It is expected to policy-makers that rural development programmes are strategically designed to improve the living conditions of a specific groups of rural people. It includes small and marginal farmers, landless agricultural laborers, artisans’ class and socially and economically backward castes and classes. Credit is one of the most urgent aspects to make rural development strategy and programmes successful and with this reason, the regional rural banks (RRBs) were established to discharge the underlying objective.
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At the same time, it is also a known fact that the burden of indebtedness in rural India is exceptionally enormous. Despite major structural changes in credit institutions and forms of rural credit in the post-Independence period, the exploitation of the rural masses in the name of credit facility is one of the most pervasive and persistent features of rural India. Historically, there have been four major problems with respect to the supply of credit to the rural India. First, the supply of total formal credit to rural people has been inadequate. Secondly, rural credit markets in India themselves have been very imperfect and fragmented. Thirdly, the distribution of formal sector credit has been unequal, particularly with respect to region and class, caste and gender in the countryside. Formal sector credit needs specially to reach backward areas, income-poor households, people of the oppressed castes and tribes, and women. Fourthly, the major source of credit to rural households, particularly income-poor working households, has been the informal sector. Informal sector loans typically are advanced at very high rates of interest. Further, the terms and conditions attached to these loans have given rise to an elaborate structure of coercion – economic and extra-economic- in the countryside.
Given the issues and problems involved, the declared objectives of public policy with regard to rural credit in the post-Independence period are, “to ensure that sufficient and timely credit, at reasonable rates of interest, is made available to as large a segment of the rural population as possible” (Rangarajan 1996, p.288). The policy instruments to achieve these objectives are to be, first, the expansion of the institutional structure of formal sector lending institutions; secondly, directed lending, and thirdly, concessional or subsidized credit (ibid). The policy is thus aimed not only at meeting rural credit needs but also at pushing out the informal sector and the exploitation to which it subjected borrowers. Rural credit policy in India envisaged the provision of a range of credit services, including long-term and short term credit loans to rural households. All these developments in this field offer the scope of detailed investigation and study.
The Banking Commission-1972 recommended establishing an alternative institution for rural credit and ultimately Government of India established RRBs, a separate institution basically for rural credit on the basis of the recommendation of the Working Group under the chairmanship of Sh. M. Narashimham that gave birth to RRBs in the year 1975. Initially five RRBs were set up on 2nd October 1975 under a Presidential Ordinance, which followed the promulgation of Regional Rural Banks Act in April 1976. The RRBs have been identified as scheduled commercial banks under the Reserve Bank of India Act-1934 and are authorized to transact banking business as defined in the Banking Regulation Act-1949. The RRBs were required, in particular, to under the business of providing credit facilities to the poorer sections of rural society, generally referred to as the Target Group. The first five RRBs were set up in five states in Haryana, West Bengal, Rajasthan, with one each and two in Uttar Pradesh, which were sponsored by different commercial banks. These banks covered 11 districts of five states. The first five Regional Rural Banks has been shown in Table: 1.
After the establishment of RRBs, another source for providing banking facilities in rural areas on a large scale came into existence with the underlying objectives as given in the preamble of RRBs Act of 1976,”â€¦..to develop the rural economy in providing for the purpose of development of agriculture, trade, commerce, industry, and other productive activities in the rural areas, credit and other facilities particularly to the small and marginal farmers, agricultural laborers, artisan and small entrepreneurs and for matter connected therewith and incidental thereto.”
This Term-Paper focuses to assess the growth pattern of RRBs; to examine the credit distribution of RRBs; to evaluate the geographical distribution of RRBs; and to recommend some workable suggestion to augment the performance of RRBs in India.
Sources of Data: The present study is of analytical exploratory nature and makes use of secondary data. The relevant secondary data are collected from IBA publications especially the performance highlights of selected regional rural banks, publications of National Bank for Agriculture and Rural Development (NABARD) and Reserve Bank of India (RBI) and the annual reports of the banks concerned. The journals like the Banker, and the Journal of Indian Institute of Bankers. Business India etc have also been referred to obtain the relevant information.
Analysis and Discourses
Growth of Regional Rural Banks
Since their inception in 1975, the RRBs have grown rapidly in structure and strength. From a modest beginning with five banks covering 11 districts of five states with 17 branches, as many as 196 RRBs are operating in 518 districts of 26 states with a branch network of 14446 as on 31st March 2004. The rural branch network of RRBs accounts for nearly 37 percent of the total branch network of schedule commercial banks in India. The growth of RRBs in terms of structure since 1975 is given in Table 2. It is clear from Table 2 that after the first year of its inception in 1975, a sharp increase has been recorded during the next year in which the number of bank were went up to 40, covering 84 districts with a branch network of 489. It is also clear from the Table in each successive year the number of RRBs, district covered and number of branches had significantly increased.
