PROJECT REPORT ON

Rural banking in India

Bachelor of Commerce (Banking & Insurance)

Semester (V)
(2019-2020)

Submitted By
Mit Nisar: - 28

Project Guide
PROF. Baijul Anand Mehta

Mithibai College of Arts, Chauhan Institute of Science

&AmruthbenJivanlal College of Commerce and
Economics
1
Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna
Nagar, Vile Parle (W), Mumbai, Maharashtra 400056

“Research study on Rural banking in India”

Bachelor of Commerce (Banking & Insurance)

Semester (V)

Submitted
In Partial Fulfillment of the requirements
For the Award of Degree of
Bachelor of Commerce (Banking & Insurance)

By:
Mit Nisar
Roll No.: 28

Mithibai College of Arts, Chauhan Institute of Science

&AmruthbenJivanlal College of Commerce and
Economics

2
Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna
Nagar, Vile Parle (W), Mumbai, Maharashtra 400056

3
 ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so
numerous, and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels

and fresh dimensions in the completion of this project.

I take this opportunity to thank Mithibai College for giving me chance

to do this project.

I would like to thank my Principal, Dr.RajpalShripatHande for

providing the necessary facilities required for completion of this
project.

I take this opportunity to thank our Head of DepartmentMr.Mandar

Thakur, for his moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide Asst. Prof. CA.Baijul Anand Mehta, whose guidance and care
made the project successful.

Lastly, I would like to thank every person who directly or indirectly

helped me in the completion of the project especially my Parents and
Peers who supported me throughout my project.

4
 DECLARATION

I, Mit Nisar the student of T.Y.B.B.I. Semester V (2019-2020)

hereby declare that I have completed the project on rural banking in
India.

The information submitted is true and original to the best of my

knowledge.

_____________________
MitNisar
Roll No.: 28

Mithibai College of Arts, Chauhan Institute of Science

&AmruthbenJivanlal College of Commerce and Economics

Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna Nagar, Vile

Parle (W), Mumbai, Maharashtra 400056

5
 CERTIFICATE

This is to certify that Mr.(NAME), Roll No: () of Third Year B.B.I.,

Semester V (2019-2020) has successfully completed the project on
(TITLE)
Under the guidance of Asst. Prof. CA.Baijul Anand Mehta.

Project Guide/ Internal Examiner Principal

(Asst. Prof.CA. (Baijul Anand Mehta)

External Examiner

6
INDEX

SR Topic Pg
No No
1 Introduction 8-26
Meaning
Capital of RRBs
Working of RRBs
Organisational structure
Difficulties faced.

2 Review of literature 27-

30
Chapter Planning 31
3 Need of the study 32
4 Objective of the study 32
5 Hypothesis 33
6 Research methodology 33-
Data collection method 40
Sample Size
Tools and technique
Data analysis and interpretation
7 Limitation 41
8 Suggestion 41
9 Conclusion 42
10 Reference 43-
45

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1. Introduction

The economic development in India followed socialist-inspired policies for most of its
independent history, including state-ownership of many sectors; India's per capita
income increased at only around 1% annualized rate in the three decades after
Independence. Since the mid-1980s, India has slowly opened up its markets through
economic liberalization. After more fundamental reforms since 1991 and their
renewal in the 2000s, India has progressed towards a free market economy. India lives
in its villages, and while the cities have grown immensely over the last 20 years, rural
areas have not seen that kind of development. For India’s economy to be strong, the
rural economy needs to grow. Rural areas are still plagued by problems of
malnourishment, illiteracy, unemployment and lack of basic infrastructure like
schools, colleges, hospitals, sanitation, etc. Our villages need to grow in tandem with
cities and standard of life has to improve there for inclusive growth to happen. If rural
India is poor, India is poor. Rural development is not merely development of rural
areas but also the development of the rural people into self-reliant and self-sustaining
modern little communities. Rural development in the country is designed to enhance
the socio-economic living conditions for the people living in rural India while
conserving their culture and rich tradition. The Government seeks to achieve higher
targets related to rural production, employment and higher living standards which will
pave the way for all round economic development of the country. This includes
setting up basic infrastructure and facilities such as medical facilities, schools, and
transport facilities, apart from scheme implementation related to improving rural
employment, agricultural productivity and rural industrialization. The rural population
in India suffers from a great deal of indebtedness and is subject to exploitation in the
credit market due to high interest rates and the lack of convenient access to credit.
Rural households need credit for investing in agriculture and smoothening out
seasonal fluctuations in earnings. Since cash flows and savings in rural areas for the
majority of households are small, rural households typically tend to rely on credit for
other consumption needs like education, food, housing, household functions, etc.
Rural households need access to financial institutions that can provide them with
credit at lower rates and at reasonable terms than the traditional money-lender and
thereby help them avoid debt-traps that are common in rural India. Rural banking has
become integral to the Indian financial markets with a majority of Indian population

8
still living in rural or semi urban areas. Government of India and the Reserve bank of
India have been continuously working to achieve complete financial inclusion i.e.
timely and sufficient access to financial inclusion services and credit at an affordable
cost, in the vast expanse of our country. Pradhanmantri Jan DhanYojana is one of the
recent initiatives by the new government which has definitely contributed to bring
banking to every household. This scheme with time will significantly reduce the gap
between rural and urban areas in terms of financial inclusion but the fact that about
70% of population of India is still rural and penetration of banking facilities is as low
as only 24% i.e. only this percentage of people in these areas have formalbank
accounts, cannot be ignored.

Regional Rural banks have been set up under the Regional Rural bank Act, 1976 to
provide a continuous source of credit for agriculture and other activities. These banks
were set up with aim of reaching every corner of the country and cater to financial
needs of rural banking society comprising – small and marginal farmers,sections was
made hassle free and given at cheap or concessional rates. As the India’s 58% income
from agriculture, government with help of banking sector providing major aids in
finance to carry out their livelihood. Farmers doesn’t have to buy money on loan from
money lenders and repay with huge interest, they just have to go to bank to open their
bank account and get loan by paying it with decided and minimal interest, for that
banks has taken lots of initiatives with help Of RBI.

9
RBI has also encouraged the spread of these banks by undertaking the following:

 Allowing non target group financing for RRBs.

 Recapitalisation and restructuring of RRBs.
 Simplification of lending procedures as per Gupta committee recommendations.
 Special credit plans.
 Kisan credit cards.
 Deregulations of lending rates.
 Direct financing for SCBs.
 Various relaxations in investment policies and non fund business.
 Allowing direct access to refinance assistance at concessional rates for RRBs.

