75 CHAPTER – 4 REGIONAL RURAL BANKS IN INDIA AND PROFILE OF PRAGATHI GRAMINA BANK 4.1 Introduction Activities of modern economy are significantly influenced by the functions and services of banks. Banking sector constitutes the core part of economic system. Indian economy is an agricultural economy and real India lies in villages. Village economy is the backbone of Indian economy. Even after 60 years of independence the rural economy in India is still handicapped in terms of infrastructure and other chronic problems of cultivators. In fact, economic progress and industrial development are determined by the rural sector. More than 70% of Indians are dependent on agriculture; 60% of industries are agro based; 50% of national income is contributed by rural sector, and the agricultural sector is the largest foreign exchange earner to India. Without the development of rural economy the objectives of economic planning cannot be achieved. Hence, banks and other financial institutions are considered to play a vital role for the development of the rural economy in India. The Commercial Banks had little interest in rural areas, as these banks concentrated on deposits rather than credits. Thus they provide for the flight of funds from the rural to the urban. So, there was a strong need for the establishment of Regional Rural Banks (RRB). Rural banking system occupies a significant position in the structure of Indian banking system. Being an agrarian economy with more than 50% of the population depending on agriculture for their livelihood, rural banking has acquired increasing relevance in the recent times. “Rural Banking” will connote the banking need of the rural population. These needs are for activities relating to agriculture, rural and cottage industries which dot the rural settings. The needs of these different segments are varied and complex. These needs were from ancient times met usually by the village money lenders, the lending activities of these money lenders operated on an informal basis without much of the paraphernalia of a modern banking system. But these money lenders were literally charging exorbitant rates of interest and were engaged in
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CHAPTER – 4
REGIONAL RURAL BANKS IN INDIA AND PROFILE OF PRAGATHI
GRAMINA BANK
4.1 Introduction
Activities of modern economy are significantly influenced by the functions
and services of banks. Banking sector constitutes the core part of economic system.
Indian economy is an agricultural economy and real India lies in villages. Village
economy is the backbone of Indian economy. Even after 60 years of independence the
rural economy in India is still handicapped in terms of infrastructure and other chronic
problems of cultivators. In fact, economic progress and industrial development are
determined by the rural sector. More than 70% of Indians are dependent on
agriculture; 60% of industries are agro based; 50% of national income is contributed
by rural sector, and the agricultural sector is the largest foreign exchange earner to
India. Without the development of rural economy the objectives of economic planning
cannot be achieved. Hence, banks and other financial institutions are considered to
play a vital role for the development of the rural economy in India.
The Commercial Banks had little interest in rural areas, as these banks
concentrated on deposits rather than credits. Thus they provide for the flight of funds
from the rural to the urban. So, there was a strong need for the establishment of
Regional Rural Banks (RRB).
Rural banking system occupies a significant position in the structure of Indian
banking system. Being an agrarian economy with more than 50% of the population
depending on agriculture for their livelihood, rural banking has acquired increasing
relevance in the recent times. “Rural Banking” will connote the banking need of the
rural population.
These needs are for activities relating to agriculture, rural and cottage
industries which dot the rural settings. The needs of these different segments are
varied and complex. These needs were from ancient times met usually by the village
money lenders, the lending activities of these money lenders operated on an informal
basis without much of the paraphernalia of a modern banking system. But these
money lenders were literally charging exorbitant rates of interest and were engaged in
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practices not very conducive to the interest of the rural borrowers. Thus came the co-
operative movement during the beginning of 1900’s by enactment of the act in 1904,
which officially launched the movement in India. The co-operative sector could cater
only to the short term credit requirements of the rural borrowers. Hence, in order to
provide a mechanism for a long term lending operations, land mortgage banks
appeared on the scene. These arrangements with all their deficiencies and problems
continued as an institutional support system to the credit needs of the agriculturists
and other person engaged in village and cottage industries.
