Potential and Growth or Regional Rural Bank

INTRODUCTION

Regional Rural Banks: These banks were first set up in the year 1975 particularly to give direct loans and advances to undersized and minor farmers, agricultural laborers as well as to rural artisans and other of small means. The loans are given for productive purposes to the farmers. There were around 196 RRBs which have been lending around Rs. 3600 crores annually by way of loans to rural people. Over 90 percent of the loans of RPBs are given to the weaker sections in rural areas.

The regional banks, though basically scheduled commercial banks, differ from the latter in certain respects:

The area of regional rural banks is limited to a specified region comprising one or more districts of a State.

The regional rural banks grant direct loans and advances only to small and marginal farmers, rural artisans and agricultural laborers and other of small means for productive purposes.

The lending rates of the regional rural banks should not be higher than the prevailing lending rates of co-operatives societies in any particular State. The sponsoring banks and the Reserve Bank of India provide many subsidies and concessions to RRBs to enable the latter to function effectively

Concessions to RRBs: From the beginning, the sponsor banks have continued to provide managerial and financial assistance to RRBs and also other concessions such as lower rate of interest on the latter’s borrowing from sponsor banks. Further, the cost of staff deputed to RRBs and training expenses of RRB staff are borne by the sponsor banks. The Reserve Bank of India has been granting many concessions to RRBs.

Progress of RRBs: There are now 196 regional rural banks in 23 States with 14,500 branches. As at the end of September 1990 the regional rural banks had advanced Rs.3,560 crores by way of short-term crop loans, term loans for agricultural activities, for rural artisans, village and cottage industries, retail trade and self employed, consumption loans etc. Nearly 90 percent of the loans of RRBs, were provided to the weaker sections. State wise Uttar Pradesh found large number of offices.

Objectives of RRBs:

RRBs had followed instructions given by RBI and Government of India regarding loan policies, procedures, etc.

The basic aim of setting up RRBs viz, developing the rural economy by providing credit for the development of agriculture, trade, commerce industry and other productive activities in rural areas, was being fulfilled and

RRBs had successfully maintained their image as a small man’s bank by confining their credit facilities to the target groups viz, small marginal farmers, agricultural labourers, artisans and small enterprises for productive activities.

The recovery position on the whole was not satisfactory.

Problems in functioning of RRBs:

On account of the many restrictions place on the business they can undertake, RRBs have low earning capacity.

The wage and salary scales of RRBs have been rising and, in fact, with the recent award of a tribunal, their scales would approximate those of commercial banks; with the increase in salary scales, an important rationale for the setting up of RRBs has ceased to exist.

The sponsoring banks are also running their own rural branches in the very area of operations of the RRBs; this has given rise to certain anamolies and to avoidable expenditure on controls and administration.

Regional rural banks were established under the provisions of an ordinance promulgated on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional credit for agriculture and other rural sectors. The RRBs mobilize financial resources from rural, semi rural areas and grant loans and advances mostly to small and marginal farmers, agricultural labourers and rural artisans. The area of operation of RRBs is limited to the area as notified by GOI covering one or more districts in the state.

RRBs are jointly owned by GOI, the concerned state government and sponsor banks (27 scheduled commercial banks and state cooperative bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35% respectively.

Importance of the Study

Along with all this the basic objectives of the study undertaken are as follows:

To understand the role of Rural banking in India.

To find out those industries which are being facilitated by rural banks.

To find out causes and reasons for being successful in micro-financing.

To know the expansion rate of rural banking in India.

Chandrasekhar and Ghosh (1998) Classified the policies of financial liberalization in India in to three types: first, policies to curtail government intervention in the allocation of credit, secondly, policies to dismantle the public sector and foster private banking, and thirdly, policies to lower capital controls on the Indian banking system.

Later in 2000, V. K. Ramchandran madhura swaminathan (Indian statistical institute, Kolkata) studied the formal sector of rural credit is the sector in which loan transactions are regulated by legislation and other public policy requirements. The institutions in this sector include commercial banks, Regional Rural Banks, cooperative banks and credit societies, and other registered financial institutions. The informal sector of credit is not regulated by the public authority, and the terms and conditions attached to each loan are personalized, and therefore vary according to the bargaining power of borrowers and lenders in each case.

The share of exports of agriculture and allied products in the total exports had declined marginally, from 18.9 per cent during 1997-98 to 17.8 per cent during 1998-99. During the same period, the value of exports of agriculture and allied products amounted to US$ 5,994 million, showing a decline of 9.6 per cent from a level of US$ 6,634 million in 1997-98. Major items of agricultural exports were basmati and non-basmati rice, raw cotton, meat, oilmeals, tea, coffee, unmanufactured tobacco, cashew, spices, fresh and processed fruits and juices, vegetables and marine products, etc.

Agricultural imports related to food and other items constituted 5.8 per cent of the total imports during 1998-99, as against 4.0 per cent during corresponding period of the previous year. Important agricultural items imported during the year were vegetable oils (edible), sugar, wheat and fruits & nuts. During 1998-99, the volume of agricultural imports aggregated US$ 2,409 million, as against US$ 1,678 million during the corresponding period of the previous year, recording a growth of 43.6 per cent.

There were 7,062 agricultural regulated markets operating in India, 162 agricultural commodities considered for grading standards and 3,253 cold storage with capacity of 8.73 million tonnes as on end March 1998.

Indian agriculture has been the source of supply of raw materials to our leading industries. Cotton and jute, textiles, sugar, plantations— all these directly depend on agricultural output. There are many industries, which depend on agriculture indirectly. Many of our small scale and cottage industries like handlooms, oil crushing, etc depend on agriculture for their raw materials.

But then, in recent years, agriculture is losing its significance to industries such as iron and steel, engineering, chemicals, etc. However in recent years, the importance of food processing industries is being increasing recognized both for generation of income and generation of employment.

Importance of agriculture in the national economy is indicated by many facts. For example, agriculture is main support for transport sector as railways and roadways secure bulk of their business from the movement of agricultural goods. Further it is seen that good crops implying large purchasing power with the farmers lead to greater demand for manufactures and therefore better prices. In other words prosperity of farmers is also the prosperity of the industries and vice-versa. Agriculture is backbone of the Indian economy and the prosperity of agriculture can also stand for the prosperity of the economy. At the same time it is true that per capita productivity in agriculture is less than in the industry. Many scholars think that so long as the Indian Economy is dominated by agricultural activity, per capita income will not rise to an extent, which is necessary and desirable

 

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