These initiatives have promoted the banking culture by making formal credit available to
rural households. These facilities have helped to steer the agriculture dominated economy
towards modernisation. The banks have to keep in mind about subsides of rural culture and
understand that the rules of rural economy are different from urban dynamics. However with
the increased mobility and connectivity, the urban and rural integration has increased and
many factors which made urban landscape have come to mark rural settings as well. The
institute of Regional Rural Banks (RRBs) was created to meet the excess demand for
institutional credit in the rural areas, particularly among the economically and socially
marginalized section. Although the co-operative Banks and the commercial banks had
reasonable records in terms of population group the co-operative banks had a clear urban
bias. In order to provide access to low cost banking facilities to the poor, the Narshimhan
working group (1975) proposed the establishment of a new set of banks as institution which
"combine the local feel and the familiarity with rural problems which the cooperatives
possess and the degree of business organization, ability to mobilize deposits, access to central
money markets and modernized outlook which the commercial banks have". Rural banking in
India started since the establishment of banking sector in India. Rural Banks in those days
mainly focused upon the agro sector. Regional Rural Banks in India penetrated every corner
of the country and extended a helping hand in the growth process of the country. It was
envisaged to combine desirable qualities of co-operative banks and commercial banks in
RRBs, at the same time, it was emphasized that the role of RRBs would be to supplement and
not supplant the other institutional agencies already existing in the field.

10
The capital of RRB is contributed by the Union Government, concerned state Government
and a sponsor bank in the ratio 50:15:35. Thedevelopment process of RRBs started from 2nd October
1975, forming of first regional rural bank, prathama bank, head office at Moradabad with authorised
capital of Rs 5 crore at its starting.From a modest beginning of 6 RRBs with 17 branches covering
12 districts in December 1975, the numbers have growth into 196 RRBs with 14446 branches
working in 518 districts across the country in March 2005. The RRBs have been in sharp
focus over the last few years with several measures initiated towards strengthening them and
making them vibrant channels of credit delivery, particularly for the rural sector. The most
prominent of these has been the process of State wise amalgamation of RRBs sponsored by
the same sponsor bank. Due to the process of amalgamation, the number of RRBs in the
country declined from 196 to 96 at the end of March 2006 and further to 88 at the end of June
2008 and 84 at the end of March 2015.The burden of indebtedness in rural India is
exceptionally enormous. Despite major structural changes in credit institutions and forms of
rural credit in the post-Independence period, the exploitation of the rural masses in the name
of credit facility is one of the most pervasive and persistent features of rural India. The
objectives of this paper are to assess the growth pattern of RRBs; to examine the credit
distribution and geographical distribution of RRBs. The analysis period of the study is from
inception (1975) to till (2005) date. The overall position of RRBs in India is not quite
encouraging. The poor credit-deposit ratio is still making dent on the improve functioning of
RRBs. Since the RRB is supposed to be a bank for poor people, its presence in all the states
of country especially in underdeveloped States can make things better. The government
should spread the branches of RRBs at grass root level to provide such banking service to the
really needy rural people. Moreover, it is the responsibility of the bank management and the
sponsored bank to take corrective measures to raise the credit-deposit ratio of the bank that
would make RRBs relevant in the rural India.

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Role of sponsor banks:
The following roles are played by Sponsor Bank in respect of RRB some of which are statute
in the RRB Act, 1976.

1. Sponsor (promote) the RRB

2. Providing equity support to the extent of 35%

3. Deciding the place of Head Office/ change of Head Office

4. Extending Managerial and Financial support and training of the officials

5. Providing services of Chairman, General Manager and other officials as needed

6. Nomination of two official directors in the Board

7. The sponsoring Nominee Directors for Govt. of India

8. Providing refinance at concessional rate of interest and also to help maintaining liquidity
of the RRB

9. Expert guidance / help in Investment

10. Conduct of Management Audit

11. Assisting assessment of manpower, creation of vacancy, recruitment and promotion.

12. Entering into MoU, preparation of DAP and Review and monitoring of performance.

13. Guidance in Administrative matters, recovery, credit dispensation and legal advice.

14. Liaisoning with Govt. of India/ RBI/ NABARD.

15. Help for Computations.

16. Extension of Area of Operation.

17. Fixation of other allowances.

18. Fixing of inter-se seniority.

19. Approval the categorization of branches.

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Role of central government
The powers of the Central Government as specified in the Act are listed in Annexure 2.1.

It is seen that the Central Government has absolute powers, right from incorporation of an
RRB, subscribing to its capital, appointing two directors on the board, notifying various rules
and regulation for board meetings, appointments and promotions, staff regulation,
determining remuneration and service conditions of the staff and officers, appointing auditors
and fixation of their remuneration, giving direction to RRBs on policy matters involving
public interest, amalgamation of RRBs and notification thereof and placing the working
results / activities of the RRBs in both Houses of Parliament. In exercising such powers, the
Central Government seeks the expertise and services of NABARD, which also maintains the
database on RRBs.

Role of Reserve bank of India

Reserve Bank of India is the Central Bank of the country. It performs a wide range of
promotional functions to support national economic policy objectives. It is the Regulator and
Supervisor of the financial system. It prescribes broad parameters for banking operations
within which the country’s banking and financial system functions, so as to ensure stability.
As per the provisions of the RRB Act, 1976, RBI represents the GOI on the boards of RRBs.

Role of State Government

Though the State Governments have only a smaller holding of 15%, they have a greater stake
in the banks as these banks play a significant role in implementing various credit-linked
development schemes. The State Governments nominate two directors each to the Boards of
RRBs functioning in the States. The State Government is expected to assist RRBs in their
smooth functioning and facilitate the recovery of loans.

Role of NABARD
NABARD is also a stakeholder in these banks. NABARD assists the Central Government in
relation to all its functions pertaining to RRBs. It provides policy inputs and has
representation on the Board of Directors on behalf of GOI. NABARD provides concessional
refinance support to augment the resource base of RRBs for lending to the desired sectors as
also to enhance liquidity. NABARD has been playing a significant role in human resource

13
development of the RRBs by imparting training to RRB officers, conducting organisation
development initiatives (ODIs) and exposure visits within the country and abroad. NABARD
extends help to the RRBs in all matters relating to its operational problems, business
development, micro-finance, policy thrust, etc. NABARD has also been entrusted with the
statutory supervision of the RRBs by way of conduct of offsite surveillance and onsite
inspections.

The Advisory Committee on Flow of Credit to Agriculture and related activities, 2004, under
the chairmanship of Prof. V S Vyas, recommended the amalgamation of RRBs into State
level institutions as it felt that the process of amalgamation would lead to significant
reduction in cost of administration and economies of scale. With increasing competition in
the rural financial markets, particularly from the private sector commercial banks and sponsor
banks, the income of RRBs, which are essentially localised units, is likely to decline,
threatening the sustainability of RRBs. By contrast, amalgamation would lead to enhanced
coverage of geographical areas and the improved outreach of such amalgamated entities
would enable them to ramp up growth by diversifying business portfolios. Amalgamation
would further result in efficient and optimum utilisation of the financial and non-financial
resources due to a combination of synergy and transaction costs sharing potentials.
Amalgamation would lead to rationalisation of staff and their need based allocation and
redeployment. Besides, the inter district transferability potential can improve the prevailing
'not so exemplary' work culture. Based on these recommendations, Govt. of India allowed
RRBs sponsored by the same bank within the same State to be amalgamated in a phased
exercise. So far 137 of the 196 RRBs sponsored by different banks have been amalgamated
into 43 new entities (a few more proposals are under consideration). Together with 59
standalone / unamalgamated banks, the total number of RRBs now stands at 102. By the time
the State-wise sponsor bank-wise consolidation of RRBs is complete, the number of RRBs
could reduce to 96.

