Banking Awareness 2017 – All About Regional Rural Banks

Hello and welcome to exampundit. Here is another Banking Awareness Article on All About Regional Rural Banks. This is helpful for the IBPS PO VII and also IBPS RRB and PO VI Interviews.

In the multiagency approach to provide credit to agriculture, Regional
Rural Banks (RRB’s) have special place. They are state sponsored, regionally
based and rural oriented commercial banks. The Govt. of India, in July 1975,
appointed a Working Group to study in depth the problem of devising alternative
agencies to provide institutional credit to the rural people in the context of
steps then initiated under the 20 Point
Economic Programme
. The Working Group identified various weaknesses of the
co-operative credit agencies and the commercial banks and felt that these
institutions would not be able to fill the regional and functional gaps in the
rural credit system within a reasonable period of time. These were set up on
the recommendations of The M. Narasimham
Working Group
The development process of RRBs
started on 2 October 1975 with the forming of the first RRB, the Prathama Bank with authorised capital of
Rs. 5 crore at its starting
The management of a RRB is vested in a nine-member Board of
Directors headed by
  • Chairman who is an officer
    deputed by a sponsor bank but appointed by the Govt. of India.
  • Three directors to be nominated
    the Central Govt.
  • Two directors to be nominated by
    the concerned State Govt.
  • Three directors to be nominated
    by the sponsor bank.

Every RRB may undertake the following types of functions:
The granting of loans and
advances particularly to small and marginal farmers and agricultural labourers
individually or to a group, co-operative societies, agricultural processing
societies, co-operative farming societies, etc.
The Granting of loans and
advances to artisans, small entrepreneurs and small traders, businessmen, etc.
Highlights of RRBs:
The sources of funds of RRBs
comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and
other sources including SIDBI and National Housing Bank.
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.
Priority Sector Lending:
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.
Main highlights of Amendments to Regional Rural Banks Act, 1976
  1. It amends the RRB Act,
    1976 which mainly provides for the incorporation, regulation and winding up of
    Regional Rural Banks (RRBs).
  2. It removes the five year limit
    cap that was put on the sponsor banks to assist the upcoming RRBs under the RRB
    Act, 1976. As per the Act, sponsor banks were liable to train personnel and
    provide managerial and financial assistance for the first five years.
  3. It raises the amount of
    authorized capital to 2000 crore rupees and it is not to be reduced below one
    crore rupees. In the 1976 Act the authorised capital of each RRB was five crore
    rupees which was not permitted to be reduced below 25 lakh rupees.
  4. It allows Union government to
    specify that the capital issued by a RRB should be at least one crore rupees.
    Under the Act, a RRB was to issue capital between 25 lakh rupees and one crore
  5. It allows RRBs to raise
    their capital from sources other than the central and state governments, and
    sponsor banks as was mandated under the RRB Act. As per the Act, 50% of capital
    issued was held by Union government, 15% by concerned state government and 35%
    by the sponsor banks.
  6. It also provides that in case of
    raising of capital from other sources by a RRB, the combined shareholding of
    the central government and the sponsor bank cannot be less than 51%. 
  7. The term of the non-official
    directors appointed by the Central Government will be fixed not exceeding three
  8. Further, if the shareholding of
    the state government in a RRB is reduced below 15%, the Union government would
    have to consult the concerned state government. 


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