Financial Inclusion Institutions and Schemes: Rrbs, Nabard, Pmjdy, Shg-Bank Linkage

Financial inclusion refers to providing access to affordable financial services like savings accounts, credit, insurance, and pensions to unserved and underserved populations. In India, institutional frameworks like Regional Rural Banks and the National Bank for Agriculture and Rural Development, alongside flagship initiatives like Pradhan Mantri Jan Dhan Yojana and the Self-Help Group-Bank Linkage Programme, form the structural core of rural credit and financial empowerment.

Regional Rural Banks

Genesis and Legislative Backing

Regional Rural Banks were established under the Regional Rural Banks Act, 1976. They were created following the recommendations of the M. Narasimham Working Group appointed in 1975. The primary objective was to combine the local familiarity of cooperatives with the professional management of commercial banks. The first Regional Rural Bank, Prathama Bank, was established on October 2, 1975, sponsored by Syndicate Bank.

Ownership Structure and Governance

The equity of Regional Rural Banks is held jointly by three entities in a fixed ratio:

• Central Government: 50 percent
• Sponsor Commercial Bank: 35 percent
• Concerned State Government: 15 percent

Operational Mandate and Lending Norms

Regional Rural Banks focus on serving small and marginal farmers, agricultural labourers, and rural artisans. The Reserve Bank of India mandates that Regional Rural Banks allocate 75 percent of their Adjusted Net Bank Credit to Priority Sector Lending, which is higher than the 40 percent target set for scheduled commercial banks.

Restructuring and Amalgamation

The Kelkar Committee in 1984 recommended stopping the creation of new Regional Rural Banks and focusing on consolidating existing ones. Subsequent phases of amalgamation reduced the number of Regional Rural Banks from 196 in 2005 down to 43. Amalgamation efforts aim to achieve single state-level Regional Rural Banks to improve operational efficiency and capital adequacy.

National Bank for Agriculture and Rural Development

Formation and Committee Recommendation

The National Bank for Agriculture and Rural Development was established on July 12, 1982, under the NABARD Act, 1981. Its creation was based on the recommendations of the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, chaired by B. Sivaraman. NABARD replaced the Agricultural Credit Department and Rural Planning and Credit Cell of the Reserve Bank of India, along with the Agricultural Refinance and Development Corporation.

Ownership and Supervision

NABARD is fully owned by the Government of India after the Reserve Bank of India divested its entire shareholding. NABARD acts as an apex refinancing institution for rural credit. It inspects and supervises Regional Rural Banks and State Cooperative Banks under Section 35(6) of the Banking Regulation Act, 1949.

Key Dedicated Funds Administered by NABARD

• Rural Infrastructure Development Fund: Set up in 1995–96 to finance rural infrastructure projects implemented by state governments.
• Micro Finance Development and Equity Fund: Created to build capacity among self-help groups and microfinance institutions.
• Financial Inclusion Fund: Supports technology adoption, financial literacy centers, and banking infrastructure deployment in unbanked rural areas.

Pradhan Mantri Jan Dhan Yojana

Launch and Core Pillars

Pradhan Mantri Jan Dhan Yojana was launched on August 28, 2014, under the National Mission for Financial Inclusion. The initiative operates on six foundational pillars:

• Universal access to banking facilities in every sub-service area.
• Basic savings bank deposit accounts with overdraft facilities and RuPay debit cards.
• Financial literacy programs to promote savings and credit awareness.
• Creation of a Credit Guarantee Fund to cover default risks in overdraft accounts.
• Access to micro-insurance schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Suraksha Bima Yojana.
• Unorganized sector pension schemes like Atal Pension Yojana.

Account Features and Benefits

Jan Dhan accounts require zero minimum balance. Account holders receive an inbuilt accident insurance cover of Rs 2 lakh on RuPay debit cards issued after August 28, 2018. An overdraft facility up to Rs 10,000 is available for eligible accounts, with an age limit of 18 to 65 years. The upper limit for overdraft without conditions is set at Rs 2,000.

Operational Progress

Total beneficiaries under Jan Dhan Yojana exceed 58 crore, with over 65 percent of these accounts opened in rural and semi-urban bank branches. Women hold over 55 percent of all total Jan Dhan accounts. Total cumulative deposits in these accounts stand at over Rs 3.1 lakh crore.

Self-Help Group-Bank Linkage Programme

Origin and Implementation

The Self-Help Group-Bank Linkage Programme was launched in 1992 as a pilot project by NABARD following recommendations from the SK Kalia Committee. It connects informal rural groups with formal banking systems without requiring collateral.

Models of SHG-Bank Linkage

• Model I: Banks directly promote, nurture, and finance Self-Help Groups.
• Model II: Self-Help Groups are promoted by non-governmental agencies or government bodies, but financed directly by commercial banks, Regional Rural Banks, or cooperative banks. This model covers the majority of linked groups.
• Model III: Non-governmental organizations act as financial intermediaries, borrowing from banks to lend to Self-Help Groups.

Institutional Integration with DAY-NRLM

The Deendayal Antyodaya Yojana – National Rural Livelihoods Mission integrates the SHG model into national poverty alleviation strategies. Under current guidelines, banks provide up to Rs 20 lakh in collateral-free loans to eligible Self-Help Groups. Over 85 percent of all operational Self-Help Groups in India consist exclusively of women members.

Institutional Frameworks Comparison

Key Facts for Quick Revision

• M. Narasimham Committee recommended setting up Regional Rural Banks in 1975.
• Prathama Bank was the first Regional Rural Bank established in India.
• Central Government holds 50 percent equity in Regional Rural Banks, Sponsor Bank holds 35 percent, and State Government holds 15 percent.
• Regional Rural Banks must allocate 75 percent of Adjusted Net Bank Credit to Priority Sector Lending.
• B. Sivaraman Committee recommended the establishment of NABARD in 1979.
• NABARD was established under the NABARD Act, 1981, and began operations on July 12, 1982.
• NABARD supervises State Cooperative Banks, District Central Cooperative Banks, and Regional Rural Banks.
• Rural Infrastructure Development Fund was set up under NABARD in 1995–96.
• Pradhan Mantri Jan Dhan Yojana was officially launched on August 28, 2014.
• Accidental insurance cover under PMJDY RuPay cards is Rs 2 lakh for accounts opened after August 28, 2018.
• Overdraft facility under PMJDY is available up to Rs 10,000 for eligible account holders.
• Women hold over 55 percent of total accounts opened under Jan Dhan Yojana.
• Self-Help Group-Bank Linkage Programme was piloted by NABARD in 1992.
• Collateral-free loan limit for Self-Help Groups under DAY-NRLM is Rs 20 lakh.