Thus, just after passing 12 years since its inception there was as many as 196 RRBs operating with 13353 branches covering 363 districts till the end of 1987 onwards the number of RRBs is constant but the number of branches has increased to 14446 as on 31st March 2004 and districts covered have also been increased to 518. The reason for increasing districts is mainly because of bifurcation and trifurcation of old district in various states.
The RRBs had been conceived to develop rural economy by providing credit and other facilities for the purpose of development of agriculture, trade, commerce, industry, and other productive activities to the targeted poor people in the rural areas. However, with the advent of financial sector reforms in early nineties, the RRBs were allowed to extend credit facilities to rural non-target group also to a limited extend.
Development of Economy
RRB’s play a pivotal role in the economic development of the rural India. The main goal of establishing regional rural banks in India was to provide credit to the rural people who are not economically strong enough, especially the small and marginal farmers, artisans, agricultural labours, and even small entrepreneurs. The role of these banks in economic development is examined, their policies and progress are assessed, and suggestions are given on how they can help improve and uplift the weaker sections of society. This latter objective has been largely achieved by the RRBs. They have succeeded in extending their branch network to the unbanked or under-banked rural areas, and they have made significant progress in deposit mobilization, and in extension of credit particularly among the poor. Furthermore, RRBs have played an important role in the implementation of various special schemes such as the Integrated Rural Development Program.
In rural areas, RRBs account for a substantial 37% of total offices of all scheduled RBBs. In semi-urban areas, their share comes to 15%. It goes without saying that exclusion is more severe in rural areas 91% of the total workforce in RRBs is posted in rural and semi-urban areas as compared to 38% for other scheduled RBBs. Even in absolute terms out of a total workforce of 179,423 deployed by all scheduled RBBs in rural areas, RRBs share is 25% (45,062). This is significant considering that at all India level, manpower of RRBs constitute only 7% of the total manpower of all scheduled RBBs.
At all India level, RRBs account for 18% of loan accounts of all scheduled RBBs and 3% of loans outstanding. However in rural areas the share of RRBs in loan accounts is an impressive 38%. More significantly, despite having 38%of all loan accounts, RRBs account for only 21% of total credit outstanding in rural areas implying thereby their better reach to small borrowers. The microfinance services provided through self help groups bank linkage has so far been the most successful initiative in financial inclusion. Therefore RRB’s involvement in these Self help groups have increased financial inclusion at more than faster rate than it was before. RRBs have not only provided financial services to the SHG-Bank Linkage Program me, but have also played a significant role as self help promotional institution. As many as 104 RRBs(31 March 2006) are also functioning as SHPIs with grant assistance from NABARD.
Credit Distribution, Performance and Problems
The business performance of RRBs in terms of deposit mobilization and credit extension has also been presented in Table 3 along with the analysis of growth trend since the birth of the bank. The bank mobilized a total deposit of Rs. 0.20 crore and extend an advance of Rs. 0.10 crore with 50 percent credit-deposit ratio in the initial year of its establishment in 1975 which increased to Rs. 7.72 crore and Rs. 7.02 crore in the next year registering an increase of more than 37 times and 69 times than the preceding year with 91 percent credit-deposit ratio.
During the operation of three decades, the RRBs in India have recorded a significant growth in mobilization of deposits and disbursement of credit of Rs. 62143 crore and Rs. 31817 crore respectively till the end of 331st March 2005. In terms of credit-deposit ratio, it increased from 50 percent in 1975 to, as high as, 165 percent in 1978. But after that, it shows declining trend, which came down to 51.2 percent in 2005.
The C/D ratio trend shows that it was sharp increase before liberalization ear of Indian economy but after 1987 it was on decline trends, which take marginal increase in the year 2005. However, there is no significant correlation between the C/D ratio of RRBs and Overall Banking Industry.
It observed from table 3 that RRBs has achieved a commendable progress in terms of deposit mobilization and fulfilling the credit requirements of rural people during the 30 years of their existence. But the banks have to take efforts to extend more credit to the rural people as it is found that only 51.2 percent of their deposits have been provided as loan and advances as on 31st March 2005.
111 RRBs out of total 133 registered profit in the year 2008-09.
CD Ratio has been increasing from 46% on 31 March 2007 to 53% on 31 March2008 and further to 56% on 31 March 2009.
Recovery percentage has been improving from 73% during 2003-04 to 80%during 2008-08.
Consequently, net NPAs have declined from 8.55% on 31 March 2007 to 3.99%on 31 March 2009.
