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Review of Financial, and Operational Reforms in Regional Rural Banks

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Review of Financial, and Operational Reforms in Regional Rural Banks

Recently the government has reviewed the financial and operational reforms in Regional Rural Banks (RRBs). In order to make RRBs financially stable, the government has asked for various reforms.

Some of the key improvements:

RRBs should move towards digitization and further expand their credit base by giving more credit to the Micro, Small and Medium Enterprises (MSME) sector.Review of Financial, and Operational Reforms in Regional Rural Banks

Regional Rural Banks (RRBs)

  • They have been established under the Regional Rural Banks Act, 1976 based on the recommendations of the Narasimham Committee (1975). These have been set up to increase credit facilities in rural areas.
  • RRBs have been brought under the purview of priority sector lending on the lines of commercial banks.
  • The shareholding of these banks is in the ratio of 50:15:35 with the central government, the respective state government and the sponsor bank respectively.

Importance of RRBs-

  • Providing banking services to the doorstep of rural people.
  • They provide institutional credit to the weaker sections.
  • Provide easy and direct finance to cooperatives and self-help groups.

Current challenges before RRBs –

  • High losses: Many of its branches do not have enough business. This is because they mainly focus on implementing government schemes like Direct Benefit Transfer in rural areas.
  • Recovery of loans: The loan recovery rates of RRBs have registered a decline over the years. Due to this their non-performing assets (NPAs) have become high.
  • Lack of unity in control: These banks are controlled by different agencies, such as sponsor banks, NABARD and Reserve Bank of India, apart from the central government.

Source: The Hindu

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