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Recapitalisation
Subsequent to review of the financial status of RRBs by the Union Finance Minister in
August, 2009, it was felt that a large number of RRBs had a low Capital to Risk weighted
Assets Ratio (CRAR). A committee was therefore constituted in September, 2009 under the
Chairmanship of K C Chakrabarty, Deputy Governor, RBI to analyse the financials of the
RRBs and to suggest measures including re-capitalisation to bring the CRAR of RRBs to at
least 9% in a sustainable manner by 2012. The Committee submitted its report in May, 2010.
The following points were recommended by the committee:

 RRBs to have CRAR of at least 7% as of 31 March 2011 and at least 9% from 31 March
2012 onwards. Recapitalisation requirement of Rs 2,200.00 crore for 40 of the 82 RRBs.
This amount is to be released in’ two instalments in 2010–11 and 2011–12.
 The remaining 42 RRBs will not require any capital and will be able to maintain CRAR
of at least 9% ifs on 31 March 2012 and thereafter on their own.
 A fund of 100 crore to be set up for training and capacity building of the RRB staff.

The Government of India recently approved the recapitalization of Regional Rural Banks
(RRBs) to improve their Capital to Risk Weighted Assets Ratio CRAR) in the following
manner:

 Share of Central Government i.e. Rs.1, 100 crore will be released as per provisions made
by the Department of Expenditure in 2010-11 and 2011-12. However, release of
Government of India share will be contingent on proportionate release of State
Government and Sponsor Bank share.
 A capacity building fund with a corpus of Rs.100 crore to be set up by Central
Government with NABARD for training and capacity building of the RRB staff in the
institution of NABARD and other reputed institutions. The functioning of the Fund will
be periodically reviewed by the Central Government. An Action Plan will be prepared by
NABARD in this regard and sent to Government for approval.
 Additional amount of 700 crore as contingency fund to meet the requirement of the weak
RRBs, particularly those in the North Eastern. and Eastern Region, the necessary
provision will be made in the Budget as and when the need arises.

15
Organitional structure

The organizational structure for RRB's varies from branch to branch and depends upon the
nature and size of business done by the branch. The Head Office of an RRB normally had
three to nine departments.

The following is the decision making hierarchy of officials in a Regional Rural Bank.

 Board of Directors
 Chairman & Managing Director
 General Manager
 Chief Manager
 Regional Manager
 Senior Manager
 Manager
 Officer
 Office Assistant.

Board of Director

In terms of Section 8 of the RRB Act 1976, 'the general superintendence, direction and
management of the affairs and business of RRBs vests in a Board of Directors who may
exercise all the powers and discharge all the functions which may be exercised or discharged
by the RRBs'. In exercising these functions, the Board shall act on business principles and
shall have due regard to public interest.

The provision in the Act has empowered the Board and given full rights and responsibilities
in all matters relating to RRBs. After analysing the decisions taken in Board meetings of
RRBs for 2005-06, the Task Force has observed that in spite of the powers conferred on the
Board, the decisions are not finalised at that level. The Board often prefers to refer issues to
the sponsor bank or NABARD, as the case may be, or defers the issues for the future. Such a
practice has evolved in spite of the fact that five professional bankers represent the Board of
RRB and adequate power is vested in the Board to take appropriate decisions. The resultant
effect of such indecisiveness inevitably delays the decision making process, thereby causing
inefficiency, disputes, HR problems, etc., which in turn affect the growth and progress of the
RRBs

16
The top policy making body of any progressive institution should reflect a fair cross section
of the public interest and that of other important stakeholders whose well being is closely
linked with the fortunes of that institution. The flavour of times and dictates of public policy
demand representation to women in top policy making bodies. A non-institutional minority
shareholder or a long-term depositor of a bank is another important stakeholder interested in
the fair performance of that bank. Similarly, human resources in organisations are no more to
be considered liabilities and many organisations with a modern outlook have started
accounting them as assets in the annual financial statements. While considering the
struggling past of RRBs, notwithstanding the hiccups of occasional agitations and legal
battles with Banks' management, sometimes, even on trivial issues, the Task Force cannot but
acknowledge the contributions made by the field personnel in ramping up business volumes.
The employees of RRBs are important stakeholders who could hugely influence the fortunes
of the institutions.

It is also provided in Section 9 (2) that the Central Government may increase the number of
members of the Board; so however, that the number of directors does not exceed fifteen in
the aggregate and also prescribes the manner in which the additional number may be filled
up. At present, the size of the Board of Directors of RRBs is uniform at 9 members for all
RRBs without reference to the size and area of operations of the banks.

The composition of the Board should however reflect the shareholders in the new set up and
the need for specialisation. The following minimum composition of the Board is suggested:

1. One official each from RBI, NABARD and the State Govt. and two from the sponsor bank

2. Three directors from amongst expert in rural economics, rural development, information
technology, chartered accountancy, cottage and village industries, small and micro
enterprises, or persons having experience in the working of Cooperative Banks, regional rural
banks or commercial banks or any other matter the special knowledge or professional
experience which is considered by the GoI, in consultation with RBI / NB as useful to the
RRB, to be nominated by that Authority (GoI), with the proviso that at least one of such
experts will be a woman .

3. The existing RRB Act provides for making need based increase in the number of Directors
of Board up to 15. The Task Force recognises that such contingencies could arise in

17
exceptional situations for individual RRBs and therefore favours the retention of that clause
in the RRB Act, unaltered. However, this provision may now be invoked, keeping in view the
amalgamation/merger of RRBs. There are now RRBs with 8 branches (Nagaland RRB) rising
up to 680 branches (Uttar Bihar KGB, Muzaffarpur, and Bihar).

The nominees should be of sufficient seniority and experience. NABARD, in consultation

with GOI, may fill the remaining vacancies with experts in banking, micro finance,
agriculture, small industries, and accountancy, InfoTech, etc.

The Chairman

Section 11 of the RRB Act 1976 provides for the sponsor bank to appoint Chairmen of RRBs
from among its officers who possess the fit and proper criteria prescribed thereof in
consultation with NABARD other than in exceptional situations that warrant adherence to
other prescriptions laid down by the Act. However, the emerging environment and
circumstances of RRBs are not what it used to be in the past and calls for an image change as
entities independent of the sponsor banks. The Committee on Financial Sector Plan for North
Eastern Region under Mrs.UshaThorat, Deputy Governor, RBI which examined the issue of
positioning of Chairman in RRBs observed that the problem faced by RRBs include lack of
dynamism/ motivation of CEO, staff constraints in some RRBs, inadequate interest taken by
Sponsor Banks, etc. and suggested that wherever required, RRBs may be allowed to recruit
CEOs from market on contract basis with remuneration linked to achievement of specified
targets in terms of financial inclusion and business levels. A Parliament Committee
recommended that NABARD be entrusted with the responsibility for selection and
appointment of Chairman of all RRBs by preparing an All India Panel. The Task Force
recommends that the Chairman of all RRBs be selected on merit and on competitive basis
and appointed by the sponsor bank from amongst a panel of qualifying officers of, based on
criteria to be prescribed for the purpose, from time to time. The CEO's panel needs to be
prepared by the sponsor bank in consultation with NABARD, based on the fit and proper
criteria generally prescribed by RBI for commercial banks. To encourage the deputation of
talented officers as Chairmen of RRBs, the Task Force feels that the RRB Chairman be given
due weight age by the parent institution for promotion of the officer to the next higher grade
as and when he is eligible for promotion. The pay/allowances and incentives should be
attractive so as to encourage performance. Further, though the RRBs Act, 1976 does not
prescribe any minimum period for appointment of a Chairman on the Board of RRB (though
18
maximum period is stipulated), the Task Force recommends that sponsor bank/NABARD
may take care that the minimum period for which a Chairman should hold office is not less
than 2 years and up to a maximum period of 5 years.