Per branch productivity has increased from Rs. 5.71 crore on 31 March 2007 to Rs. 7.66 crore on 31 March 2009
Per staff productivity has increased from Rs.1.19 crore on 31 March 2007 toRs.1.62 crore on 31 March 2009
Apart from the high cost of their operations, RBBs find it difficult to post the clerical staff to rural centres since the latter prefer to work in urban centers. Even in. respect of transferable cadres like branch ,the banks face a problem in finding the required staff for rural centres .One of the important reasons for the unsatisfactory functioning of many rural branches is the unwillingness of the urban-oriented staff to get involved in rural lending to the fullest extent. Both the clerical staff and supervisory staff who have joined the RBBs with expectations of urban posting and the attendant comforts, are often averse to staying and touring in villages. On balance, the advantage would seem to lie in encouraging RBBs to transfer the eligible of their rural branches to RRBs by them, wherever possible. Rural bank loans to weaker sections may be given priority for such transfer. Similarly,rural branches which have not been able to develop adequate business seven after a reasonable period, so as to cover their own costs of establishment deserve to be considered for this purpose. On the other hand, where the bigger category of borrowers are substantial in numbering any rural branch and account for bulk of the business, it may be retained by the RRBs
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The willingness to allow the RRBs these specific considerations notwithstanding, there were serious attempts to redress the prevalent problems of these banks, the principal one at the time being the low recovery rates and loan over dues. These had not only led to capital erosion but more importantly had resulted in non-recycling of funds, which in turn necessitated increasing dependence on external sources of refinancing. The internal factors identified as contributing to low recovery were: weak monitoring and supervision, apathy towards recovery, failure to link lending with development and to ensure end use of the loan. The external factors were: political interference, willful default, drought and floods, underdevelopment, lack of legal and administrative support from the state government in the matter of recovery, etc. Generally, recovery was low in respect of loans sanctioned under IRDP and other poverty alleviation programmes. Besides there were certain organizational problems such as low capital base, multiple ownership and divided responsibility, lack of adequate training for the RRB staff, etc. which called for intervention. It was estimated that the RRBs would need about seven years to become viable, though for the RRBs with a large number of infant branches even this period might not be adequate. Between 1980 and 1987, while the number of RRBs increased a little more than two-fold, the number of branches of RRBs increased more than four-fold. It was not totally unexpected therefore that by the end of the 1980s several of these banks were showing losses on their books.
Distributions of RRB’s
It is clear from Table 4 that there is 196 RRBs in India, which covers 26 states with 14446-branch network and 70396 employees as on 31st March 2005. However, the services of RRBs are not available in the states like Delhi, Goa, Sikkim and in all the Union Territories. Out of the 26 states, Uttar Pradesh has the highest number of 36 RRBs followed by Madhya Pradesh with 19, and Bihar with 16 RRBs, and these three states constitute 36 percent of the total RRBs in India. All the states in North-East Region, except Assam, have one RRB each. In terms of branch network, Uttar Pradesh is again at top with 2850 branches followed by Bihar with 1487 and Andhra Pradesh with 1124 branches, which has recorded 20 percent, 10 percent and eight percent respectively in total branch network of the country.
The lowest number of branches has been found in Nagaland with 9 only. The maximum RRBs staff has also been found in Uttar Pradesh with 14511 employees and the lowest in Nagaland with 33 only.
Conclusion and Suggestions
Depending on the context and applications, the term performance may have different connotations. Keeping in consideration the varied activities being performed by rural regional banks, any appraisal of their performance may become meaningful with its underlying objectives. In the present study, for the performance of Regional Rural Banks an attempt has been made in terms of certain defined, parameters, like growth pattern of RRBs; the credit distribution of RRBs; and the geographical distribution of RRBs.
Till the birth of RRBs in India, branches of commercial banks and co-operative banks in thousand numbers were operating in the rural areas. But despite of such large network of bank branches, the credit needs of rural India was quite inadequate. As a constituent extensive of commercial banking network, the RRBs have achieved tremendous growth in term of number of bank and its branches. It has extended its service to every nook and corner of the country covering 487 districts in 26 states. Out of the 26 states, Uttar Pradesh has the highest number of 36 RRBs followed by Madhya Pradesh with 19, and Bihar with 16 RRBs, and these three states constitute 36 percent of the total RRBs in India However, the distribution of bank is not same in different states. The highest bank number of are in Uttar Pradesh with 36 banks and the RRBs are yet to its activities in Delhi, Goa, Sikkim and all Union Territories. Moreover, the overall position of RRBs in India is not quite encouraging.
The poor credit-deposit ratio is still making big dent on the desired functioning of RRBs. Since the RRB is a bank for poor people, it’s presence in all the states of country especially in underdeveloped states and Union Territories is strongly realized. The government should spread the branches of RRBs to grass root level to provide banking and credit service to the needy people in rural India. Moreover, it is the responsibility of the bank management and the sponsored bank to take the change for corrective majors to raise the credit-deposit ratio of the bank. The gap between C-D ratio of commercial banks and RRBs need to be minimized and with the result the rural India tends to gain benefit of credit policy in the rural.
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