Regional Rural Banks

Regional Rural Banks

News: Recently, a meeting was held between the finance minister and the heads of banks to discuss various reforms in Regional Rural Banks (RRBs).

• The Regional Rural Banks (RRBs) were established in 1975 under the provisions of the Ordinance promulgated on 26th September 1975 and Regional Rural Banks Act, 1976.
• RRBs are financial institutions which ensure adequate credit for agriculture and other rural sectors.
• The RRBs combine the characteristics of a cooperative in terms of the familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilize financial resources.

Functions of RRB
Ensure safety to savings of Customer
Mobilize public saving
Reach every segment of society
Increase money supply
Social equity
Build public confidence in financial system

Suggestions made by Government:
• Move towards digitization and also offer internet banking services to the customers.
• Focus on lending to MSME sector.
• Urged sponsor banks to make clear roadmap to further strengthen RRB’s and share best practices with RRB’s.

What are the issues faced by RRB’s?
• Rise in cost of operations of RRB’s when compared to scheduled commercial banks.
• Most of the RRB’s operate in losses as they don’t have enough business.
• Work of RRB’s is mostly restricted to offering government schemes like DBT.
• At present only 19 RRBs have internet banking facilities and 37 have mobile banking licenses. 
• Existing regulations allow only those RRBs to offer internet banking which maintains minimum statutory capital to risk-weighted assets ratio (CRAR) of more than 10%.

What is the way forward?
• There is a need to have a common framework for RRBs, along the lines of core banking solution (CBS), so that all of them can provide online banking services to their customers and further, enhance their outreach and profitability. There should be more facilities like internet banking etc.
• Further, they need to increase their efficiency and touch various other dimensions of banking, like providing loans to merchants, MSME’s that could increase their profitability.

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