Board of directors

As of now, the term of nominee directors is two years and a nominee director continues to be
in position till his successor is nominated. It is recommended that the term of nominee
directors may be as long as prescribed by the institutions nominating them but in any case not
exceeding two terms of two years at a point of time and no director may be nominated for
more than two terms of two years each. The term of nominee directors may also be for a
minimum period of two years though they may be eligible for re-nomination for another term
of two years.

Committees

Delegation of power and monitoring their end-use are key factors in corporate governance.
As the Board of Directors cannot meet frequently, there is a need for institutional
arrangements to deal with various issues. There is also a need for expert opinion on relevant
fields. Section 15 of RRBs Act, 1976 provides for constitution of Committees as needed by
the RRB. Such Committees may consist wholly of Directors or partly of Directors and partly
of other persons as the Board may think fit. It is, therefore, suggested that the Board of
Directors of RRB may constitute such Committees as may be required by them for efficient
operations of the respective Banks but they must necessarily have the following Committees:

Risk Management Committee to take care of Asset-Liability Management, credit risks,

decisions on interest risks and review of interest structure, as also for effective recovery
policies including compromise and settlement procedures. The Risk Management Committee
may not wholly consist of Directors. The Committee may be constituted with the Chairman,
one of the Board members having knowledge on the subject and 2/3 senior officials of the
Bank.

Management Committee: The Management Committee will comprise of the Chairman and 3-
4 senior executives of the RRBs and shall deal with loan sanctions, innovative banking

19
products, operational instructions, general administration, computerisation, career
progression, etc. and related issues.

Investment, HR and IT Committee: This Committee is not envisaged as a Committee of the

Board but shall comprise of senior personnel of the RRB. They could co-opt external experts
in HR, IT and Investments, for specific issues, as and when required for efficient operations.

Audit Committee of the Board for supervising the internal supervision systems, audit of
policies framed by the Board and its implementation, ensuring integrity of statutory
information supplied to regulator institutions, decisions relating to framing of annual balance
sheets and profit and loss accounts as also accounting policies related thereto, audit of annual
accounts and its compliance as also compliance of various inspections undertaken by
supervising authorities. The Audit Committee may co-opt a practising Chartered Accountant
as member.

Currently, RRB's are going through a process of amalgamation and consolidation. 25 RRBs
have been amalgamated in January 2013 into 10 RRBs. This counts 67 RRBs till the first
week of June 2013. This counts 56 as of March 2015. On 31 March 2016, there were 56
RRBs (post-merger) covering 525 districts with a network of 14,494 branches. All RRBs
were originally conceived as low cost institutions having a rural ethos, local feel and pro poor
focus. However, within a very short time, most banks were making losses. The original
assumptions as to the low cost nature of these institutions were belied. This may be again
amalgamated in near future, with the third phase of amalgamation of RRB bringing down the
number of such entities to 38 from 56. At present there are 56 RRBs in India as on 01-04-
2019.

The 56 RRBs are as follows:

Andhra Pradesh

 Andhra PragathiGrameena Bank

 Andhra Pradesh GrameenaVikas Bank
 Chaitanya Godavari Grameena Bank
 SaptagiriGrameena Bank

Arunachal Pradesh

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 Arunachal Pradesh Rural Bank

Assam

 Assam GraminVikash Bank

 LangpiDehangi Rural Bank

Bihar

 Bihar Gramin Bank

 Madhya Bihar Gramin Bank
 Uttar Bihar Gramin Bank

Chhattisgarh

 Chhattisgarh RajyaGramin Bank

Gujarat

 Baroda Gujarat Gramin Bank

 Dena Gujarat Gramin Bank
 SaurashtraGramin Bank

Haryana

 Sarva Haryana Gramin Bank

Himachal Pradesh

 Himachal Pradesh Gramin Bank

Jammu and Kashmir

 EllaquaiDehati Bank
 J&K Grameen Bank

Jharkhand

 Jharkhand RajyaGramin Bank

 VananchalGramin Bank

Karnataka

21
 KaveriGramin Bank
 Pragathi Krishna Gramin Bank
 Karnataka VikasGrameena Bank

Kerala

 Kerala Gramin Bank

Madhya Pradesh

 MadhyanchalGramin Bank
 Central Madhya Pradesh Gramin Bank
 Narmada jhabuaGramin Bank

Maharashtra

 Maharashtra Gramin Bank

 VidharbhaKonkanGramin Bank

Manipur

 Manipur Rural Bank

Meghalaya

 Meghalaya Rural Bank

Mizoram

 Mizoram Rural Bank

Nagaland

 Nagaland Rural Bank

Odisha

 OdishaGramya Bank
 UtkalGrameen Bank

Puducherry

 PuduvaiBharathiarGrama Bank
22
Punjab

 Punjab Gramin Bank

 MalwaGramin Bank

Rajasthan

 Baroda Rajasthan KshetriyaGramin Bank

 Rajasthan MarudharaGramin Bank

Tamil Nadu

 PallavanGrama Bank
 PandyanGramin Bank

Telangana

 TelanganaGrameena Bank

Tripura

 Tripura Gramin Bank

Uttar Pradesh

 Aryavart Bank
 Prathama UP Gramin Bank
 Baroda UP Gramin Bank
 KashiGomtiSamyutGramin Bank
 PurvanchalGramin bank
 Allahabad UP Gramin Bank

Uttarakhand

 UttarakhandGramin Bank

West Bengal

 BangiyaGraminVikash Bank
 PaschimBangaGramin Bank
 UttarbangaKshetriyaGramin Bank
23
These are the current 56 RRBs working in India.

Problems faced by RRB’s are:

A commercial bank sponsors each RRB. The concerned State government and Central
Government also contribute to its capital. Therefore there is a multi - agency control of
RRBs. This has led a lack of uniformity in their performance.

