Regional Rural Banks , Features of RRBs

 

Regional Rural Banks (RRBs):

RRBs are Scheduled Commercial Banks backed by a strong Scheduled commercial bank, providing Banking facilities to small, marginal farmers, artisans, etc. in rural and semi-urban areas.

RRBs provide basic Banking needs for the development of Agriculture, Trade, Commerce, Industry, and other productive activities in rural areas.

Features of RRBs:

• The two prime regulators of Regional Rural Banks (RRBs) in India are the Reserve Bank of India (The Banking Regulation Act, of 1949) and the NABARD (Section 35(6) of the Banking Regulation Act, 1949).
• Each RRB is operated within a geographical limit only. 
• RRBs are involved in disbursement of wages to the workers of  MGNREGA and Pradhan Mantri Gram Sadak Yojana (PMGSY).
• RRBs provide 75% of their total credit as Priority Sector Lending to fulfill the criterion applicable to commercial banks.
• RRBs provide para-banking facilities such as locker facilities, debit and credit cards, mobile banking, internet banking, and UPI services. 
• RRBs reduce regional imbalances by checking the outflow of rural deposits to urban areas. 
• The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. 
• Regional Rural Bank are owned by the Government of India as the maximum share capital is owned by the Central Government.

Consolidation of RRBs:

• In the year 2005, Dr. V S Vyas Committee recommended for the consolidation of RRB's.
• In 2005, the first phase of amalgamation was initiated Sponsor Bank-wise within a State, bringing down the number of RRBs from 196 to 82. 
• As a result of the second phase of amalgamation during 2011-2014, the number of RRBs was brought down to 56 from 82.

 

REFORMS IN RRB’S : 

• RRBs became financially weak because of  huge NPAs .
• Dr. K.C. Chakrabarty committee  in 2010 recommended for recapitalization of 40 out of 82 RRBs.
• Accepting the recommendations, the centre and other shareholders started to recapitalize RRBs by injecting funds into them. 
• Despite reforms, NPAs remained high and to deal with this, GOI enacted RRB Amendment Act (2015).

RRBs Amendment Act 2015 :

• The Regional Rural Banks (Amendment) Act, 2015, came into effect from 4^th February 2016. 
• The Act raises the amount of authorised capital of RRB's to Rs 2,000 crore and it cannot be reduced below Rs One crore. 
• By raising the authorized capital, the financial capabilities of RB ‘s will be increased. 
• The Act allows RRBs to raise capital from other sources (private sector )other than the existing shareholders . 
• States can increase their share beyond 15 % increasing the role of state in decision making .
• The combined shareholding of the central government and the sponsor bank cannot be less than 51%.