REGIONAL RURAL BANKS (RRBS)

The Regional Rural Banks (RRBs) were first set up on 2 October, 1975 (only 5 in numbers) with the aim to take banking services to the doorsteps of the rural masses specially in the remote areas with no access to banking services

with twin duties to fulfill

(i) to provide credit to the weaker sections of the society at concessional rate of interest who previously depended on private money lending, and

(ii) to mobilise rural savings and channelise them for supporting productive activities in the rural areas.

The GoI, the concerned state government and the sponsoring nationalised bank contribute the share capital of the RRBs in the proportion of 50 per cent, 15 per cent and 35 per cent, respectively. The area of operation of the RRB is limited to notified few districts in a state.

Following the suggestions of the Kelkar Committee, the government stopped opening new RRBs in 1987—by that time their total number stood at

196. Due to excessive leanings towards social banking and catering to the highly economically weaker sections, these banks started incurring huge losses by early 1980s. For restructuring and strengthening of the banks, the governments set up two committees—the Bhandari Committee (1994–95) and the Basu Committee (1995–96). Out of the total, 171 were running in losses in 1998–99 when the government took some serious decisions:

(i) The obligation of concessional loans abolished and the RRBs started charging commercial interest rates on its lendings.

(ii) The target clientele (rural masses, weaker sections) was set free now to lend to any body.

After the above-given policy changes, the RRBs started coming out of the red/losses. The CFS has recommended to get them merged with their managing nationalised or public sector banks and finally make them part of the would-be three-tier banking structure of India. At present there are 40 RRBs (after amalgamation) functioning in India even though the amalgamation and recapitalisation processes are going on (India 2017).