What are Regional Rural Banks (RRBs)?

• The Regional Rural Banks (RRBs) were established in 1975 under the provisions of the Ordinance promulgated on 26th September 1975 and Regional Rural Banks Act, 1976.
• RRBs are jointly owned by the Government of India, the concerned State Government and Sponsor Banks with the issued capital shared in the proportion of 50%, 15% and 35% respectively.
• RRBs were set up with the objective to provide credit and other facilities, especially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas for development of agriculture, trade, commerce, industry and other productive activities.
• NABARD is responsible for regulating and supervising the functions of RRBs. 
• The RRBs are required to provide 75% of their outstanding advances as priority sector lending with primary focus on agricultural credit, including small and marginal farmers, as well as micro entrepreneurs and rural artisans.

What is the issue?

• • RRBs are said to be facing existential crisis because of the following reasons
    • Dwindling business and inability to scale up business volumes
    • Soaring bad assets. For instance, while the number of RRBs has nearly halved from 82 to 43, their non-performing assets have more than doubled from 2.05 per cent to 4.68 per cent in the past one decade. 
    • The volume of the credit disbursed by the RRBs has shrunk from 13 per cent to 11 per cent during this period while the share of commercial banks in agricultural loans has surged from 65 per cent in 2010-11 to 76 per cent in 2021-22. 

• Swelling operational costs

• • Lack of internet banking facilities because of which most people in rural areas prefer to deal with commercial banks. 
  • Most of the RRBs are ineligible for being listed on the stock exchanges because they do not meet the required pre-conditions. 
  • Some of the RRBs even today have not fully digitised their operations. 
  • They didn’t manage to expand their business operations beyond farm-related activities by reaching out to micro, small and medium enterprises.

Way forward

• Merging some stand-alone RRBs with larger units or their sponsoring banks to cut their overhead costs and scale up the business volumes.
• Induction of funds to expand their capital base. 

reference:

https://www.business-standard.com/article/opinion/the-irrelevance-of-regional-rural-banks-122110801701_1.html