Additionally, this has led to dearth of support from State governments as well as shortage of
proper monitoring by sponsor banks. Subsequently, intrinsic in the concept of RRB is the
constriction of limited area of operation & restricted clients, i.e., explicit target groups. Also,
there has been lack of appropriate procedures & systems within the institutions of RRBs,
which could have minimized or avoided the scope for overdue from the beginning. Moreover,
the recruitment process as well as training of staff of RRB hasn’t received sufficient
attention.
RRB’s are facing the problem of inadequate finance. They are dependent on NABARD to
collect finance for their further operation. Poor rural people are unable to save anything due
to poverty and low per capita income. The low level of saving of these customer create
obstacle for RRB’s to collect sufficient deposits.
High overdue and poor recovery of loan is one of the biggest concern affecting the
functioning of RRB’s. Reasons being poor access of granting loan, insufficient and untrained
staff, unproductive or less productive use of credit, inadequate production, poor marketing
facilities and improper channel of recovery system.
There is also a problem of regional imbalance in banking facilities provided by RRB’s. They
are creating this problem by concentrating their branches in some specific states and districts
& loose other prospective group of customers.
Many RRB’s are suffering from the problem of heavy loans because of low repaying
capacity of their customer, untrained staff, and low level of deposits and heavy sanction of
loan without checking the creditworthiness of their customers. 5. These banks have still not
played a significant role in poverty alleviation of the country. Although various efforts have
been made in this regard but lack of economic infrastructure, poor marketing strategies, poor
knowledge of customers, low production, low awareness about savings have created many
hurdles for RRB’s. 6. Lack of proper co-ordination between RRB’s and other financial

24
institution like commercial banks, NABARD and other co-operative bank has badly affected
the performance of these banks.

Even if access to formal banking is provided to rural customers, there is no guarantee that
these services will be used. According to a study conducted by the World Bank, many
households, even in developed countries, choose not to have a bank account as they do not
engage in many financial transactions they collect wages in cash, spend in cash and do not
wish to be burdened by a bank account. To compound the situation many customers in rural
India, who have access to and would otherwise choose to use formal financial services, do
not do so because the product and service mixes do not meet their needs. The financial
service needs of rural customers are not confined to just savings and credit, as is usually
assumed. Their financial needs are linked to their life cycle needs, ranging from savings to
credit to insurance to remittances. In fact, even the savings and credit products currently
offered to rural customers do not entirely meet their needs. Access to savings and investment
facilities is critical for the poor. The two critical needs for the rural poor are micro-savings
and frequent withdrawals. These needs facilitate a customer in building capital over the long
term, as well as coping with income shocks in the near term. However, banks do not offer
adequate services to address these needs. The lack of services, therefore, leaves the rural poor
with little option than to transact with the informal banking market. A study conducted by
Micro Save also concludes that the poor transact with the informal sector because it will
accept small amounts, provide doorstep service, and ensure ease of enrolment. Rural
customers need loans not only for productive purposes but also for consumption needs
(Following Table). A part from agricultural support, rural customers need micro credit for
consumption, education and emergencies. Though banks offer purpose free loans (personal
loans and credit cards) in urban areas quite liberally, in rural areas sanction of such loans is
significantly restricted. Therefore, the poor raise these loans through the informal financial
system (it is worth noting that these loans taken from the informal system are almost always
repaid or renewed12). In addition, larger households need occasional high value
microenterprise loans for small capital investment. Though banks offer these loans, they
require excessive documentation and time-consuming processes which discourage customer
applications.

Reasons For Unprofitable Of Rural Banking in India

25
High Non-Performing Loans (NPL): Banks have higher non-performing loans in rural areas
because rural households have irregular income and expenditure patterns. The issue is
compounded by the dependence of the rural economy on monsoons, and loan waivers driven
by political agendas. NPLs from the agriculture sector are 7.7%, compared to 3.5% across
non-agricultural sectors. In order for banks to view rural India as a growth opportunity, rather
than a regulatory requirement, a combination of these issues must be addressed. Increasing
financial access to rural areas is contingent upon basic conditions such as proper
infrastructure and an enabling regulatory framework, as well as innovative thinking on the
part of commercial banks. Access issues, however, explain only one part of the problem.
Usage is an equally important issue for rural customers.

Low Ticket Size: The average ticket size of both a deposit transaction and a credit
transaction in rural areas is small. This means that banks need more customers per branch or
channel to break even. Considering the small catchments area of a branch in rural areas,
generating a customer base with critical mass is challenging. High cost to serve: Branches are
the most used channel in rural areas. This is because many rural people are not literate and
are not comfortable using technology-driven channels such as ATMs, phone banking or
internet banking. On the other hand, a branch is an expensive channel for banks (Following
Table). In addition, rural people, whenever they have access to banks, have frequent low
ticket and cash-based transactions, which increase the overall transaction cost for their bank.

Higher risk of credit: Rural households may have highly irregular and volatile income
streams. Irregular wage labor and the sale of agricultural products are the two main sources of
income for rural households. The poor rural households (landless and marginal farmers) are
particularly dependent on irregular wage employment. Rural households also have irregular
expenditure patterns. The typical expenditure profile of rural households is small, with daily
or irregular expenses incurred through the month. Furthermore, a majority of households
incur at least one unscheduled expenditure per year, with the most frequent reasons being
medical or social emergency. In short, the rural customer is generally considered to be a risky
one.

26
2. Review of literature.
Haslem (1968) revealed that the internal determinants originate from the balance sheets and
the profit and loss accounts of the bank concerned and are often termed as micro or bank
specific determinants of profitability. The external determinants are systematic forces that
reflect the economic environment. The literature provides mixed evidence on the impact of
liquidity on profitability.

Revell (1979) studied the relationship between bank profitability and inflation. He noted that
the effect of inflation on bank profitability depends on whether bank wages and other
operating expenses increased at a faster pace than inflation.

Chippa and Sagar (1981) discussed the variations in the level of banking development in
Eighteen States in 1977 and studied its relationship with other social, economic and
infrastructural variables. The analysis revealed that literacy rate followed by the
infrastructural development emerged as the most dominant variables influencing the level of
banking development.

Angadi (1983) measured the extent of concentration of priority sector advances in general
and agriculture advances in particular in selected States in India. The analysis revealed that
the degree of concentration of both priority sector advances and agricultural advances in the
selected States had reduced in 1979 as compared to 1969-70.

Bhattacharya (1986) analysed the impact of branch expansion on the deposit mobilization in
the different states of India. The broad conclusion drawn by the researcher was that all the
four types of deposits were satisfactorily responsive to branch expansion in Maharashtra,
Uttar Pradesh, Karnataka, Tamil Nadu, Andhra Pradesh, Gujarat, Punjab, Kerala and New
Delhi. However in the states like Himachal Pradesh, Jammu & Kashmir, Assam, Orissa and
Bihar, the 4 extent of branch expansion was very small in relation to the above mentioned
states.

Kumar and others (1987) made an attempt to study the expansion of commercial banking
facilities and extent of disparity in agriculture financed by the commercial banks in various
states of India. The analysis revealed that the expansion of banking facilities had been
extended more rapidly comparatively in rural areas as compared to Semi-Urban areas and
urban areas.

