Growth of Regional Rural Banks (RRBs) in India

By Madhuri D B

Regional Rural Banks are operating at the bottom rung of banking organizations in India. They have been set-up with the basic objective of providing credit facilities to the rural population, who had very limited access to the formal credit system. The area of operation of RRBs is confined to what Government of India had notified, to include one or many districts in a State.

The RRBs came into existence to facilitate the poor section of people, called as the "Target Group". In 1975, during the regime of former Prime Minister of India, Indira Gandhi, the Narasimham Working Group recommended to set up RRBs, as the major portion of the society – about 70% – in India comprised of rural areas. The RRBs are owned by the Governments at the center and the states and the Sponsor Banks.

Branch Expansion

The Government initiated to open more branches in rural unbanked areas. In the year 2001-02, banks were also allowed to transform their branches which were incurring losses into mobile / satellite offices. This was permitted only if did not affect their performance in the service areas.

Deposit Mobilization

Deposit mobilization is an important banking variable determining the path of growth of a financial institution. It depends upon the saving capacity and saving habit of the people in the area in which the bank is operating. Another factor determining the size of deposits is the rate of interest. If the rate of interest is high, the number of deposit accounts would be more. Deposits mobilized by the RRBs play a key role not only as an important source of funds but also as an instrument for promoting savings and banking habits among the rural people.

Credit Deployment

Credit deployment is another essential component of growth for any banking institution. This is important to those banking institutions which have been established to meet the credit requirements of untapped sector in the country. RRBs grant direct advances in the form of crop loans, agricultural loans, loans for allied activities, loans for rural artisans, village and cottage industries, self-employed persons and consumption loans. RRBs also make indirect advances which are routed through agencies such as farmers' service societies, farmers' clubs, primary agricultural societies, self-help groups, etc.

Growth of RRBs

RRBs proved instrumental in achieving the target of inclusive and sustainable economic growth. The number of RRBs' branches have increased to 16,170 during 2011-12 from 14,468 during 2000-01 i.e. an increase of 1.1 times. The number of districts covered also increased to 620 during 2011-12 from 482 during 2000-01 i.e. an increase of 1.3 times. The linear and compound growth rates of it account for 0.212% and 0.208% which indicates an insignificant growth of bank branches of Regional Rural Banks in India. However, there is a 65% increase in the Credit-Deposit ratio during the same period, which indicates the willingness of Target Group to invest in RRBs.

Conclusion

Although the growth rate of RRBs is very low, the Deposits and Credits are significantly high. Credit-Deposit ratio has increased over the period of time, leading to sufficient mobilization of funds in the regional areas.