BCom 3rd Year Regional Rural Banks Study Material Notes in Hindi

BCom 3rd Year Regional Rural Banks Study Material Notes in Hindi: Organisational Structure of RRB Capital of RRB Progress of RRB Suggestion to Improve Working of RRB Amalgamation of RRB Exercise Questions Long Answer Questions Short Answer Questions Objective Type Correct Option ( Most Important Notes For BCom 3rd Year Students )

BCom 3rd Year Nature Importance Financial Money Study Material notes in Hindi

REGIONAL RURAL BANKS

Srimati Indira Gandhi presented a 20-Point Programme in the interest of the nation on 1st July, 1975 after the declarance of emergency in the country. Besides other things the programme also included the idea of granting loans on easy terms to rural farmers and labourers to bring an improvement in their living condition. To embody this announcement, the government of India decided to set up Regional Rural Banks on the national level and an ordinand regard was passed on 26th September, 1975. Consequently five Regional Rural Banks were set up on 2nd October, 1975 in the first phase. These were situated at Moradabad and Gorakhpur in Uttar Pradesh, Bhivani in Haryana, Jaipur in Rajasthan and Malda in West Bengal.

ORGANISATIONAL STRUCTURE OF RRB

There are 9 directors in the Board of Directors of a RRB. Out of these 6 are appointed by the Central government, 1 by state government and the remaining 2 by the sponsor bank. It is worth mentioning here that every RRB has a commercial bank as its sponsor. RRBs are included in the second schedule of the Reserve Bank of India Act, 1934. So, the Board of Directors has to be ruled by the government and the Reserve Bank of India. But on 12th July, 1982 the control of these banks was given to the newly founded National Bank for Agricultural and Rural Development-NABARD.

CAPITAL OF RRB

According to an ordinance passed on 26th December, 1975 the Authorised Capital of every RRB was 1 crore and its paid up capital was 25 lakhs. Its capital formation is distributed among the government of India, the concerned state government and the sponsor bank in the ratio 50:15:35.

PROGRESS OF RRB

Only 5 RRBs were set up in the first phase on 2nd October, 1975 but it was aimed that 50 banks would be established by March, 1976. This target was raised 000 in January, 1976. 100 RRBs had been set up in 163 districts of the country by the end of March, 1981. Considering this success it was decided that one RRB would be set up in every district of the country in the coming time. The number went upto 183 in April, 1985. The number further went upto 196 on 30th June, 1998. The number of branches of 196 RRBs in 518 districts in by Bihar and Madhya Pradesh. 85 percent branches of RRBs were set up in rural areas. The RRBs have been declared as the scheduled banks.

RRBs have shown a good progress in advancing short-term agricultural loans to rural farmers. Kisan Credit Card scheme was launched by NABARD in August 1988. Under this scheme, the commercial banks, RRBs and Co-operative banks were instructed to provide loans to farmers for seasonal agricultural work! at the proper time through single window system. RRBs have shwon annual progress in following this instruction also. The following table shows number of Kisan cards issued by various agencies:

Number of Kisan Credit Cards Issued

Source : NABARD

The above table shows clearly that RRBs have shown good progress in the distribution of Kisan Credit Cards every year except in 2008-09. But there is the need of showing greater interest in it.

So far as the question of Credit flow on the ground level is concerned, the credit of 12,404 crores was distributed by RRBs in the year 2004-05 which reached up to 26,724 in 2008-09. The role and place of RRBs in the credit flow through different agencies can be further illustrated through the following table:

Table

AGENCY-WISE GROUND LEVEL CREDIT FLOW

Regional Rural Banks Study

Note:P:Provisional. NA: Not Available, Growth Rate : Percentage change over Previous year, Source : NABARD* including other agency. Thus RRBs have shown good progress in the credit flow from 2007-08. Thus, the bank management needs to maintain it.

Thus RRBs have shown profit in the specific fields and loss in the others. The region-wise profit and loss of these banks can be shown with the helps of this table.

Table

Region-wise Working Results of RRB

(As on 31 March, 2012)

OBJECTIVES OR FUNCTIONS OF REGIONAL RURAL BANKS

The main objectives of RRBs are as follows:

(1) Opening Branches of banks in non-banking areas particularly in rural areas.

(2) Providing loans for the progress of agricultural sector to small and marginal farmers, agricultural laborers and small businessmen.

(3) Creating employment opportunities in rural areas.

(4) Developing saving tendency among the rural people, accepting deposits from them and using it for productive activities.

(5) Reducing the cost of making loan availability in rural areas.

(6) Protecting people from the exploitation by money lenders.

PROBLEMS OF REGIONAL RURAL BANKS

It is true that RRBs have played their role well in their short life period and they have made good contribution in the economic development of the country. But there are many problems before these banks. Dantwala Committee, Kelkar Committee and Khusro Committee have also recognised these problems.

The main problems of RRBs are as follows:

(1) Wrong Expansion of Branches: The branch expansion of RRBs was done like a campaign. The business and profit have not increased in the ratio of expansion of these branches. The expenses of banks have increased due to this unbalanced expansion of branches.

(2) Defective Recruitment Policy: An important objective of RRBs has been increasing rural employment, but due attention was not paid on regionality in the recruitment in these banks. According to the recruitment policies candidates from outside the region of a RRB were also eligible for recruitment. This raise the competition and regional people were deprived of recruitment.

(3) Lack of Staff: There has not been recruitment of staffs in these banks! for a long period of time. The posts are vacant due to retirement of staffs lying As a result employees are under workload and it becomes difficult for them to dispose off the work on time. This increases disappointment amongst the customers.

