Regional Rural Banks

  • The nationalization of the banks in 1969 boosted the confidence of the public in the Banking system of the country. However, in the early 1970s, there was a feeling that even after nationalization, there were cultural issues that made it difficult for commercial banks, even under government ownership, to lend to farmers.
  • This issue was taken up by the government and it set up Narasimham Working Group in 1975. On the basis of this committee’s recommendations, a Regional Rural Banks Ordinance was promulgated on September 1975, which was replaced by the Regional Rural Banks Act 1976.
  • Regional Rural Banks came into existence on Gandhi Jayanti in 1975 with the formation of a Prathama Grameen Bank. The rural banks had the legislative backing of the Regional Rural Banks Act 1976. This act allowed the government to set up banks from time to time wherever it considered necessary.
  • The RRBs were owned by three entities with their respective shares as follows:
- Central Government _ 50%
- State government _ 15%
- Sponsor bank _ 35%
  • Regional Rural Banks were conceived as low-cost institutions having a rural ethos, local feel, and pro-poor focus.
  • Every bank was to be sponsored by a “Public Sector Bank”, however, they were planned as the self-sustaining credit institution which was able to refinance their internal resources in themselves and was excepted from the statutory pre-emptions.
  • 75 per cent of total outstanding to the sectors eligible for classification as priority sector lending and sub sector targets as indicated in subsequent paragraphs.

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