset management,
insurance, merchant banking, venture capital financing, foreign
exchange related business etc
5.
Stakeholders of RRB include government of India, state
government and commercial banks whereas stakeholders of
commercial banks are public, central government etc
RURAL SHARE OF
BANKS
BANK GROUP
RURAL
BRANCHES
TOTAL
BRANCHES
Public sector
20,398
64,673
banks
Old private
765
5,028
sector banks
New private
547
6,973
sector banks
Foreign banks
7
319
Regional rural
11,871
16,034
banks
Local area
14
53
banks
All commercial
33,602
93,080
banks
(As on March 31,2011)
Source: Statistical table relating to banks in India
2010-11,by RRI
