Regional rural bank

Regional rural banks were established under the provisions of an ordinance passed on 26 September 1975 and the RRB Act 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors. As a result, five RRBs were set up on 2 October 1975 on the recommendations of the Narsimhan Committee on Rural Credit, during the tenure of Indira Gandhi's government. The purpose was to include rural areas into the economic mainstream since around 70% of the Indian population was rural.

Prathama Bank, with head office in Moradabad, Uttar Pradesh was the first RRB. It was sponsored by Syndicate Bank and had an authorized capital of Rs. 5 crore.^[2] The other four RRBs were Gaur Gramin Bank (sponsored by UCO Bank), Gorakhpur Kshetriya Gramin Bank (sponsored by State Bank of India), Haryana Kshetriya Gramin Bank (sponsored by Punjab National Bank), and Jaipur-Nagaur Anchalik Gramin Bank (sponsored by UCO Bank).

The RRBs were owned by the central government, state government, and the sponsoring bank with 50%, 15%, and 35% shareholding respectively.^[3]

A review of the RRBs in August 2009 by the Union Finance Minister revealed that a large number of RRBs had a low Capital to Risk weighted Assets Ratio (CRAR). A committee was constituted in September 2009 under the chairmanship of K C Chakrabarty,^[4] the deputy governor of the Reserve Bank of India (RBI) to analyse the financials of the RRBs and suggest measures, including re-capitalisation to bring the CRAR of RRBs to at least 9% in a sustainable manner by 2012. The committee submitted its report in May 2010.^[5][6]

The committee recommended RRBs to have a CRAR of at least 7% on 31 March 2011 and at least 9% from 31 March 2012 onwards. The recapitalization requirement of Rs 2,200.00 crore for 40 of the 82 RRBs were to be released in two installments in 2010–11 and 2011–12. The remaining 42 RRBs will not require any capital and will be able to maintain CRAR of at least 9% as of 31 March 2012 and thereafter, on their own. A fund of ₹100 crore to be set up for training and capacity building of the RRB staff.^[5]

The Government of India approved the recapitalization of the RRBs to improve their CRAR in the following manner:

• Share of central government, that is, ₹1,100 crore will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011–12. However, release of the funds will be contingent on proportionate release of the state government and sponsor bank share.^[5]
• A capacity building fund with a corpus of ₹100 crore to be set up by central government with NABARD for training and capacity building of the RRB staff in the institution of NABARD and other reputed institutions. The functioning of the fund will be periodically reviewed by the central government. An action plan will be prepared by NABARD and sent to the government for approval.^[5]
• An additional amount of ₹700 crore was set up as a contingency fund to meet the requirement of the weak RRBs, particularly those in the north-eastern and the eastern region.^[5]

The organizational structure for RRB's varies from branch to branch and depends upon the nature and size of business done by the branch. The head office of an RRB normally had three to nine departments. The following is the decision making hierarchy of officials in a RRB.

• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

RRBs periodically go through a process of amalgamation. In January 2013, 25 RRBs were amalgamated into 10 RRBs, totaling 67 RRBs.^[7] In March 2016, there were 56 RRBs, covering 525 districts with a network of 14,494 branches.^[8] As of 1 April 2020, there are 43 RRBs in India.^[9]

RRBs are recognized by the law and they have legal significance. The Regional Rural Banks Act, 1976 Act No. 21 of 1976 [9 February 1976.] reads:^[10]

For the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural laborers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto.

There are 43 RRBs since 1 April 2020.^[11]