August 15, 2021

Form National Rural Bank of India to Strengthen Country’s RRBs

C P Krishnan

UNION government is bent upon destroying the rural economy by dismantling the present structure of Regional Rural Banks (RRBs). These banks have been rendering a splendid service to the rural poor.

Regional Rural Banks were established on October 2, 1975, through an ordinance to ensure sufficient institutional credit for the agriculture sector and to relieve the rural poor from the clutches of the usurious money lenders. The major objective of setting up of RRBs is to provide credit especially to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in rural areas. Later the ordinance was converted as Regional Rural Banks Act 1976. The RRBs are jointly owned by the Government of India, sponsor banks and the state governments concerned and the issued capital of RRBs is shared in the proportion of 50 per cent, 35 per cent and 15 per cent respectively. In these nearly four and a half decades of the existence of these banks, they have largely served the purpose for which they were established.

Initially, a large number of RRBs were established and about 15 years back there were 196 RRBs. Later they were merged in three phases and now there are 43 RRBs sponsored by 12 Public Sector Banks (PSBs) covering 27 states and 639 districts. The total number of branches at present is nearly 22,000 out of which nearly 21,000 are located in rural and semi-urban areas. Nearly 90 per cent of the branches are located in unbanked areas. The RRBs play a dominant role in rural India in terms of their branches and access to common people.

The total business of the 43 RRBs as a whole has reached Rs 8,60,428 crores. The total lending amounts to Rs 3,35,208 crores of which nearly 90 per cent are lent under priority sector category to small farmers, agriculture labourers, small traders, artisans etc. This is more than three times the amount lent by the hundreds of microfinance institutions all over the country.

While the RRBs stand for financial inclusion, the private banks and the private financial institutions hardly involve themselves in this. For instance, in the case of the Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme meant for poor and marginalised sections of the people, launched by the union government, while RRBs have opened 7.7 crore accounts, the private banks put together opened only 1.26 crore accounts.

Recently, the Government of India (GoI) has constituted an expert committee headed by the additional secretary of the department of financial services. It is learnt that this committee has recently submitted its report to categorize RRBs into three groups (A, B, C) based on their profitability, to divest the Government of India shareholding of 50 per cent in favour of the sponsor banks and to open up A class RRBs for disinvestment besides other recommendations.

Dividing RRBs in the name of profitability is a clear retrograde step and defeats the very purpose of the constitution of the structure of rural banks. Further, transferring a 50 per cent share of the union government in favour of the sponsor banks will slowly head towards privatisation and will amount to fully relieving the union government from all its responsibilities.

Opening up of A-class RRBs for disinvestment is a dangerous move. The RRB Amendment Act 2015 enacted by the previous Modi government allows disinvestment of up to 49 per cent of the share to the private sector. The most perilous clause in the amendment act is clause 2(A) which allows the union government to increase the percentage of disinvestment beyond 49 per cent through a notification. This, in essence, means fully handing over the RRBs to the private hands through administrative channels.

Even with this network and spread of RRBs, public sector banks and cooperative banks, a considerable section of the rural population is denied institutional credit and they are forced to take loans from the usurious money lenders at an exorbitant interest rate. Then what is the remedy?

There is an argument even among a section of the workers that the RRBs could be merged with the sponsor banks. If that happens what would be its impact on the rural economy? While the PSBs earmark 40 per cent of their loan portfolio for the priority sector, the RRBs lend to the extent of 90 per cent to the priority sector. Then the purpose of the formation of RRBs is lost.

On the other hand, there is an urgent need to merge all the 43 RRBs into one entity called the National Rural Bank of India (NRBI). This will be a bank equivalent to the size of the State Bank of India, in terms of network and will effectively serve the rural poor. At the present juncture, certain RRBs incur minimal loss due to certain geographical and other conditions like their size, limited scope for growth etc. Once merged into one entity as NRBI, the loss can be offset with the profits that are made in other regions.

There is a need to compete technologically with the small finance banks and microfinance institutions which are practically acting as usurious money-lenders and the formation of NRBI will help upgrade the technology expeditiously due to its larger size. Further, there is a need to increase the branch network and for expansion of the RRBs so that the entire rural population can be taken care of.

While the government has extended capital to the extent of only around Rs 7,000 crore so far to all the RRBs in these 45 years, they simply give up lakhs of crores of rupees towards corporate tax, corporate income tax, customs duty, excise duty etc. There is a greater need for the Union government to extend sufficient capital to the RRBs.

Therefore, there is an urgent need to halt the government’s move to dismantle RRBs and to strengthen the RRBs, by forming the National Rural Bank of India and strengthening the same.