A notable development in the domain of agricultural financing was the
formation of Agricultural Refinance Corporation on July 1st, 1963. In order to give a
clear focus on the promotional and developmental role played by the corporation, its
name was changed into Agricultural Refinance and Development Corporation
(ARDC). The corporation essentially was a refinancing agency and provided
assistance to those agricultural and developmental projects which could not be
financed by other institutions either because of the large outlay involved or because
the projects could not be brought within the purview of normal rules of business of
these institutions. Its establishment was in recognition of the fact that if commercial
and other institutions were to embark on agricultural lending on a large scale,
refinance have to be provided. With the establishment of National Bank for
Agriculture and Rural Development (NABARD) in July 1982, all the functions of
ARDC have been taken over.
Further, the inadequacy of the system to cater to the rural banking needs
forced Govt. of India to come with the concept of “Social Control” in the year 1967 to
address the problems of rural finance. This experiment was found to be inadequate,
the government came out with the nationalization of banks in 1969 and 1980.
Nationalized banks were exhorted to increase the credit flows to agriculture and other
priority sectors. State Bank of India and other associate banks also took up the lending
to agriculture and priority sectors on a large scale. Several innovative experiments
like service area approach, lead bank scheme were also introduced, mainly with a
view to ensure that the rural financing systems grows in strength. The establishment
of NABARD on July 12th
, 1982 is a land mark in the field of rural finance. This new
significant statutory, financial institution was conceived as the official agency to meet
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the exclusive demands of the Integrated Rural Development Programme (IRDP), and
exercises a considerable influence on the economy. The Reserve Bank, as the central
bank of the country, is the kernel of the Indian Financial and Monitory System, apart
from performing the traditional central banking and regulatory functions for securing
monitory stability, the bank has over the years taken on an active developmental and
promotional role especially in the area of meeting the needs of rural economic
development. The rural banking structure constitutes the following segments, viz.,
1. Rural Money Lenders,
2. Co-operative Banks,
3. Land Development Banks,
4. Regional Rural Banks,
5. Commercial Banks and
6. National Bank for Agricultural and Rural Development.
4.2 Regional Rural Banks
RRB in India are an integral part of the rural credit structure of the country.
RRBs were established under the provisions of an ordinance promulgated on 26th
Sept. 1975 and the RRB Act, 1976 with an objective to ensure sufficient institutional
credit for agriculture and other rural sectors. The RRBs mobilize financial resources
for rural / semi-urban areas and grant loans and advances mostly to small and
marginal farmers, agricultural labourers and rural artisans. The area of operation of
RRBs is limited to the area as notified by Govt. of India covering one or more
districts in the state.
RRBs are jointly owned by Govt. of India, the concerned State Government
and sponsor banks (i.e., 27 scheduled commercial banks and one state co-operative
bank) of this 50% shall be subscribed by the central government, 15% by the
concerned state government and 35% by the sponsor bank.
Objectives
The objectives of the act are clearly mentioned in the preamble to the act, as
under;
1. To provide cheap credit and other facilities to small and marginal farmers,
land less labourers, artisans and small entrepreneurs engaged in productive
activities.
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2. To develop the rural economy of the country by providing liberal financial
assistance to agriculture, trade and commerce, industries and other productive
enterprises in rural areas.
3. To inculcate banking habit among the people and mobilize their savings for
accentuating the economic growth of the rural areas.
