Regional Rural Banks (RRBs)

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Regional Rural Banks (RRBs) are government-owned scheduled commercial banks operating at the regional level in different states of India. These banks fall under the ownership of the Ministry of Finance, Government of India, the sponsored bank, and the concerned state government, with ownership shares in the ratio of 50:35:15, respectively. RRBs were established to serve rural areas with basic banking and financial services, although they also have urban branches.

Area of Operation and Functions

  • Geographic Scope: The area of operation for RRBs is limited to regions notified by the Government of India, covering one or more districts within a state.
  • Primary Functions:
  • Providing banking facilities to rural and semi-urban areas.
  • Conducting government operations, such as disbursement of wages for MGNREGA workers and distribution of pensions.
  • Offering para-banking services like locker facilities, debit and credit cards, mobile banking, internet banking, and UPI services.

Historical Background

RRBs were established under an ordinance passed on 26 September 1975 and the RRB Act of 1976 to provide adequate banking and credit facilities for agriculture and other rural sectors. This initiative aimed to integrate rural areas into the economic mainstream, as around 70% of the Indian population was rural at that time.

  • First RRBs: On the recommendations of the Narsimhan Committee on Rural Credit, five RRBs were set up on 2 October 1975, during the tenure of Indira Gandhi’s government.
  • Prathama Bank: Headquartered in Moradabad, Uttar Pradesh, it was the first RRB, sponsored by Syndicate Bank with an authorized capital of Rs. 5 crore.
  • Other Initial RRBs:
    • Gaur Gramin Bank (sponsored by UCO Bank)
    • Gorakhpur Kshetriya Gramin Bank (sponsored by State Bank of India)
    • Haryana Kshetriya Gramin Bank (sponsored by Punjab National Bank)
    • Jaipur-Nagaur Anchalik Gramin Bank (sponsored by UCO Bank)

Ownership and Financial Health

  • Ownership Structure: The ownership of RRBs is shared among the central government, state government, and the sponsoring bank with shares of 50%, 15%, and 35% respectively.
  • Financial Review and Re-Capitalization:
  • In August 2009, a review by the Union Finance Minister revealed that many RRBs had a low Capital to Risk Weighted Assets Ratio (CRAR).
  • A committee chaired by K. C. Chakrabarty, the Deputy Governor of the Reserve Bank of India (RBI), was formed in September 2009 to analyze the financials of the RRBs and suggest measures for re-capitalization to achieve a CRAR of at least 9% sustainably by 2012.
  • The committee submitted its report in May 2010, outlining the necessary steps for strengthening the financial position of RRBs.