A meeting of the Regional Rural Bank (RRB) operating in 5 states was held in Udaipur, Rajasthan, on 22 August 2024. The meeting, which reviewed the performance of these regional rural banks, was chaired by the Union Finance and Corporate Affairs Minister Nirmala Sitharaman and attended by other senior officials.
Performance of RRB of which States were reviewed
- The Udaipur meeting reviewed the performance of nine regional rural banks operating in Madhya Pradesh, Chhattisgarh, Rajasthan, Gujarat, and Maharashtra.
Who attended the meeting
- Nirmala Sitharaman chaired the meeting, which was attended by M. Nagaraju, Secretary, Department of Financial Services, Union Ministry of Finance. The meeting was also attended by the Chairpersons of these nine Regional Rural Banks, the Chief Executive Officers of the sponsoring banks of these Regional Rural Banks, representatives of the Reserve Bank of India, Small Industrial Development Bank of India( SIDBI), National Bank for Agricultural and Rural Development (NABARD), and the senior officers of these five states.
Key highlights of the RRB review meeting
- Awareness of Government Schemes: The Finance Minister urged the Regional Rural Banks to increase awareness of Government schemes especially in the aspiring districts.
- Emphasis on improving technology upgradation: Improvement in technology upgradation of nine RRBs of Western Central Region from 2022 was appreciated.
- MSME Clusters: Emphasis was laid on making active outreach to ensure credit to small and micro enterprises in MSME clusters.
- Expanding Mudra Scheme: The Union Finance Minister noted the low utilization of Mudra Scheme in the Bundelkhand region and directed to hold special meetings to improve its performance.
- Creating public awareness for PM Surya Ghar Yojana: Urged to create awareness and provide loans for this scheme in Gujarat and Rajasthan.
- Providing loans under ODOP and PM Vishwakarma Yojana: Regional Rural Banks were directed to identify potential business and provide loans under these schemes.
- Increasing Share in Agricultural Credit Delivery: Directed to increase the share of agricultural credit delivery at the ground level and achieve the objectives of priority sector lending.
- Emphasis on Financial Performance: The CRAR of Regional Rural Banks has increased from 7.8% in FY21 to 13.7% in FY24 and net profit has reached Rs 2,018 crore.
- Leveraging Customer Friendliness and Local Connectivity: The Finance Minister directed the Regional Rural Banks to become more customer friendly and leverage their local connect.
- Ensuring the Role of Sponsor Banks: The Sponsor Banks were directed to play a key role in providing technical support, sharing best practices and ensuring access to necessary resources to the Regional Rural Banks.
- Emphasis on Identifying Challenges: Emphasis was placed on identifying challenges faced by the Sponsor Banks and Regional Rural Banks in maintaining asset quality, expanding digital services and ensuring strong corporate governance.
Regional Rural Banks
It has been established under the Regional Rural Banks Act, 1976 on the basis of the recommendations of the Narasimham Committee (1975).It has been established to increase credit facilities in rural areas.RRBs have been brought under the ambit of priority sector lending on the lines of commercial banks.The shareholding of these banks is in the ratio of 50:15:35 with the Central Government, the concerned State Government and the sponsor bank respectively.
Importance of Regional Rural Banks
- In providing banking services in rural areas: Regional Rural Banks deliver banking services directly to the doorsteps of the people in rural areas. This facilitates the rural public to avail banking services, which are generally not provided by commercial banks.
- In providing institutional credit to weaker sections: RRBs provide institutional credit to weaker sections, such as small and marginal farmers, landless labourers, and small entrepreneurs. This provides financial assistance to these sections and they can improve their economic condition.
- In providing finance to cooperative societies and self-help groups and encouraging collective efforts in rural areas: Regional Rural Banks provide easy and direct finance to cooperative societies and self-help groups. This encourages collective efforts in rural areas and promotes community development.
- In playing an important role in promoting financial inclusion: Regional Rural Banks play an important role in promoting financial inclusion. They provide banking services in areas where commercial banks cannot reach, thereby providing the rural people the benefit of financial services.
- In promoting agriculture and rural development: RRBs provide various types of loans and financial services to promote agriculture and rural development. This increases agricultural production and strengthens the rural economy.
- In creating employment opportunities at the local level: RRBs also provide employment opportunities at the local level. Along with the expansion of banking services, local people get employment in these banks, which improves their economic condition. Thus, Regional Rural Banks play a vital role in the overall development of rural areas.
Current Challenges Faced by Regional Rural Banks
- High level of losses: Many branches of Regional Rural Banks (RRBs) do not have enough business, due to which they are incurring losses. The main reason for this is that these banks mainly focus on implementing government schemes like Direct Benefit Transfer (DBT) in rural areas.
- Decline in recovery rates of loans: The loan recovery rates of Regional Rural Banks have declined in the last few years, which has increased their non-performing assets (NPAs). This situation weakens the financial position of the bank and affects their operations.
- Lack of unity of control: These banks are controlled by various agencies like the Central Government, sponsor banks, NABARD and Reserve Bank of India. This multi-level control system leads to delays in decision making and lack of coordination.
- High cost of operations of Regional Rural Banks: The cost of operations of RRBs is higher as compared to scheduled commercial banks. The government wants these banks to work to increase their earnings, but this is challenging due to limited resources and high operating costs.
- Limited activities and insufficient business: Many branches do not have sufficient business, due to which they are incurring losses. In rural areas they mainly offer government schemes like direct benefit transfer, which limits their income.
- Limited internet banking facilities: At present, only a few Regional Rural Banks have internet banking facilities. Existing rules allow only those RRBs to offer internet banking that maintain a minimum statutory capital risk-weighted asset ratio (CRAR) of more than 10%.
- Lack of digitization: The government has asked RRBs to move towards digitization so that they can be economically empowered, but this process is slow in regional rural banks due to limited resources and lack of technical knowledge. Lack of support from sponsor banks: The government has urged the sponsor banks to prepare a clear roadmap in a time-bound manner to further strengthen the RRBs. Along with this, it has been suggested to organize a workshop on RRBs and share best practices among themselves. Despite these challenges, RRBs play an important role in the rural economy and continuous efforts are being made to improve them.