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August 09, 2014

Regional Rural Banks - Introduction and Objectives


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Friends, in our previous posts, we have discussed about various cooperative banking institutions. In this post we shall deal with various aspects of Regional Rural Banks. After Independence the major aim of the credit policy in our country has been to expand institutional financing with a view to curtail the role of non-institutional credit agencies like money lenders. The All India Rural Credit Survey Committee (1951) perceived that only multipurpose cooperatives can be a viable solution to the problem of rural finance.

Cooperative Banks at various levels were supported by their respective state governments and the RBI. Much was expected from the cooperative credit all the needs of the farmers movement. However co-operative credit institution could not meet. All India Rural Credit Survey Committee (1969) recommended a multi agency approach, to finance the rural sector. The committee observed that co-operative institutions above could not provide adequate credit to farmers since they did not have the required financial resources. Credit gap continues to exist in the rural sector. Rural banks were conceived to bridge the gap. The idea was first generated in the report submitted by the Banking Commission 1972. The Commission was not convinced that commercial banks were equipped structurally to fill the credit gap. It recommended the establishment of rural banks to strengthen the cooperative banking system. But these recommendations were not accepted by the Government of India.

The idea of establishing rural banks was once again raised in the year 1975 as part of the Prime Ministers "20 Point Economic Programme". A "Working Group on Rural Banks"  headed by Sri. M. Narasimham was set up in 1975 to examine in dept the setting up of rural banks as subsidiaries of public sector banks to cater to the needs of the rural people. The working group concluded that both the commercial banks as well as cooperative credit institutions could not adequately meets the credit needs of the target group comprising small farmers, marginal farmers, agricultural laborers, landless laborers, rural artisans, petty traders and other weaker sections of the society. It felt the necessity of creating a new institution which combines the local feel and familiarity with rural problems which the co-operatives possess and the degree of business organization, ability to mobilize deposits, access to central money markets and a modernized outlook which the commercial banks have. Majority of the recommendations made by working group were accepted by the Government of India. Base don the recommendations of the Group the Government of India began to establish Regional Rural Banks from 2nd October 1975 onwards. In the beginning they were established under the Presidential Ordinance on RRBs. But later under the Regional Rural Banks Act which was passed in February 1976.

Objectives of Regional Rural Banks (RRBs)

The objectives behind the establishment of Regional Rural Banks are :
  1. To take the banking services to the doorsteps of rural masses particularly in hitherto unbanked rural areas. 
  2. To make available institutional credit to the weaker sections of the society who had for little or no access  to cheaper loans and had perforce been depending on the private money-lenders. 
  3. To mobilize rural savings and channelize them for supporting productive activities in the rural areas.
  4. To create a supplementary channel for flow of credit from the central moeny market to the rural areas through refinance.
  5. To generate employment opportunities in rural areas 
  6. To bring down the cost of purveying credit in rural areas.
That's all for now friends. In our next post we shall discuss about the Structure, Capital, Functions and other important details of Regional Rural Banks. Happy Reading :) 

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  1. what is the investment ratio for setting up a new rrb.? is it 50:35:15 or changed.?

  2. Cn anyone tel me d vlidity of OBC crtifict for IBPS EXAMS????

    1. Hi, It should be issued within one year as on the last date of online registration.

  3. Shivani mam I have one doubt...kvb,tmb are private banks...Indian bank,iob are public undertaking...pallavan,pandyan are what types of?...I am so confuse clarify mam...

  4. many many thnx sir


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