Regional Rural Banks in India

India is an agricultural-prone country and a huge population of it is employed in this sector. Thus to monetize this sector and connect the Indian farmers with banks to provide them an ease in the financial transaction the GOI of India formed established, Regional Rural Banks (RRB). The concept of RRB was put by The Narasimham committee and in 1975 it was established with the primary objective to provide credit, and other banking services to farmers, agricultural labourers, and small traders. Prathama Grameen Bank was the first RRB bank and was established on 2nd October 1975. At the initial level, there were 6 RRBs with 17 branches in India till December 1975. However at present in 2022 there are 43 RRBs in India.

To buy agricultural products like fertilizers and crops, RRBs provide low-interest loans, so that farmers can repay within a designated time. Also, these RRBs are making Indian farmers self-sufficient by shifting them towards digital payment so they can easily make transactions with bank security and ease. The digital payment system of RRBs has also resulted in reducing the corruption done by the middlemen in the buying and selling of crops.

Importance of Regional Rural Banks in India:

Regional rural banks in India play a key role in providing banking facilities to farmers living in remote areas. There are many kinds of regional rural banks in India and these are sponsored banks i.e. each bank is sponsored by a parent bank like the Kerala Gramin Bank is sponsored by Canara Bank. The regional rural banks provide good interest to the people on their savings accounts. Also in rural areas most of the population is employed in the agricultural sector thus these banks also provide farmers with loans for purchasing crops and fertilizers at a significantly lower rate. These banks also allow people to avoid cash transactions and to move towards secured transactions via NEFT and RTGS.

It is often seen that rural people don’t hold many legal documents and thus opening an account in private banks becomes difficult. But these regional rural banks allow people to open bank accounts on very nominal identity proofs like ration cards or voter ID. Moreover, regional rural banks don’t impose any kind of fine on insufficient balance in the account. Also, people from rural areas can simply open their zero balance savings account in these banks.

Government of India initiatives for the betterment of regional rural banks in India:

It’s the topmost priority of the Indian government to connect every Indian citizen with banks. Thus in 2014 government of India launched the Pradhan Mantri Jan Dhan Yojana scheme, under which GOI opened more than 44 crores of Jan Dhan accounts. These were zero-balance savings accounts that were opened under numerous rural and semi-urban banks. The main objective of this scheme was to provide financial services like remittance, credit, loans, and pensions to the people with ease. Cash transactions come with many discrepancies thus with this scheme GOI aimed to reduce cash transactions and establish transparency in the transactions.  

Also under the Digital India scheme, the government encouraged people to move toward online payment that would provide ease to both the buyer and the seller and simultaneously bring back transparency in the system. There are more than 43 regional rural banks in India and in the upcoming year GOI is planning to increase these numbers by merging these banks with the sponsor banks. This will result in providing better facilities to the account holders via advanced technology and a bigger network.

The Government of India launched the Kisan credit card (KCC) under RRBs that allowed farmers to buy crops and fertilizer on a credit basis. Later on, this KCC was replaced with a RuPay debit card cum Kisan credit card, and these cards were offered to all the account holders of RRBs.

In 1982 Government of India formed NABARD (National Bank for Agricultural and Rural Development) this banks act as the apex development bank and makes sure smooth credit flow, agricultural and rural development, proper monitoring of RRBs, etc.  After the formation of NABARD, the RRBs started getting more funds from the central banks which resulted in rural development in India.

Taking a step forward in the direction of the betterment of regional rural banks and for the benefit of farmers. The government of India has extended the farm credit target to Rs 18 lac crores and this credit will be provided by these regional rural banks. Also, the government is providing easy health and life insurance to people living in rural or semi-urban regions via these banks. 

Impact of Regional Rural Banks on the Economy:

There is a huge and critical impact of regional rural banks on the economy of India as these banks mainly finance the agricultural sector. The agricultural sectors contribute around 20% of the total GDP of India, thus these banks have a direct impact on the economy. Moreover, banks are equally profitable as compared to other private banks and thus people invest their money in these banks to get a decent interest. Also, these banks allow people to shift towards secured payment options discarding the middleman from between and thus reducing corruption.

The Present Condition of Regional Rural Banks in India:

As a result of the strong efforts put by the Indian government, the condition of the regional rural banks in India is pretty decent. Even after a huge loss of more than 22 billion rupees in the financial year 2020 due to the COVID-19 pandemic. The regional rural bank bounced back again with a profit of more than Rs. 16 billion Indian rupees in 2021. However, in some backward districts of India, a lack of manpower and technology is observed. But the government of India is planning to improve the services of these banks by digitalizing them under the Digital India scheme. The government of India has made quite commendable efforts in the sector of the RRBs in India but still, there are many major issues these banks that need to be solved.