27
Bal Krishna and Sooden (1991) made an attempt to ascertain the extent of inter-state
disparities with respect to commercial banking services in rural India during 1975 to 1985.
The analysis suggested that the extent of disparities, with respect to all indicators of banking
development except rural deposits per rural branch had come down in the year 1985 as
compared to the year 1975. Swami B. N. Anantha (2001) made comparative analysis of the
performance of specific bank groups during 1996-2000 and concluded that the share in assets
of scheduled commercial banks was declining in public sector banks and foreign banks while
it was increasing in old private sector banks and new private sector banks.

Malhotra (2002) considered 22 different parameters that impacted the functioning of RRBs
for the year 2000. Malhotra asserts that geographical location of RRBs is not the limiting
factor for their performances. He further finds that it is the specific nourishment which was
RRB receives from its sponsor banks which are cardinal to its performance.

Rao (2002) analyzed the impact of new technology on the banking sectorTechnology changes
the way business is done and opened new vistas for doing the same work differently in the
most cost effective manner.

Sinha (2003) in a field study of 5 RRBs found that non-priority sector advances increased
sharply in the second half of the 1990s for all the sample banks, of 5 which 4 banks have a
significant 25 percent of their portfolio invested in nonpriority sector loans.

Nitin and Thorat (2004) provide a penetrating analysis as to how constraints in the
institutional dimension have seriously impaired the governance of the RRBs. They have
argued that perverse institutional arrangements have given rise to incompatible incentive
structures for key stake-holders such as political leaders' policy maker, Banks staff and
elements have acted as constraints on their performance.

Dr. B.K. Jha (2008) determined the effective banking services in rural areas can be able to
promote the rural entrepreneurship and improve the picture of rural India.

Syed Ibrahim (2010) has given that the performance of rural banks in India has significantly
improved after amalgamation process which has been initiated by the Government of India.

Megha and Aparna Bhatia (2013) opined that the overall position of Regional Rural Banks in
India has improved during the post amalgamation period, though the number of Regional
Rural Banks has decreased.

28
Jayaramaiah et.al (2013) confirmed that the overall growth of the economy and poverty
alleviation depend upon the system which is providing affordable credit by the financial
institutions that stimulates sustainable economic growth through the supply of credit in
general and to the rural sector in particular.

Satish.P. (2013)28 in his article observed that a multi agency approach exists for agricultural
credit delivery system in India. Two arms of this system have their systemic shortcomings.
Commercial banks are reluctant partners for agricultural credit and cooperatives have their
non-professional decision making which is eroding their existence. In this context, harnessing
their inherent strengths, the RRBs can be made to play a pivotal role. The future of credit
delivery system for agriculture has to be designed with the Regional Rural Banks as the
fulcrum. They have to take on a greater role by expanding their existing network and
manpower and emerge as the main credit delivery mechanism for agricultural credit. If they
take on such as role, the deficiencies of the cooperative and commercial banking systems will
not hamper the overall credit delivery to agriculture in India.

Abhay Kumar Kappe and Anil Kumar Soni (2013)29 have studied in their article that the
Government of India Promoted Regional Rural Banks (RRBs) through the RRBs Act of 1976
to bridge the gap in the flow of credit to the rural poor. The RRBs were established with a
view to developing the rural economy by providing loans and advances 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 Regional Rural Banks in Chhattisgarh are an integral part of the rural credit
structure of the State. As they analyze the data it shows that RRBs in Chhattisgarh State are
working for the 360 degree development of rural area of the State.

Ahmed J.U. (2014)30 has stated that the better productivity performance of (Meghalaya rural
banks) MRB is due to the fact that they are able to mobilize more deposits from the area. It is
observed that the MRB is utilizing efficiently the resources that they mobilized. The analysis
further indicates that although MRB has been doing relatively better than that of the RRBs,
there has been a wide variation in 49 the productivity, as per the indicators identified, which
might have adverse effect on profitability of the said bank. This variation may be due to
lesser involvement of banks in profitable activities, wicked nature of rural clients for non
repayment of loans and advances they obtain.

29
Thitte M. K. (2014)31 pointed out that the rural finance is a matter of great concern in India.
Realizing the fleeing of rural masses, Government of India took several initiatives to promote
the growth of rural and agriculture sector. Amongst these initiatives, major was the
establishment of Regional Rural Banks (RRBs). RRBs were established in India in 1975
essentially for the purpose of taking banking service to the rural people, particularly in places
without banking facilities. The study concludes that the bank branches have increased to
15,235 during 2011-12 as against 14,301 branches during 2000-01. The deposit of RRBs has
increased from Rs. 81,476 crores in 200-01 to Rs. 2, 96, 559 crores in the year 2009-10. As
far as the borrowings are concerned it was Rs. 9,839 crores in the year 2000-01 which
increased to Rs. 33,520 crores in 2009-10. The investment has also increased to Rs. 1, 45,491
crores in 2009-10 as against Rs. 45,363 crores in 2000-01. The loans and advances of the
RRBs have increased by Rs. 137919 crore during 2009-10 over 2000-01.

30
CHAPTER PLANNING
The study is divided into five chapters.

The first chapter is introductory in nature which covers development of banking in India,
meaning and definition of banking, features of banking, and classification of banks

. The second chapter deals with RRBs. The following sub topics are included in this chapter
like origin of RRBs, meaning of RRBs, capital structure of sponsors, management of RRBs,
objectives, functions, progress and achievements of RRBs, difficulties faced by RRBs, role of
sponsor Bank and amalgamation of Regional Rural Banks.

Research Methodology is dealt with in the third chapter. The following sub topics are
included in this chapter: objectives of study, scope of the study, Hypothesis, sample selection,
Data Collection, Tools and Techniques, limitations of the study.

The fourth chapter deals with financial performances of RRBs in India before amalgamation
and after amalgamation with the help of Ratio analysis, T-test, and, Percentile. The fifth
chapter gives conclusions and suggestions based on data analysis.

31
3. Need of Study
To know the financial performance of regional rural banks in India after amalgamation is also
important. RRBs play a pivotal role in the economic development of the rural India. The
main goal of establishing regional rural banks in India was to provide credit to the rural
people who are not economically strong enough, especially the small and marginal farmers,
artisans, agricultural labours, and even small entrepreneurs. For that a study on financial
performance of RRBs is important. The research study is significant to evaluate financial
performance of Regional rural Banks in India. The results or findings of the present study are
useful to the policy planners in their efforts to improve the working performance of the RRBs
in India.

4. Objective of the study.

The objectives of the study are as follows:

To analyze the financial performance of Regional Rural Banks in India before and after
amalgamation

To understand the working of Regional Rural Banks in India.

To analyze the key performance indicators of Regional rural Banks in India.

To evaluate progress and growth of the Regional rural Banks.

32
5. Hypothesis
• Null Hypothesis:

The following null hypothesis is framed:

H0: There is no significant difference in financial performance of RRBs in India after

amalgamation.

• Alternative hypothesis:

The alternative hypothesis is framed:

H1: There is significant difference in financial performance of RRBs in India after

amalgamation.

