Regional Rural Banks (RRBs)

• RRBs are banks formed through collaboration between the Central Government, State Governments, and Sponsoring Commercial Banks.

• Their primary purpose is to provide affordable credit to rural areas, particularly targeting small farmers, agricultural laborers, and artisans.

•  By doing so, RRBs reduce dependence on moneylenders and promote financial inclusion.

Origin and Establishment:

• The Narasimham Committee on Rural Credit (1975) recommended the establishment of RRBs.

• The RRBs find their roots in the ordinance passed on 26th September 1975 and the RRB Act of 1976.

• The Prathama Grameen Bank was the first RRB, established on 2nd October 1975.

Functions of RRBs:

Banking Facilities in Rural Areas:

• RRBs provide banking services to rural and semi-urban regions.

• They carry out government operations such as disbursing wages for MGNREGA workers and distribution of pensions.

Para-Banking Services:

• RRBs offer para-banking facilities like locker services, debit and credit cards, mobile banking, internet banking, and UPI.

Priority Sector Lending (PSL):

• The RBI sets a PSL target of 75% of total outstanding advances for RRBs (compared to 40% for Scheduled Commercial Banks).

• RRBs focus on sectors like agriculture, small-scale industries, education, and housing.

Ownership and Area of Operation:

• The shareholding pattern of RRBs is 50:35:15 among the Central Government, Sponsoring Bank, and State Government, respectively.

• RRBs operate within the area notified by the Government of India, covering one or more districts in the state.

Regulation and Supervision:

• RRBs are regulated by the RBI and supervised by the National Bank for Agriculture and Rural Development (NABARD).

Sources of Funds:

• RRBs mobilize financial resources from rural and semi-urban areas.

• Their funds come from owned capital, deposits, borrowings from NABARD, sponsor banks, and other sources.

Management:

The Board of Directors oversees RRBs, consisting of nominated members from the Central Government, State Government, and sponsor bank.