Regional Rural Banks Bcom Notes
Regional Rural Banks Bcom Notes:- In this post, you will get the notes of B.com 3rd year money and financial system, by reading this post you can score well in the exam, hope that this post has helped you with this post to all your friends and all groups right now I must share it so that every student can read this post and it can also be helped in this post. Regional Rural Banks Bcom
REGIONAL RURAL BANKS
In India, Regional Rural Banks (RRBS) was established with a view to supplement the efforts of the commercial banks and the co-operative societies in extending credit to weaker sections of the rural community i.e. small and marginal farmers, landless labourers, artisans and other rural residents of small means. The rural poor need a low cost, low profile credit institutions into which they could walk in without trepidation. The staff of RRBs was to be recruited from the neighbouring area and as such would have a better understanding of the local problems and the local people, their needs and their constraints.
Based upon the recommendations of the working group on Rural Banks, 5 RRBs were initially set up in 1975. Their number later rose to 196.
Structure and Organisation of the RBB
The authorised capital of RRB is fixed at Rs. 5 crore, and its issued capital at Rs.1 crore. Of the issued capital, 60 percent is to be subscribed by the Central Government, 20 per cent by the concerned State Government and the rest 20 percent by the sponsoring bank.
The working and affairs of the RRB are directed and managed by a Board of Directors. The Board of Directors consists of a Chairman, three directors to be nominated by the Central Government concerned and not more than two directors to be nominated by the State Government concerned, and not more than 3 directors to be nominated by the sponsoring bank. The chairman is appointed by the Central Government and his term of offices does not exceed five years.
Regional Rural Banks Bcom
Objectives And Functions Of Regional Rural Banks
The major functions and objectives of RRBs are as under:
- To grant loans and advances to the weaker sections of the rural population cially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs who are engaged in agriculture, trade, commerce, industry and other productive activities.
- To grant loans and advances to co-operative societies, including marketing societies, agricultural processing societies, cooperative farming societies, primary agriculture credit societies or farmers service societies for agricultural purpose.
- To take banking services to the doorsteps of the rural masses, particularly in hitherto unbanked rural areas.
- To mobilize rural savings by accepting deposits and channelizing them for productive activities in the rural areas.
- To create a supplementary channel for flow of credit from the urban money market to the rural areas.
- To generate employment opportunities in rural areas.
- To bring down the cost of supplying credit in rural areas.
With the progress of RRBs they have been permitted to undertake following functions also:
- To extend advances for purchase of consumer durables.
- To sanction loans for meeting various personal purposes against gold ornaments, National Savings Certificates, Indira Vikas Patra which are fully safe securities. However, such loans should not be more than 10 percent of fresh loans every year within the overall ceiling of 60 percent of loans to non-target groups.
- To issue guarantee on behalf of banks customers without any limit on 100 percent cash margin and up to Rs.20 lakh on cash margin plus collateral security of more than 50 percent.
- The limit for purchase of demand drafts, cheques have been raised per customer and per branch to Rs. 25,000 and Rs.1 lakh respectively.
- RRBs have been allowed to issue travellers cheques as an agent of their sponsor banks. 6. The RRBs can also provide locker facilities.
Thus, the RRBs have been providing all those facilities which are being provided by commercial banks.
Regional Rural Banks Bcom
Differences between RRBs and Scheduled Commercial Banks
The Regional Rural Banks are also scheduled banks. The RRB, however, differs from a scheduled commercial bank in the following respects:
- The RBB is deemed to be a cooperative society for the purposes of Income-tax Act, 1961.
- The area of operations of the RRB is limited to a specified region relating to one or more districts in the concerned state.
- The RRB grants loans and advances to the small and marginal farmers, agriculture labourers, rural artisans and small entrepreneurs or small traders.
- The RRB charges interest rates as adopted by the cooperative societies in the State.
- The interest paid by the RRB on its term deposits may be 1/2 percent more than that is paid by the commercial banks.
- If an RRB crosses the limit of 100 branches, it has to seek Reserve Bank’s permission before going beyond 100 branches,
- The RRB is a sponsored bank. It is sponsored by a scheduled commercial bank.
Major Problems Faced By RRBs
The RRBs have a mixed record of success’ on some front and ‘failures’ on some others in their business and attainment of goals. Their failure in achieving their targets may be attributed to several problems they encounter in practice. Some of the major problems faced by the RRBs are as under.
- Haste and Lack of Co-ordination in Branch Expansion: Haste in branch expansion programme in many cases have resulted in lopsidedness due to lack of co-ordination. In several case, it could not be ensured that the branches of the RRBs are opened at centres where no commercial or co-operative banking facilities were provided.