6. Scope of the study

The scope of present study is confined to Regional Rural Banks in India. The study mainly
involves the financial performance of Regional Rural Banks in India before and after
amalgamation. Similar studies on this line may be conducted for other banks in India and
outside India.The study covers the working of all Regional rural Banks in India. The study
covers a specific period of 2007- 2017. There is macro analysis to measure the performance
of all the Regional rural Banks in India.

7. Research methodology

Data Collection Method

The present study is empirical in character based on the analytical method. The study is
mainly based on secondary data which is collected, analyzed and calculated mainly from
annual reports of the NABARD and RBI. Required related information has collected from
journals, conference and websites. As it is based on secondary data which is collected from
secondary sources.

33
Sample Size
For the present study, all the regional rural banks in India were taken for analysis. The
process of amalgamation initiated in 2005, is now nearing completion. As a result of
amalgamation process, the number of RRBs in the country declined from 196 to 96 at the end
of March 2007 and further to 88 at the end of June 2008 and 84 as on January 2010 G.

Tools and Techniques

The following tools and techniques are used for the present study

Ratio analysis

Percentage

Mean

Standard Deviation

T test.

Data Analysis and Interpretations

Growth of Regional Rural Banks in India Number of Regional rural Banks and their branch
network plays a significant role in improving the performance of RRBs. Availability of Bank
branch is considered as one of the most important channel of the bank and generally the most
preferred channel of customer. Hence it is needed to make an effort by the banks to expand
their branch network to provide an equal opportunity to all the users of bank services. The
information relating to growth and coverage of Regional rural Banks in India is presented in
Table-1. Table 1 show that the numbers of Regional rural Banks are ranging from 91 to 56
representing with an average of 80 over the study period having a standard deviation and
coefficient variation of 40.30 and 51.38 respectively. The significant observation is the
number of RRBs registered continuous declining trend from 91 (2007) to 56 (2017)
indicating their negative growth. This phenomenon shall be endorsed to the policy measures
initiated by the Government of India towards amalgamation of RRBs in sponsored banks at
state level in order to give operational freedom and to improve their financial efficiency and
performance.

34
For illustration by March 2017, RRBs of the same sponsor banks with in a State were
amalgamated bringing down their number from 91 to 56. During the year 2013- 14, 13 RRBs
have been amalgamated into 6 new RRBs in 5 States (Chhattisgarh, Uttar Pradesh, Kerala,
Karnataka and Haryana). With this, the effective number of RRBs as on 31st March, 2017
stands at 56 playing a significant role in developing agriculture and rural economy.

Year No of Growth No of Growth No. of Growth

RRBs Rate Branches Rate District Rate
of RRBs Covered
with RRBs
2007-08 91 -6.2 14761 1.31 594 11.23
2008-09 86 -6.49 15181 2.84 617 3.87
2009-10 82 -5.65 15480 1.96 618 0.16
2010-11 82 0 16001 3.36 620 0.32
2011-12 82 0 16909 5.67 638 2.9
2012-13 64 -22.97 17861 5.63 635 0.47
2013-14 57 -11.84 19082 6.84 642 1.1
2014-15 56 -1.7 19964 4.6 642 0
2015-16 56 0 20342 1.84 648 0.93
2016-17 56 0 20924 2.86 6480 0
Mean 80 -13.02 16927.15 3.12 606.38 2.7
SD 40.3 13.17 1960 2.06 45.89 3.7
CV 51.38 -101.31 9.01 75.53 8.17 141.56

15% of RRBs were loss making RRBs in 2001-02 but the numbers decreased to 7% in 2008-
09. This proves that amalgamation has been beneficial to RRBs in reducing their losses.

35
State-wise Spread of Regional Rural Banks RRBs are expected to ensure that the targeted
rural unbanked location receives the needed credit. Hence it is required an even expansion of
the activities of credit over different areas and income strata of the population by opening
requisite number of branches in unbanked areas. The information relating to State-wise
Spread of Regional Rural Banks and their Network and Coverage is given in Table 2. Table 2
reveals that the state of Uttar Pradesh is having highest number of RRBs (8) and number of
branches 3518 covering highest district (81), followed by Andhra Pradesh number of RRBs
(5) number of branches (1630) and number of district covered (23), Karnataka number of
RRBs (4), Number of branches (1460) and number of district covered (30), Bihar number of
RRBs (3) number of branches 1718 and number of district covered 38), Madhya Pradesh
(number of RRBs 3, number of branches (1132) and number of district covered (50) Rajstan
number of RRBs (3) number of branches (1157) and number of district covered (36). From
the above, it is evident that six states (Uttar Pradesh, Andhra Pradesh, Karnataka Bihar,
Madhya Pradesh, Rajasthan) are enjoying the lions share with highest number of RRBs (more
than 50%) covering more number of district with their widen branch network. It is interesting
to observe that the share of North Eastern states Manipur, Meghalaya, Mizoram Nagaland,
Tripura, Arunachal Pradesh, is insignificant in terms of number of RRBs, number of branches
covered, and district covered. The striking observation is that such states are having only one
RRB with least number of branches, where as the state of Nagaland has only 10 branches. It
is the clear indication of the imbalance growth of RRBs where the prominent backward areas
have been given least priority in providing banking facilities. It reveals the failure of RRBs to
cater the credit needs of the backward areas.

The end of March- 2017

SR NO Name of the State Number of Number of Number of

RRBs Branches Districts
covered
1 Arunachal Pradesh 1 30 8
2 Andhra Pradesh 4 1642 23
3 Assam 2 428 27
4 Bihar 3 1718 38
5 Chhattisgarh 3 555 28
6 Gujrat 3 529 26

36
7 Haryana 2 507 23
8 Himachal Pradesh 2 188 12
9 Jammu and Kashmir 2 323 26
10 Jharkhand 2 442 24
11 Karnataka 3 1460 30
12 Kerala 2 506 15
13 Madhya Pradesh 3 1132 50
14 Maharashtra 2 645 33
15 Manipur 1 28 9
16 Meghalaya 1 76 7
17 Mizoram 1 71 8

18 Telangana 2 92 7
19 Nagaland 1 10 5
20 Orissa 2 901 30
21 Pondicherry 1 30 2
22 Punjab 3 311 24
23 Rajasthan 3 1157 36
24 Tamilnadu 2 374 31
25 Tripura 1 133 8
26 Uttarpradesh 8 3518 81
27 Uttranchal 1 237 13
28 West Bengal 3 921 18
Total 56 17856 635

37
Deposit Mobilization of RRBs Deposit Mobilization is one of the crucial functions of RRBs.
Continuous and adequate amount of deposit mobilization will ensure the banks to discharge
their function of lending and investment on which the prosperity of the bank depends. The
bank should design proper deposit mobilization strategy which is the primary source of
lending activities of the bank. The information relating to deposit mobilization of Regional
Rural Banks is given Table

Year Advances Growth rate

2007-08 48492.6 21.64
2008-09 58984.3 14.95
2009-10 67802.1 21.27
2010-11 98917.4 20.31
2011-12 116385 17.66
2012-13 137078 17.78
2013-14 159660 16.47
2014-15 178420 17.44
2015-16 194785 19.43
2016-17 223562 18.52

