Context:
Union Finance Minister recently emphasised regional rural banks (RRBs) to upgrade their digital capability and increase penetration under Pradhan Mantri Mudra Yojana.
Relevance:
GS II: Indian Economy
Dimensions of the Article:
- What are Regional Rural Banks (RRBs)?
- Functions of RRBs
- Issues Related to RRBs
What are Regional Rural Banks (RRBs)?
Set up on the recommendations of Narasimhan Committee on Financial Inclusion in 1976.
- Can only operate in the areas specified by GOI.
- Objective of providing credit to the agricultural and rural regions.
- Financial strength and expertise of commercial banks and Grassroot problem awareness of cooperative societies.
- CRR and SLR limits apply
- CAR — 9%
- Not allowed to borrow under the MSF window.
Shareholding:
- Union: 50%
- State: 15%
- Sponsor bank: 35%.
Functions of RRBs:
- To provide safety to the savings of customers
- To create credit and increase the supply of money
- To encourage public confidence in the financial system
- To mobilize the savings of public
- To increase its network so as to reach every segment of the society
- To provide financial services to all customers irrespective of their level of income
- To bring in social equity by providing financial services to every stratum of society.
Issues Related to RRBs
- Regional Rural Banks (RRBs) are operating at a higher cost than scheduled commercial banks, and many of their branches are losing money as a result of a lack of business.
- They primarily provide government programmes like Direct Benefit Transfer in rural areas. Currently, only 19 RRBs have access to online banking, and only 37 have mobile banking licences.
- Only RRBs that maintain a minimum statutory capital to risk-weighted assets ratio (CRAR) of more than 10% are permitted under current legislation to offer internet banking.
