Rural Banks

1.1 Origin of Rural Banks:

It can be said from the foregoing discussion that credit constitutes an integral part of the overall development of rural economy and the two major systems viz., the co-operatives and commercial banks miserably failed to deliver it at the time, rate and quantum. It was, therefore, considered expedient to have a special type of institution, which could be responsive to the overall requirements of rural credit. This resulted in the establishment of Regional Rural Banks (hereinafter referred to as RRBs) to cater to the needs of the rural community. In short, failure of co-operatives and commercial banks to meet the growing credit requirements of the small and marginal farmers, rural artisans and farm labourers in rural areas is the rationale behind the origin of RRBs. The announcement of the twenty point programme on 1st July 1975 provided an opportunity for the setting up of some kind of a new institutional arrangement like rural banks for providing rural credit. Thus, a special institution under the name of. RRBs (it is also called Grameena Banks) appeared on the rural credit scene of India on September 26, 1975, when the government of India promulgated an ordinance to provide for the incorporation and regulation of the RRBs and first five banks in four states commenced business on 2 October 1975. This was considered one of the major structural changes in rural banking in India. Rural Banks

The first five Regional Rural Banks were established on October 2, 1975. By the end of 1976, 40 Regional Rural Banks were established. In 1978, the government set up a review committee on Regional Rural Banks, headed by M.L. Dantawala.15 The committee considered that the performance of the regional rural banks was good and that the financial results of the working of some of these banks showed that RRBs. have become an integral part of the rural credit structure. The RBI also made a study on the viability of RRBs in 198016 and concluded that on an average, an RRB would require about 6 years time and a network of 70 branches to become viable. These studies gave the necessary impetus to the process of establishing and expanding RRBs all over the country. By the end of June 2005, there were 183 RRBs, covering 322 districts in 23 States and Union Territories in the country. This figure has further increased to 189 by the end of 2008-09.

1.2 Definition of Rural Bank:

Rural bank makes a new development in the rural credit system tailored to the needs of the rural people. “A rural bank may be described as a primary banking institution set up to serve a compact group of villages generally working as a co-operative or as the subsidiary bank of a commercial bank, functioning or set in a rural area for the purpose of providing banking and credit facilities in that area”.

1.3. Objectives of Regional Rural Banks:

The main objective of RRBs is to provide credit facility and services to the rural areas so that the economy can be accelerated on the path of development. “Its object is to provide at one place the special type of credit and banking facilities and other related services needed by agriculturists and other rural purposes”. The regional rural banks strive to develop the rural economy with special emphasis on small and marginal farmers, farm labourers, rural artisans, and small entrepreneurs, etc.

The following are the main objectives of RRBs in India:

1. Integrated Rural Development: An RRB endeavors :

(i) To integrate inputs, viz. infrastructure, extension services, and credit which constitute a scheme.

(ii) Integrated rural development programmes.

2. To cover fully the potential target population.

3. To obtain break-even in four years.

4. To inculcate banking habits in the rural masses and to tap idle money by way of deposits and to buy land for productive purposes.

5. To adopt the internal controls and reporting system and healthy growth of the corporate entity.

Other objectives of RRBs are: (i) to provide banking facilities in remote and unbanked areas, and (ii) to provide credit facilities to the weaker and neglected sections of the society with special reference to the 20-point economic programme.

According to the Narasimham Committee, one of the important objectives of the RRBs is to attempt effective coverage of small and marginal farmers, landless labourers, rural artisans, etc. This objective is vital as the past experiences have shown that credit flow to rural areas, even if especially meant for rural poor was appropriated by well-to-do and influential sections of the society up to 1970s.

1.4. Functions of Regional Rural Banks:

The main function of the RRBs is to provide banking facility to the rural people. It also provides some non-banking facilities to the rural population such as constructing and maintaining go-downs on their own, supplying agricultural inputs and acquiring agricultural and other equipment for leasing it out, providing assistance in the marketing of agricultural and other products. More specifically, the functions of the RRBs are listed as follows:

(i) To mobilize local savings by means of various types of deposits,

(ii) To provide short-term and medium-term credit for agriculture and other purpose to rural producers and long-term loans to agriculturists as an agent of the Land Mortgage Bank,

(iii) To implement programmes of the supervised credit tailored to the needs of individual farms,

(iv) To provide various ancillary banking services to local people such as remittance of funds, acceptance of insurance premium, safe deposit, ATMs and lockers, etc,

(v) To set-up and maintain go-downs for storage of agricultural products,

(vi) To undertake supply of inputs and agricultural and retail equipment to farmers as an agent and in deserving cases leasing of equipment,

(vii) To improve assistance in the marketing of agricultural and other products through marketing organizations,

(viii) To help for the overall development of the villages in its jurisdiction.

Article Collected From:

  • Mohan, A. R. (2012). Role of regional rural banks in rural development With reference to Andhra Pradesh Grameena Vikas Bank of Srikakulam district of Andhra Pradesh.

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