Regional Rural Banks

Narasimham Committee and Genesis of RRBs

We all know that the first stage of nationalization that took place 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 which 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 a working group to suggest the alternatives for institutional finances to the rural sector.

• The committee was Narasimham Working Group 1975.

On the basis of this committee's recommendations, a Regional Rural Banks Ordinance was promulgated in September 1975, which was replaced by the Regional Rural Banks Act 1976.

• RRBs started their development process on 2nd October 1975 with the formation of a single bank viz. Prathama Grameen Bank.
• So, Prathama Grameen Bank is India's first Regional Rural Bank.
• The making of RRB started with an ordinance which later was upgraded to an act.
• The Regional Rural Banks Act 1976 allowed the government to set up banks from time to time wherever it considered necessary.
• The regional rural banks (RRBs) were owned by the central government, the state government and the sponsor bank who held shares in the ratio as follows (important)
  • Central Government :                         50%
  • State Government :                         15%
  • Public Sector Commercial banks (Sponsor Banks):         35%

Initially, there was an expansion of the RRBs which is evident from the following table:

But after 1990, they were soon became a victim of a folly in assumption.