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August 10, 2014

Regional Rural Banks - Structure and Functions


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Friends, in our last post we have discussed about the Introduction and Objectives of Regional Rural Banks (Please read that post here before you proceed further). Today we shall discuss about the Structure and Capital of RRBs along with their functions and the major differences between Commercial Banks and RRBs.

Structure and Capital of Regional Rural Banks 

RRBs are basically sponsored banks. They are sponsored by scheduled commercial banks. At present, the authorized capital of an RRB is Rs. 500 Crores (initially it was Rs. 5 Crores but on 23rd April 2013, the Indian Government has introduced a bill raising it by 100 times to Rs. 500 Crores). The Centre holds 50 per cent stake in RRBs, while 35 per cent and 15 per cent are with the sponsor banks and state governments, respectively. RRBs are managed by a Board of Directors consisting of a Chairman, Three Directors to be nominated by the Central Government, not more than two directors to be nominated by the State Government, and not more than 3 directors to be nominated by the Sponsoring bank.

Functions of RRBs

Every RRB shall carry on the transact business of banking as defined in clause (b0 of section 5 of the Banking Regulation Act, 1949. They undertake specific functions, which are as follows :
  1. Granting loans and advances to small and marginal farmers and agricultural laborers, whether individually or in groups, to cooperative societies, agricultural processing societies, co-operative farming societies, primarily for agricultural purposes. 
  2. Granting of loans and advances to artisans, small entrepreneurs and persons of small means engaged in trade, commerce and industry or other productive activities within its area of operations.
  3. Accepting Deposits
  4. Other Functions such as issuing cheque books, demand drafts etc.

Difference Between RRBs and Commercial Banks

Regional Rural Banks are also scheduled banks. However they differ from commercial banks in the following aspects.
  1. RRB is deal to be a cooperative society for the purpose of Income-Tax Act 1961.
  2. The area of operations of RRB is limited to specific region relating to one or more districts in the concerned state. Commercial banks, as we know have no such restrictions they may open branches anywhere in the country and outside the country also.
  3. RRBs grant loans and advances only to small and marginal farmers, agricultural laborers, rural artisans, small entrepreneurs and small traders. Commercial banks grant loans to all types of borrowers generally but also to the above category borrowers as part of priority sector lending. 
  4. Interest paid by RRBs on its term deposits may be half percent more than i.e., paid by commercial banks.
  5. Interest charges by RRBs on loans and advances cannot be more than what is charged by cooperative banks in the state. This restriction does not apply to commercial banks. 
That's all for now friends. In our next post we shall discuss about the problems of Regional Rural Banks. Happy Reading :)


  1. Great job plz provide the basic functioning of the financial institution.


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