Regional Rural Banks
Regional Rural Banks (RRBs) are financial institutions which ensure adequate credit for agriculture and other rural sectors . Regional Rural Banks were set up on the basis of the recommendations of the Narasimham Working Group (1975), and after the legislations of the Regional Rural Banks Act, 1976. The first Regional Rural Bank “Prathama Grameen Bank” was set up on October 2, 1975. At present there are 82 RRBs in India.
The equity of a regional rural bank is held by the Central Government, concerned State Government and the Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial resources. Each RRB operates within the local limits as notified by Government. The main objectives of RRB’s are to provide credit and other facilities‚ especially to the small and marginal farmers‚ agricultural labourers artisans and small entrepreneurs in rural areas with the objective of bridging the credit gap in rural areas, checking the outflow of rural deposits to urban areas and reduce regional imbalances and increase rural employment generation.
The RRB’s have also been brought under the ambit of priority sector lending on par with the commercial banks. Priority sector lending has been devised so that assistance from the banking system flowed in an increasing measure to the vital sectors of the economy and according to national priorities. Sectors like agriculture, small business, housing ,retail trade, education are categorised as priority sector by Reserve Bank of India and a stipulated amount has to be lent to these sectors by the banks. As per the guidelines, domestic banks have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances should go to the weaker section .Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled tribes, small and marginal farmers, artisans and self help groups.
RRBs have been finding it difficult to maintain their minimum Capital to Risk weighted Assets Ratio (CRAR) at the stipulated 9%.With a view to bring the CRAR of RRBs to at least 9 percent, the Dr. K. C. Chakrabarty Committee recommended recapitalisation support to the extent of Rs.2,200 crore to 40 RRBs in 21 States. The recapitalisation process started in 2010-11.