4. To provide employment to the educated youth of the rural areas.
5. To bring down the cost of rural banking.
Table 4.1
RRBs in India
Sr
No
Name of RRB State Sponsor Bank Dist
Cov
Branches
1 2 3 4 5 6
1 Andhra Pradesh, GVB Andhra Pradesh State Bank of India 8 553
2 Andhra Pragathi GB Andhra Pradesh Syndicate Bank 5 385
3 Chaitanya Godavari GB Andhra Pradesh Andhra Bank 3 105
4 Deccan GB Andhra Pradesh State Bank of
Hyderabad
5 226
5 Saptagiri GB Andhra Pradesh Indian Bank 2 144
6 Arunachal Pradesh RB Arunachal Pradesh State Bank of India 16 22
7 Assam GVB Assam Union Bank of India 25 362
8 Langpai Dehangi GB Assam State Bank of India 2 46
9 Bihar Kshetriya GB Bihar UCO Bank 8 164
10 Madhya Bihar GB Bihar Punjab National Bank 11 421
11 Samastipur KGB Bihar State Bank of India 1 68
12 Uttar Bihar GB Bihar Central Bank of India 18 884
13 Durg Rajnandgaon GB Chhattisgarh Dena Bank 3 112
14 Sarguja Kshetriya GB Chhattisgarh Central Bank of India 2 90
15 Chhattisgarh GB Chhattisgarh State Bank of India 14 266
16 Baroda Gujarat GB Gujarat Bank of Baroda 12 134
17 Dena Gujarat GB Gujarat Dena Bank 7 145
18 Saurashtra GB Gujarat SB State Bank of
Saurashtra
7 167
19 Gurgaon GB Haryana Syndicate Bank 7 186
20 Haryana GB Haryana Punjab National Bank 16 229
21 Himachal GB Himachal Pradesh Punjab National Bank 11 125
22 Parvatiya GB, Chamba Himachal Pradesh State Bank of India 1 33
23 Ellaquai Dehati Bank J & K State Bank of India 13 111
24 J & K GB J & K Jammu & Kashmir
Bank
11 176
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25 Jharkhand GB Jharkhand Bank of India 15 221
26 Vananchal GB Jharkhand State Bank of India 9 188
27 Cauvery Kalpatharu GB Karnataka State Bank of Mysore 7 215
28 Chikmangalur Kodagu Karnataka Corporation Bank 2 53
29 Karnataka Vikas GB Karnataka Syndicate Bank 9 451
30 Krishna GB Karnataka State Bank of India 3 139
31 Pragathi GB Karnataka Canara Bank 8 368
32 Visveshvaraya GB Karnataka Vijaya Bank 1 30
33 North Malabar GB Kerala Syndicate Bank 7 185
34 South Malabar GB Kerala Canara Bank 8 235
35 Jhabua Dhar K GB Madhya Pradesh Bank of Baroda 3 80
36 Madhya Bharat GB Madhya Pradesh State Bank of India 8 223
37 Mahakaushal KGB Madhya Pradesh UCO Bank 3 43
38 Narmada Malwa GB Madhya Pradesh Bank of India 10 214
39 Rewa Sidhi GB Madhya Pradesh Union Bank of India 3 100
40 Satpura Narmada KGB Madhya Pradesh Central Bank of India 20 348
41 Sharda GB Madhya Pradesh Allahabad Bank 1 63
42 Vidisha Bhopal KGB Madhya Pradesh State Bank of Indore 2 27
43 Maharashtra GB Maharashtra Bank of Maharashtra 16 329
44 Vidharbha KGB Maharashtra Central Bank of India 5 96
45 Wainganga KGB Maharashtra Bank of India 12 182
46 Manipur Rural Bank Manipur Union Bank of India 9 27
47 Meghalaya Rural Bank Meghalaya State Bank of India 6 58
48 Mizoram Rural Bank Mizoram State Bank of India 8 62
49 Nagaland Rural Bank Nagaland State Bank of India 5 8
50 Baitarani Gramya Bank Odisha Bank of India 2 104
51 Kalinga Gramya Odisha UCO Bank 6 183
52 Neelachal Gramya Odisha Indian Overseas 5 174
53 Rushikulya Gramya Odisha Andhra Bank 2 81
54 Utkal Gramya Bank Odisha State Bank of India 15 333
55 Puduvai Bharathiar GB Puducherry Indian Bank 2 26
56 Malwa GB Punjab State Bank of Patiala 5 53
57 Punjab GB Punjab Punjab National Bank 11 178
58 Sutlej GB Punjab Punjab & Sind Bank 6 30
59 Mewar Aanchalik GB Rajasthan Indian Bank 3 58
60 Baroda Rajasthan GB Rajasthan Bank of Baroda 13 175
61 Hadoti GB Rajasthan Central Bank of India 3 84
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62 Jaipur Thar GB Rajasthan UCO Bank 6 213
63 MGB GB Rajasthan State Bank of Bikaner
& Jaipur
6 218
64 Rajasthan GB Rajasthan Punjab National Bank 5 220
65 Pallavan Grama Bank Tamil Nadu Indian Bank 15 110
66 Pandyan Grama Bank Tamil Nadu Indian Overseas 15 203
67 Tripura GB Tripura Union Bank of India 4 113
68 Allahabad UP GB Uttar Pradesh Allahabad Bank 11 507
69 Aryavart GB Uttar Pradesh Bank of India 7 309
70 Ballia-Etawah GB Uttar Pradesh Central Bank of India 4 139
71 Baroda UP GB Uttar Pradesh Bank of Baroda 14 673
72 Kashi Gomti Samyut Uttar Pradesh Union Bank of India 8 361
73 Kshetriya Kisan GB Uttar Pradesh Corporation Bank 2 63
74 Prathama GB Uttar Pradesh Syndicate Bank 3 212
75 Purvanchal GB Uttar Pradesh State Bank of India 7 380
76 Sarva UP GB Uttar Pradesh Punjab National Bank 14 310
77 Shreyas GB Uttar Pradesh Canara Bank 7 203
78 Nainatal Almora KGB Uttaranchal Bank of Baroda 4 61
79 Uttaranchal GB Uttaranchal State Bank of India 9 142
80 Bangiya GVB West Bengal Union Bank of India 11 552
81 Paschim Banga GB West Bengal UCO Bank 4 216
82 Uttar Banga KGB West Bengal Central Bank of India 3 119
All India Total 620 16001
(Source: Reports of NABARD and RBI.)
