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RRBs: Strengthening & Reforms

The document discusses various recommendations and measures over time to improve the performance of Regional Rural Banks (RRBs) in India. It outlines recommendations from 1986 regarding increasing capital levels and reducing interest rates on refinancing. In 1998-99, measures were introduced like quarterly reviews of weak RRBs and merging RRBs under the same sponsor bank. Restructuring efforts began in 1994 with the government providing funds to clean balance sheets. More recently, measures aim to ensure RRBs maintain adequate credit-deposit ratios and lending to priority sectors, as well as better track credit to small farmers.

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Ashwani Kumar
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54 views5 pages

RRBs: Strengthening & Reforms

The document discusses various recommendations and measures over time to improve the performance of Regional Rural Banks (RRBs) in India. It outlines recommendations from 1986 regarding increasing capital levels and reducing interest rates on refinancing. In 1998-99, measures were introduced like quarterly reviews of weak RRBs and merging RRBs under the same sponsor bank. Restructuring efforts began in 1994 with the government providing funds to clean balance sheets. More recently, measures aim to ensure RRBs maintain adequate credit-deposit ratios and lending to priority sectors, as well as better track credit to small farmers.

Uploaded by

Ashwani Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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RECOMMENDATIONS

REGARDING OF RRBs
A working group under the chairmanship of Shri S.M. Kelkar was
constituted to review the various aspects of the working of the RRBs
for the past few years so as to identify appropriate measures for
strengthening their organizational structure and improving their
overall capabilities. The report was submitted in June 1986. The
major recommendations are as follow :

1. Increase in Authorized (1 to 5 crore)and Issued share capital (25
to 100 lakh).
2. Sponsored banks should invest the deposits of RRBs in Govt.
Securities
3. NABARD should remove the proposed restriction for credit
deposit ratio as to 100%.
4. Sponsored banks should reduce the rate of int. on refinance from
8.5 to 7%.
5. Restrictions on lending by RRB to non-target groups continued.
6. Restrictions on coverage of the RRBs to 2 districts only, and
merge of smaller uneconomic RRBs.

REMEDIAL MEASURES FOR THE RRBs
In 1998-99 NABARD introduced several policy measures for improving
overall performance are as follow :

1. Quarterly / half yearly review of RRBs especially weak ones by the
sponsor banks.
2. Merger of RRBs coming under a sponsor bank and operating in
contiguous areas .
3. Off-site surveillance.
4. Framing of appointment and promotion rules (1998) for the staff of
RRBs.
5. Introduction of Kissan Credit Cards for provision of credit to
farmers.
Remedial Measures
Govt. of India, RBI and NABARD initiated various measures for improving the
viability of RRBs.
1. 49 RRBs were taken up for restructuring and revival in the year 1994.
2.Govt. of India provided Rs. 150 crores for cleaning their balance sheet.
3. Asked to prepare Development Action Plans (DAPs) to attain current and
sustainable viability.
Phase 1 :
Phase 2 :
1. Comprehensive restructuring , 53 RRBs were taken up for revamping 1995-96
2. Govt. provided a sum of 223.57 crores.
3. A further provision of Rs. 200 crores was made in the Union Budget for
1996-97.
RECENT MEASURES
Its only in the past few years that the unwanted effects of reform measures on rural
banking have begun to be recognized in certain official quarters that improve the
performance of RRBs :

1. Among the RRBs which are making absolute profit, the credit-deposits ratio
should not be lower than 75%, and for those which are making profits but still
have accumulated losses, an increasing trend of the ratio should be ensured and
their investment portfolio should get reduced accordingly.
2. The priority sector lending by RRBs has been declining and as per the latest
figures, priority sector lending to agriculture and other allied activities comes to
about 57% of the total lending. The RBI should apply proper checks to ensure
that the present level of 57% of the lending by the RRBs to the priority sector is
not allowed to decline further.
3. The committee recommends that the RRBs should take steps for compiling and
maintaining data regarding credit facility extended to small and marginal
farmers and other weaker sections of the society to monitor that credit facilities
being provided by RRBs reach the targeted beneficiaries.
4. On the issue of NPAs of the RRBs, the Committee expressed its dissatisfaction at
the current levels. While the official statistics highlights the decline in NPAs from
34% in March 1996 to 18.34% in March 2001, the level of NPAs in absolute
terms had declined only marginally from Rs. 3232 Crore to Rs. 2990 Crore.

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