Regional Rural Bank

Regional Rural Banks are local level banking organizations operating in different States of India. They have been created with a view to serve primarily the rural areas of India with basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too.

The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. RRBs perform various functions in following heads • Providing banking facilities to rural and semi-urban areas. Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc. • Providing Para-Banking facilities like locker facilities, debit and credit cards.

Regional Rural Banks were established under the provisions of an Ordinance passed on September 1975 and the RRB Act. 1976 to provide sufficient banking and credit facility for agriculture and other rural sectors. These were set up on the recommendations of The M. Narasimham Working during the tenure of Indira Gandhi's government with a view to include rural areas into economic mainstream since that time about 70% of the Indian Population was of Rural Orientation. The development process of RRBs started on 2 October 1975 with the forming of the first RRB, the Prathama Bank with authorised capital of Rs. 5 crore at its starting. Also on 2 October 1976 five regional rural banks were set up with a total authorised capital Rs. 100 crore ($10 Million) which later augmented to 500 crore ($50 Million). The Regional Rural Bank were owned by the Central Government, the State Government and the Sponsor Bank(There were five commercial banks, Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural banks) who held shares in the ratios as follows Central Government-50%, State Government- 15% and Sponsor Banks- Earlier, Reserve Bank of India had laid down ceilings on the rate of interest to be charged by these RRBs.

Subsequent to review of the financial status of RRBs by the Union Finance Minister in August, 2009, it was felt that a large number of RRBs had a low Capital to Risk weighted Assets Ratio (CRAR). A committee was therefore constituted in September, 2009 under the Chairmanship of K C Chakrabarty, Deputy Governor, RBI to analyse the financials of the RRBs and to 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. The following points were recommended by the committee:

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