Regional Rural Banks (RRBs) also known as Gramin Banks were instituted as per the RRB Act, 1976. These banks were established under the recommendations of Narshimhan committee working group. The development process of RRB’s started with the establishment of the first bank on 2 October 1975, named as the Prathama Bank with the authorised capital of 5 crore rupees in the starting. Prathama Bank was established in accordance with Regional Rural Bank Ordinance 1975 issued on 26th September 1975. (Later replaced by Regional Rural Bank Act, 1976(2) of 1976 of Government of India).
These banks were created with a view of providing banking facilities in the rural areas of the country. When the RRBs were established financial inclusion was very less in the rural areas, while about 70 per cent of the population was residing in rural areas. So, to provide lending facilities to the agriculture sector, to the weaker sections and also to provide an option of depositing their saving these banks were established.
Currently, 56 RRBs are operating in the country & the central government is considering to bring down this to just 38 RRBs. While in the starting RRBs were eligible to provide their service within some districts as notified by the central government. But with the various stages of merger and consolidation of RRBs, the government is planning to have only one RRB in each state. The latest amendment in the RRB Act was done in 2015, called as RRB Amendment Act, 2015.
Shareholding in RRBs
The shares of RRBs are owned by the central government, respective state government & the sponsored bank. The Central government holds 50 per cent, respective state government holds 15 per cent & the sponsored bank holds 35 per cent of the shares.
While as per the RRB Amendment Act, 2015 the Regional Rural Banks are permitted to raise capital from the sources other than the central government, the state government and the sponsored bank. Even after raising capital, the combined shareholding of the central government and the sponsored bank should not fall below 51 per cent. It simply refers that the control of Regional Rural Banks will remain with the Central government.
The central government needs to consult the respective state government if the shareholding of state government is reduced below 15 per cent.
Important Points about RRBs
- The first RRB was started on 2 October 1975.
- The government has identified 4 RRBs to issue Initial Public Offer (IPO) to raise capital from the market.
- RRBs are mandated to forward 75 per cent of their total lending to the priority sector as notified by RBI.
- RRBs are not eligible to borrow money from RBI under the Marginal Standing Facility.
- The Capital to Risk Weighted Assets Ratio (CRAR) for RRBs is 9 per cent as recommended by KC Chakrabarty committee (former Deputy governor of RBI).
- RRBs are exempted by RBI to appoint Internal Ombudsman (RBI has guided all the banks having more the 10 branches to appoint Internal Ombudsman).
- Government is planning to bring down the number of RRBs to 38 from 56 presently.
- RRBs were set up with the objective to provide credit and other facilities, especially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas.
- The Union Cabinet has extended the recapitalisation scheme of RRBs for the next three years. This will help the weaker RRBs to attain the required CRAR of 9 per cent.
- Karnataka Vikas Grameena Bank and Andhra Pragathi Grameena Bank recorded net profit of more than 150 crore rupees during 2016-17.
- Out of 56 RRBs, 18 RRBs are sponsored by the State Bank of India (maximum).
- Out of 56 RRBs, a maximum of 7 RRBs are operating in the Uttar Pradesh.
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