Table 3 demonstrates that the amount of deposit mobilized in absolute term has registered an
increasing trend continuously from Rs 62,143 crores (2005) to Rs 2, 39,504.00 crores (2014)
representing an average of Rs 138244 crores. The Standard Deviation and C V is 61373.79
and 44.40 respectively over the study period. The growth rates are showing a rapid increasing
trend from 14.78% (2006) to 21% (2009). But the significant observation is that, though there
is expansion in the branch net work, the growth rate of deposits has declined from 21.3
percent (2009) to 13.2 percent (2014). The declining trend in the growth rate shall be
attributed to the recessionary trend prevailed in the economy. From the above, it is evident
that the RRBs have failed to maintain the tempo of growth performance of deposits. Profit
Position of Rrbs in India Table - 3 demonstrates that the amount of profit of RRBs is swelling
from 748.11 crores to 2273 crores and the number of RRBs were reduced from 196 to 57
(2014). It is the clear indication that more than 85 percent of RRBs are operating on

38
profitable line. It is also observed that there is a decline in the number of RRBs over the years
due to the process of amalgamation increase in the amount of profit of RRBs. This shall be
inferred that the process of amalgamation has enabled the RRBs to improve their profitability
position. It is also significant to wittiness that the number of loss making RRBs have reduced
from 30 to nil and amount of loss declined from 154.5 crores to zero. From the above, it is
evident that better operative utilization of the bank funds and increased efficiency of RRBs

Profit of position of RRBs in India

Year No RRBs Amount RRBs Amount Net profit

of RRBs in profit of profit In loss Of loss (in rs )
2007-08 91 82 1383.69 8 55.58 1328.11
2008-09 86 80 1823.55 6 35.91 1787.64
2009-10 82 79 2514.83 3 5.65 2509.18
2010-11 82 75 2420.75 7 71.32 2349.43
2011-12 82 79 1886.15 3 28.87 1857.28
2012-13 64 63 2275 1 2.07 2272.93
2013-14 57 57 2833 0 0 2833
2014-15 56 59 3211 0 21.4 2459.43
2015-16 56 69 3916 0 22.3 1937.28
2016-17 56 79 4315 0 25.1 2392.93

Growth of deposit and credit declined to 8.6 per cent and 9.3 per cent respectively during
2015-16 from 10.7 per cent and 9.8 per cent respectively a year ago. The deceleration in
deposits and credit during 2015-16 was broad based across all population groups. Term
deposit constituted the highest share (63.6 per cent) in aggregate deposits followed

by saving deposit (27.4 per cent) and current deposit (9.1 per cent). According to size of total
business (deposits plus credit) of SCBs, seven states, viz.

Maharashtra, NCT of Delhi, Tamil Nadu, Karnataka, Uttar Pradesh, West Bengal and
Gujarat accounted for 68.6 per cent of the total business. Maharashtra alone contributed 25.7

39
per cent of the total. These seven states accounted for 65.7 per cent of deposits and 72.2 per
cent of credit. The all India credit-deposit (C-D) ratio stood at 77.9 per cent for the quarter.

This ratio was the highest for Tamil Nadu (112.9 per cent) followed by Andhra Pradesh
(104.5 per cent), Telangana (103.6 per cent), Maharashtra (102.7 per cent), Chandigarh (99.5
per cent).

Also Net NPA of RRBs have reduced from 11.53% in 2001-02 to 4.84% in 2004-05 but after
amalgamation the Net NPA's have further reduced from 3.92% to 1.76%. Thus amalgamation
has been beneficial for RRBs to reduce their Net NPA. Shown in the following table,

30

25

20

15 Net npa
Gross npa

10

0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

The Net worth of RRBs increased from 34% in 2001-02 to 56% in 2004-05. But after
amalgamation the Net worth has further increased from 56% to 79%. This proves that
amalgamation has helped RRBs in increasing their Net worth.

40
8. Limitation of the study
The present study is undertaken to maximize objectivity and minimize the errors. However,
there are certain limitations of the study which are to be taken into consideration for the
present work.

1. The study fully depends on financial data collected from the published financial
statements of Banks.

2. This study incorporates all the limitations that are inherent in the financial statements.

3. Financial statements reflects the book value and the management might have window
dressed or manipulated the values.

4. It is based on stats on previous year and not of current year.

5. The study doesn’t include and case studies and is based on number and figures which are
provided.

Suggestions
The study reveals that there are fluctuations in growth of RRBs where the prominent
backward areas such as North Eastern states have given the least priority. Hence it is needed
to open requisite number of branches in remote area that provides equal opportunities to all
areas and income strata of population. It is observed that RRBs have failed to maintain the
cadence of growth in deposits. Hence it is needed to design the appropriate deposit
mobilization policy on which the survival of RRBs in future. So RRBs must be develop the
good relation with the customers and should create confidence to the formers.

9. Conclusion

41
RRBs are well positioned to play a major role in financial inclusion particularly in areas with
high rates of financial exclusion. RRBs were originally created to cater to neglected sections
as they were expected to have sound financial management combined with local feeling and
familiarity. RRBs should concentrate on asset quality and earnings. With the increasing
competition among banks to meet customer expectations, banks should offer a broader range
of deposits, Investments and credit products through diverse distribution channels including
ATMs, telephone, internet. The RRB staff are required locally and their postings or transfers
are within the banks area of operation which is ordinarily a districts or two. The need for
maintaining the local ethos makes it imperative that the emoluments and services conditions
of the RRB staff should be inline with those of State Government staff in comparable cadres
who constitute bulk of the salaried people in the area and with whom the former have to
establish a close rapport for their day to day work. Therefore, the emoluments of the staff
should be continued to be determined as per the state government scales. It is obvious that the
terms of service and facilities available to the government staff may differ from state to state.
However the terms and service conditions of the staff of RRBs operating within a state have
to be uniform. RRBs face many problems in finding suitable staff and in giving them
adequate training. The sponsor banks are in a good position to assist RRBs in this 11 respect.
The key personnel should continue to be provided by sponsor banks till RRBs are in a
position to develop their own personnel through suitable training and otherwise to take over
the relevant responsibilities. In this context, training of RRB personnel assumes great
importance; while the SBI has set up separate training centres for the RRB staff, sponsor
banks should conduct special courses for the RRB staff at centres meant for their staff.
However, the existing arrangement cannot be said to be adequate. In States like U.P, Bihar,
West Bengal etc. RRBs could not adhere to their branch expansion programmes for lack of
adequate technical assistance in project formulation by RRBs. Facilities for recruitment and
training and technical assistance should continue to be provided by the sponsor banks, on the
same terms for a period of 10 years for each RRB. Thereafter, any arrangement of assistance
of this type can be decided upon by mutual agreement between the sponsor bank and the
RRB There is also a wide gap in C/D ratio between the RRBs and commercial banks. Hence
it is recommended to make consistent efforts to augment the C/D ratio of RRBs on par with
commercial banks.

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Websites

www.rbi.org.in
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www.geocities.com

www.alternativefinance.org

www.nabard.com

www.macroscan.com

THANK YOU.

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