- Organisational Problems: Each RRB is sponsored by a commercial bank. The Central Government and the concerned State government also contribute to its capital. Thus there is a multi-agency control of RRBs. This has contributed to a lack of uniformity in their functioning. Besides, it has resulted in lack of support from state government and lack of proper monitoring by sponsor banks.
- Difficulties in Deposit Mobilisation: The RRBs encountered a number of practical difficulties in deposit mobilisation. On account of their restrictive lending policy which excludes richer sections of the village society, these potential depositors show least interest in depositing their money with these banks.
- Slow Progress in Lending Activity: The RRBs’ pace of growth in loan business is slow. For this the following reasons may be given: (i) There have been limited scope for direct lending by RRBs in their fields of operations; (ii) It is always difficult to identify the potential small borrowers and the bank staff have been requir make special and sincere efforts in this regard; (iii) Most of the small borrowers do not like the bank formalities and prefer to borrow from the informal/indigenous sources of finance, such as money-lenders; (iv) The anomalies in the Differential Interest Rate (DIR) Scheme also posed a special problem to the RRBs. While the RRBs charge 14 percent interest, the commercial banks charge only 4 percent under the DIR scheme in rural areas. Thus, no borrower would go to RRBs or co-operative societies in the area when a loan from the commercial bank is available under the DIR Scheme; (v)There is no effective link between the RRBs and PACS and the farmers’ service societies; (vi) There is lack of co-ordination between officials of the district credit planning committees and the RRBs.
- Problems of Recovery: Recovery position of RRBs is bad. Their recovery has varied between 51 percent to 61 percent. Thus, overdues have varied between 39 percent to 49 percent. The high incidence of overdues is attributable to a number of internal and external factors. The internal factors include defective loaning policies, weak monitoring and supervision, apathy towards recovery, failure to link lending with development and to ensure proper end use of the loan. Among the external factors, political interference, wilful default, droughts and floods, lack of legal and administrative support from the State government in the matter of loan recovery are main factors.
- Urban-Orientation of Staff: A crucial practical difficulty experienced in their working by the RRBs is the urban-orientation of their staff which is rarely inclined to server in rural areas. There is no true local involvement of the bank staff in the villages where they serve.
- Procedural Rigidities: The RRBs follow the procedures of the scheduled commercial banks in the matter of deposits and advancing loans which are highly complicated and time-consuming from the villagers’ point of view. The rural borrowers always appreciate informal ways and simple procedures as have been followed by the money-lenders and the indigenous bankers.
- Lack of proper Supervision: RRBs are under control and supervision of NABARD which is finding it difficult to inspect all banks regularly and there are no adequate and timely guidelines on credit policy, rate of interest, security etc.
- Mounting Losses Leading to Non-Viability: Most of the RRBs are running in losses and many had completely wiped out their equity and reserves and in some the losses were eating into their deposits. This was indeed an unsustainable situation. A number of factors had contributed to the problem of mounting losses. Some of these were as follows: First, the RRBs are so structured as to confine their lending to weaker sections where the interest earned on loans is the lowest in the banking system. Second, low margins coupled with high cost of servicing a large number of small accounts added to the losses. Third, in the absence of loans which could yield higher returns, RRBs did not have any scope for cross-subsidisation. In the opinion of the ACRC, it is the absence of cross-subsidisation that introduced ‘built-in non-viability in the working of the RRBS. Fourth, opening of RRB branches year after year added to the overhead costs without proportionate increase in income. Fifth, non-availability of competent and trained staff also posed serious problems. Lastly, the economic environment of many RRB branches is not satisfactory.
Regional Rural Banks Bcom
In the light of recommendations of the committee to review arrangements for institutional credit for agriculture and rural development, the Government of India set-up the National Bank for Agriculture and Rural Development (NABARD) in July 1982 with an initial capital of Rs. 100 crore which has now been increased to Rs. 2,000 crore.
According to the preamble of the Act, NABARD was established “for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural carfts in rural areas”.
Functions of NABARD
NABARD is the apex institution in respect of credit for agriculture and other economic activities in the rural areas in India. Thus, it is entrusted with all matters concerning policy, planning and operations in the above-mentioned fields.
NABARD took over the functions of the Agriculture Credit Department and Rural Planning and Credit Cell of the RBI; as well as of the Agriculture Refinance and Development Corporation.
NABARD performs the following function:
- It serves as an apex refinancing agertcy for the institutions providing investment and production credit in the rural areas;
- It has the responsibility of institution-building’ for increased effectiveness of the rural credit delivery mechanism;
- It undertakes monitoring and evaluation of projects refinanced by it;
- It co-ordinate the rural financing activities of all institutions engaged
in development work at the field level and liaison with the Government of India, The State Government, the Reserve Bank and other national level institutions concerned with policy formulation.
Regional Rural Banks Bcom