Regional Rural Banks In Indian Development And Growth Economics Essay

INTRODUCTION

Generally this term paper deals with the regional rural banks of India .How do they work in India , what are the roles played by the banks in the rural development of India ,problems faced by them ,performance of regional rural banks ,and all the things are covered under this term paper in brief including suggestions and conclusion…by analyzing this term paper one will come to know about the working of regional rural banks and also the role played by them…

REGIONAL RURAL BANKS

The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs.

Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India. The total authorized capital was fixed at Rs. 1 crore which has since been raised to Rs. 5 Core.

There are several concessions enjoyed by the RRBs by Reserve Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks, managerial and staff assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABRAD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend their problems.

RRBs are jointly owned by , the concerned State Government and Sponsor Banks (27 scheduled RBBs and one State Cooperative Bank); the issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35%respectively.

PERFORMANCE OF REGIONAL RURAL BANKS IN INDIA

The brief about the performance of regional rural banks will be given further firstly let us see the key factors of the bank which will help us to analyse the performance of the bank…

SR NO

INDICATORS

2007

2008

2009

1

No. of RRBs

196

196

133

2

No. of districts covered

518

523

525

3

No. of branches

14446

14484

14494

4

NO of staff

69249

68912

68629

5

Owned fund

5438

6181

6647

6

Deposits

56350

62143

71329

7

Borrowings

4595

5534

7303

8

Investment

36135

36761

41182

9

Loans outstanding

26114

32870

39713

10

Credit deposit

46%

53%

56%

11

Loan issued

15579

21082

25427

12

Losses no of RBBs

90

83

58

13

No of RRBs in profits

163

166

111

14

Net NPA

8.55%

4.84%

3.99%

15

recovery

73%

78%

80%

16

Per branch productivity

5.75

6.67

7.88

ANALISIS OF THE TABLE

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

PERFORMANCE

Over the years, the RRBs, which are often viewed as the small

Man s bank, have taken deep roots and have become a sort of

Inseparable part of the rural credit structure. They have played a

Key role in rural institutional financing in terms of geographical

coverage, and business volume as also

Contribution to development of the rural economy. A remarkable

Feature of their performance over the past three decades has been

the massive expansion of their retail network in rural areas. From a beginning of 6 RRBs with 17 branches covering 12 districts

in December 1975, the numbers have grown into 196 RRBs with

14,446 branches working in 518 districts across the country in March

2007. RRBs have a large branch network in the rural area forming

around 43 per cent of the total rural branches of RBBs.

The rural orientation of RRBs is formidable with rural and semiurban

branches constituting over 97 per cent of their branch network.

The growth in the branch network has enabled the RRBs to expand

banking activities in the unbanked areas and mobilise rural savings.

The mandate of promoting banking with a rural focus, however,

would be an enduring phenomenon only when the financial health

the RRBs is sound. As regards their financial status, during the

year 2006-07, 163 RRBs earned profits amounting to Rs.953 crore

while 33 RRBs incurred losses to the tune of Rs.184 crore. Ninety

RRBs had accumulated losses as on March 31, 2007. Aggregate

accumulated loss of RRBs amounted to Rs. 2,725 crore during the

year 2006-07. Of the 90 RRBs having accumulated loss, 53 RRBs

had eroded their entire owned funds as also a part of their deposits.

Furthermore, non-performing assets (NPAs) of the RRBs in absolute

terms stood at Rs.3,299 crore as on March 31,2006. The percentage

of gross NPAs was 12.6 during the year ending March 31, 2006. While

103 RRBs had gross NPAs less than the national average, 93 had

NPAs more than it.

Given the multi agency share holding, this study makes an

attempt to enquire into such factors that influence the performance

of the RRBs and the role played by sponsor bank in a broader

Scenario. The problem has been approached in a deductive pattern.

First, an attempt is made to identify the extent of the problem of

loss making RRBs and see if they are confined to some particular

Sponsor banks or States. If the problem banks and States could be

Identified that would help in focusing the attention for an enduring

Solution. Subsequently, a model-based approach has been pursued

to identify the factors that are responsible for the problems faced

by the RRBs.

The RRBs, over the years have made impressive strides on

various business indicators. For instance, deposits of RRBs have

grown by 18 times and advances by 13 times between 1980 and 1990.

Between 1990 and 2004, deposits and advances grew by 14 times

and 7 times, respectively. Between the year 2000 and 2004,

loans disbursed by RRBs more than doubled reflecting the efforts

taken by the banks6 to improve credit flow to the rural sector. The

average per branch advances also increased from Rs.25 lakh in March

1990 to Rs. 154 lakh in March 2003. When one considers the

deployment of credit relative to the mobilisation of resources, the

credit-deposit (C-D) ratio of RRBs were more than 100 per cent during

the first decade of their operations up to 1987. Though the C-D ratio

subsequently became lower, of late, it has shown an improvement

and went up from around 39 per cent in March 2004 to 44.5 per cent

in March 2007

ROLE OF REGIONAL RURAL BANKS IN RURAL DEVELOPMENT OF ECONOMY

RRBs plays 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 Programme.

In rural areas, RRBs account for a substantial 37% of total offices of al lscheduled 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 significantl, 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 Linkag 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.

PROBLEMS FACED BY RRBs

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

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.

CONCLUSION

FROM this above data we can analyse that the REGIONAL RURAL BANKS which are been set up are good for the development of the rural sector and good for the economy .

As they are generally focusing on the term financial inclusion which generally means to make the unbanked regions banked which will help the people living in the rural sectors

By analyzing their performance we can say that they are growing but with not faster pace ..because of some problems which are faced by them which include lack of staff for the branches in rural sector secondly the big problem is of repayment of loans which are taken by farmers for their development plus for the development of the village.

. From a beginning of 6 RRBs with 17 branches covering 12 districts in December 1975, the numbers have grown into 196 RRBs with14,446 branches working in 518 districts across the country in March2007. RRBs have a large branch network in the rural area forming around 43 per cent of the total rural branches of RBBs.so from this we can say that the people are accepting the types of services provided by the regional rural banks.

Recommendations

Generally I don’t think that their should be some recommendations in the system of regional rural banks but the things which RRBs should take care should be that they should follow some KYC norms by RBI in order to avoide the repayment of loans and avoiding these loans to become to become NPA

5.26 RRBs should extend their services into unbanked areas and increase their

credit to deposit (CD) ratio. As on 31 March 2006, 37 RRBs had CD ratio of less than40%, 44 RRBs between 40% and 60% and 52 RRBs above 60%. The CD ratio variations ranged from 20% to 116%. As RRBs operate with branches in remote,

interior and tribal-dominated areas, they have a special role to play in financial inclusion. details of which are specified earlier, is of high relevance forRRBs, particularly those having CD ratio of less than 40%. The post-merger scenarioof RRBs poses a series of challenges for them and needs to be addressed. Thefollowing areas would require attention from the point of view of financial inclusion.

• Setting exclusive targets for microfinance and financial inclusion,

• Providing funding support &

• Providing technology support