INTRODUCTION
Regional Rural Banks have been in existence for around 32 years in the Indian
financial scene. Inception of Regional Rural Banks may be seen as a unique
experiment as well as experience in improving the efficacy of rural credit
delivery mechanism in India. Keeping in view the local peculiarities, an effort
was made to integrate commercial banking within the broad policy framework
towards social banking through joint shareholding of Central Government, the
Concerned State Governments and the Sponsoring Bank. The genesis of the
Regional Rural Banks may be traced for the need for a stronger institutional
arrangement for providing rural credit. The institution of Regional Rural
Banks (RRBs) was created to meet the excess demand for institutional credit
in the rural areas, particularly among the economically and socially
marginalized sections. Although the cooperative banks and the commercial
banks had reasonable records in terms of geographical coverage and
disbursement of credit, in terms of population groups the cooperative banks
were dominated by the rural rich, while the commercial banks had a clear
urban bias.
The Banking Commission (1972) recommended to establish an alternative
institution for rural credit and ultimately Government of India established
Regional Rural Banks – a separate institution basically for rural credit on the
basis of the recommendations of the Working Group under the Chairmanship
of Sh. M. Narashimham. In order to provide access to low-cost banking
facilities to the poor, the Narashimham Working Group (1975) proposed the
establishment of a new set of banks, as institutions which “combine the local
feel and the familiarity with rural problems which the cooperatives possess
and the degree of business organization, ability to mobilize deposits, access to
central money markets and modernized outlook which the commercial banks
have”.
Subsequently, the Regional Rural Banks were setup through the promulgation
of RRB Act of 1976. The RRBs Act, 1976 succinctly sums up this overall
vision to sub-serve both the developmental and the redistributive objectives.
The RRBs were established “with a view to developing the rural economy by
providing, for the purpose of development of agriculture, trade, commerce,
industry and other productive activities in the rural areas, credit and other
facilities, particularly to small and marginal farmers, agricultural laborers,
artisans and small entrepreneurs, and for matters connected therewith and
incidental thereto”.
Regional Rural Banks were supposed to evolve as specialized rural financial
institutions for developing the rural economy by providing credit to small and
marginal farmers, agricultural laborers, artisans and small entrepreneurs. Their
equity is held by the Central Government, Concerned State Government and
the Sponsor Bank in the proportion of 50:15:35 respectively. The mandates of
these rural financial institutions were to:
(a) take banking to the doorsteps of the rural masses, particularly in areas
without banking facilities;
(b) make available cheaper institutional credit to the weaker sections of
society, who were to be the only clients of these banks;
(c) mobilize rural savings and canalize them for supporting productive
activities in the rural areas;
(d) generate employment opportunities in the rural areas and
(e) bring down the cost of providing credit in rural areas.
