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Agricultural Finance

Regional Rural Banks

In the multiagency approach to provide credit to agriculture, Regional Rural Banks (RRB’s) have special place. They are state sponsored, regionally based and rural oriented commercial banks. The Govt. of India, in July 1975, appointed a Working Group to study in depth the problem of devising alternative agencies to provide institutional credit to the rural people in the context of steps then initiated under the 20 Point Economic Programme. The Working Group identified various weaknesses of the co-operative credit agencies and the commercial banks and felt that these institutions would not be able to fill the regional and functional gaps in the rural credit system within a reasonable period of time. The Group therefore recommended a new type of institution which combines

  1. Local feel and familiarity with rural possess problems which co-operative banks.

  2. Degree of business organization ability to mobilise deposit, access to money market and modernised outlook which commercial banks have.

Thus, it was envisaged to combine desirable qualities of co-operative banks and commercial banks in RRB’s at the same time, it was emphasised that the role of RRB’s would be to supplement and not supplant the other institutional agencies already existing in the field.

Formation and Objective:3

The Government of India promulgated the Regional Rural Banks Ordinance on 26th September 1975, which was later replaced by the Regional Rural Bank Act 1976. The preamble to the Act states the objective to develop rural economy by providing credit and facilities for the development of agriculture, trade, commerce, industry and other productive activities in the rural areas, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs.

Capital Structure:

The RRB Act empowers the Central Govt. to open the banks from time to time at places where it may consider it necessary. A Regional Rural Bank is jointly owned by the Govt. of India, the Government of concerned state and public sector bank, which sponsored it. The authorised capital of each bank is Rs. 1 crore and the issued capital is Rs. 25 lakhs; which is held by them in the proportion of 50, 15 and 35 per cent respectively. Each bank carries the banking business within the local limits specified by the Govt. notification.

Organisational structure:

The management of a RRB is vested in a nine-member Board of Directors headed by

    1. Chairman who is an officer deputed by a sponsor bank but appointed by the Govt. of India.

    2. Three directors to be nominated the Central Govt.

    3. Two directors to be nominated by the concerned State Govt.

iv. Three directors to be nominated by the sponsor bank.

The sponsor bank, besides subscribing to the capital and deputing one of its official as chairman, provides assistance to RRB in several ways such as financial accommodation, deputing managerial and other staff and arranging the recruitment of staff and their training.


Every RRB may undertake the following types of functions:

  1. The granting of loans and advances particularly to small and marginal farmers and agricultural laboursers individually or to a group, co-operative societies, agricultural processing societies, co-operative farming societies, etc.

  2. The Granting of loans and advances to artisans, small entrepreneurs and small traders, businessmen, etc.

The Reserve Bank of India has brought RRB’s under the ambit of priority sector lending on par with the commercial banks. They have to ensure that forty percent of their advances are accounted for the priority sector. Within the 40% priority target, 25% should go to weaker section or 10% of their total advances to go to weaker section.