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The Narasimham committee on rural credit recommended the establishment of Regional Rural Banks (RRBs) on the ground that they would be much better suited than the commercial banks or co-operative banks in meeting the needs of rural areas.
Accepting the recommendations of the Narasimham committee, the government passed the Regional Rural Banks Act, 1976. A significant development in the field of banking during 1976 was the establishment of 19 Regional Rural Banks (RRBs) under the Regional Rural Banks Act‚1976.
The RRBs were established “with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto” .
- Bridging the credit gap in rural areas
- Check the outflow of rural deposits to urban areas
- Reduce regional imbalances and increase rural employment generation
The main objective for setting up the RRB is to provide credit and other facilities‚ especially to the small and marginal farmers‚ agricultural labourers artisans and small entrepreneurs in rural areas. Each RRB will operate within the local limits specified by notification.If necessary‚ a RRB will also establish branches or agencies at places notified by the Government.
The issued capital of RRBs is shared by Central Government, sponsor bank and the State Government in the proportion of 50%, 35% and 15% respectively.
Every RRB is authorized to carry on to transact the business of banking as defined in the Banking Regulation Act and may also engage in other business specified in Section 6 (1) of the said Act. In particular‚ a RRB is required to undertake the business of
- granting loans and advances to small and marginal farmers and agricultural labourers‚ whether individually or in groups, and to cooperative societies‚ including agricultural marketing societies‚ agricultural processing societies‚ cooperative farming societies‚ primary agricultural credit societies or farmers’ service societies‚ primary agricultural purposes or agricultural operations or other related purposes, and
- granting loans and advances to artisans‚ small entrepreneurs and persons of small means engaged in trade‚ commerce‚ industry or other productive activities‚ within its area of operation.
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.
Micro-finance is a novel approach to "banking with poor"as they attempt to combine lower transaction costs and high degree of repayments.The major thrust of these micro-finance initiatives is through the setting up of Self Help Groups (SHGs),Non-Governmental organizations(NGOs),Credit Unions etc.
Kisan(Farmers') Credit Card
Another notable development in recent years is the introduction of Kisan Credit Cards(KCC) in 1998-99.The purpose of the Kisan Credit Cards(KCC) scheme is to facilities short term credit to farmers.The scheme has gained popularity and its implementation has been taken up by 27 commercial banks, 187 RRBs and 334 Central cooperative banks.
As Agricultural is highly susceptible to risks such as drought, flood, pests etc. It is necessary to protect the farmers from natural calamities and ensure their credit eligibility from the next season. Towards this purpose, the Government of India introduced a comprehensive crop insurance scheme through out the country in 1985 covering major cereal crops, oilseeds and pulses. Among commercial crops, seven crops viz., sugarcane potato, cotton, ginger, onion, turmeric and chillies are presently covered.
As on 31st March 2015, total number of RRB’s in India is 56.
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