From the above table, we can clearly analyze that after amalgamation, RRBs
have become quite large covering most parts of the states. As on 31.03.2011, the
number districts covered by RRBs stands at 620. Assam Gramina Vikas Bank, an
amalgamated RRB, covers 25 districts, the highest in the country. While 23 other
amalgamated RRBs cover 10 or more districts each, 54 other amalgamated RRBs
cover 2 districts or more and 4 RRBs cover a single district. Increased coverage of
districts by RRBs make them an important segment of the Rural Financial Institutions
(RFI) for financial inclusion.
The branch network of 82 amalgamated RRBs as on 31.03.2011 is quite large
and diverse varying from 20 to 884 branches. The Uttar Bihar Gramina Bank has 884
branches, followed by Baroda Uttar Pradesh Gramina Bank with 673 branches. The
branch network of standalone RRBs varies between 8 and 553 branches.
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4.3 Reform Process of RRBs
RRBs started their development process in the year 1975, the first five RRBs
were setup in five states in Haryana, West Bengal, Rajasthan, with one each and two
in Uttar Pradesh, which were sponsored by different commercial banks. These banks
covered 11 districts of these five states. The first five regional rural banks are;
1.Prathima Gramina Bank and Gorakhpur Kshetriya Gramina Bank in Uttar Pradesh,
2.Haryana Krishi Gramina Bank in Haryana, 3.Gour Gramina Bank in West Bengal,
and 4.Jaipur-Nagpur Anchalik Gramina Bank, Rajasthan.
RRBs were originally conceived as low cost institutions having rural ethos,
local feel and pro-poor focus. However, within a very short time, most banks were
making losses. The original assumptions as to the low cost nature of these institutions
were belied. When the reform process in the banking sector was initiated, RRBs were
taken for a close look. The GOI in consultation with RBI and NABARD started the
reform process through a comprehensive package for RRBs including cleansing their
balance sheets and recapitalizing them. Lending restrictions were removed and
investment of their surplus funds was expanded. Simultaneously, a number of human
resource development programmes and organization development initiatives (ODI)
were taken up by NABARD, with the tools of training and exposure visits, technology
support and use of information technology, computerization, and system development
for business development and productivity improvement. By the year 2008, there was
a remarkable improvement in the financial performance of RRBs as compared to the
position prevailing in the year 1994-95.
The GOI initiated the process of structural consolidation of RRBs by
amalgamating RRBs sponsored by the same bank within a state as per the
recommendations of the Vyas Committee in the year 2004. The amalgamated RRBs
were expected to provide better customer service due to better infrastructure,
computerization of branches, pooling of experienced workforce, publicity - marketing
efforts and also derive the benefits of a large area of operation, enhanced credit
exposure limits and diverse banking activities. As a result of amalgamation the
number of RRBs was reduced 196 to 96 as on 30th
April 2007 and as on 31st March,
2011 there are 82 RRBs functioning in India.
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4.4 Key Performance Indicators of RRBs in India.
Table 4.2 presents the key performance indicators and growth of RRBs from
year 2006-07 to 2010-2011, Chart 4.1 presents key performance indicators and Chart