(4) Weak Capital Base : The Capital Base of RRBs is very weak. In this phase of development, every class of people wants to progress taking help from banks. In this way, the demands of loans have increased, but these banks don’t have the ability to grant loans.

(5) Difficulty in Receiving Deposits : Most the of branches of these banks are in rural areas. The income and saving of rural people is less. Consequently, RRBs have less deposits with them. Besides, the big businesspersons need big loans which can’t be provided by these banks. So they keep their relationship with the commercial banks for both loans and deposits.

(6) Reduction in Profitability : The profitabiity of RRBs have reduced due to increasing bank branches and reduced business. These banks primarily give loan to the people from extremely poor section society at low interest. Banks have to make much expense in getting these loans repaid. This badly affects their profits. Many RRBs are running in loss even at present.

(7) Difficulty in Recovery of Loans: RRBs mainly give loans to people of weaker section of society and for the government sponsored programmes. The most of beneficiaries are less educated people who don’t give much importance to its return. Consequently, banks face great difficulty in the recovery of loans. Banks have to organise camps from time to time for the repayment of loans. All these increase the cost of operation.

(8) High Cost of Loans : The salaries of employees of commercial bank and RRBs have become equal. Banks have to adjust these expenses somewhere. Consequently, cost of loans has gone high.

SUGGESTION TO IMPROVE WORKING OF RRBs

Many suggestions have been given from time to time for the improvement in working of the RRBs. Some of the important suggestions are as follows:

(1) Khusro Committee had suggested that RRBs should be merged with commercial banks.

(2) Narsimham Committee had recommended that to enable these banks to function smoothly they should be given the permission for doing all kinds of jobs, however their main work should be providing facilities to the targeted groups.

(3) The sponsor banks should provide refinance to RRBs at comparatively low interest rates.

(4) To increase their profits, the RRBs should grant loans to non-targeted groups also.

(5) The State Government should instruct government and semi-government institutions to keep their assets with RRBs.

(6) The sponsor banks should invest a part of the money of RRBs in long term government bonds.

STEPS TAKEN FOR THE PROGRESS RRBs

In the light of the above suggestions many steps were taken for the progress of RRBs. Some of these are as follows:

(1) From 22nd March, 1997 onwards, these banks were allowed to grant loans to the people even out side of the targeted groups.

(2) The RBI has granted these banks the permission for marketing of the units of their Mutual Funds with the objective of expanding their business.

(3) The RBI has guidelined these banks that in selling the units of their Mutual Funds the RRBs should follow instructions related to ‘Know your Customer’ and Avoid money Laundering’.

(4) Considering the unsatisfactory condition of the loan recovery of RRBs, they are being monitored quarterly by NABARD.

(5) Separate provisions are being made for these banks in the Union Budget by the Central government.

Despite these steps, there are many shortcomings in the RRBs which need to be mended.

AMALGAMATION OF RRBs

With the objective of strengthening these banks, the government of India has started the process of stepwise amalgamation of these banks. 42 new banks were formed by merging 134 out of 196 banks by 31st August, 2006. 57 new banks were set up by integrating 171 banks by March, 2012. The Amalgated Banks and their sponsor banks are shown in the following list.

LIST OF AMALGAMATED REGIONAL RURAL BANKS AS ON MARCH 31, 2012

Regional Rural Banks Study

EXERCISE QUESTIONS

 Long Answer Type Questions

1 Explain the objectives and progress of Regional Rural Banks.

2. Explain the problems of Regional Rural Banks and give suggestions for improvement.

3. Describe the establishment and organisational structure of Regional Rural Banks.

4. Explain the functions and progress of Regional Rural Banks.

Short Answer Type Questions

1. Write a note on amalgamation of Regional Rural Banks.

2. Write a short note on Kisan Credit Card.

3. Describe the capital structure of Regional Rural Banks.

III. Objective Type Question

Choose the correct option

1. How many RRBs were set up on October 2nd, 1975 ?

(a) 5

(b) 6

(c) 7

(d) 10

2. How many members are there in the managing committee of an RRB ?

(a) 6

(b) 8

(c) 9

(d) 15

3. The ratio among the government of India, the concerned state government and the sponsor bank in the capital of RRB is

(a) 50: 25 : 25

(b) 50:15:35

(c) 50:35:15

(d) 15:35:50

4. Who controls the RRBs since July 1982 ?

(a) The RBI

(b) The Finance Ministry of the Government of India

(c) NABARD

(d) Sponsored bank

5. By whom are Kisan Credit Card issued ?

(a) RRBs

(b) Co-operative Banks

(c) Commercial banks

(d) All of the above

6. An RRB is a ……….

(a) Scheduled Bank

(b) Non-scheduled Bank

(c) Private Bank

(d) None of these

7. The number of RRBs on 30th June, 1998 was ..

(a) 60

(b) 100

(c) 183

(d) 196

[Ans. : 1. (a), 2. (c), 3. (b), 4. (c), 5. (d), 6. (a), 7. (d).]

State whether the following statements are True or False :

1 There are 9 directors in the Board of Directors of RRB.

2. All the directors of a RRB are appointed by central government.

3. Authorised capital of every RRB is * 1 crore.

4. Only 5 RRBs were setup in the first phase on 2nd October, 1975.

5. Khusro Committee had recommended that RRBs should be merged with Commercial Banks.

[Ans. : 1. True, 2. False, 3. True, 4. True, 5. True.]

Regional Rural Banks Study