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PROJECT REPORT

ON
ROLE OF RRBs UNDER FINANCIAL INCLUSION

REGIONAL RURAL BANKs

Submitted to: Submitted by:


Mrs. Shuchi Goel Ritika
Department Of Commerce Roll.no.:-5566
B.com(hons.)finalyear University Roll.No.:-
Reg. No.:-

VAISH MAHILA MAHAVIDYALYA,ROHTAK


SESSION:-2017-2018

Acknowledgement
"I have taken efforts in this project’. I hereby express deep gratitude to all those
who helped me directly or indirectly in completing this “project report”.

I would like to express my gratitude towards Mrs.Shuchi of Vaish Mahilla


Mahavidyalaya,Rohtak for her kind co-operation and encouragement which help
me in completion of this project.

I acknowledge the help and cooperation received from classmates.

Ritika
B.com (Hons.) final year
Roll No.:- 5566
Certificate

This is to certify that Ms. Ritika student of B.com (Hons.) final year of Vaish
Mahilla Mahavidyalaya, Rohtak has successfully completed this project under
my supervision. She has sincerely and honestly completed this project report. This
project report has been examined and approved by me.

Mrs.Shuchi Goel
Department. Of Commerce
Role of Regional Rural Banking under Financial inclusion
Meaning
Regional Rural Banks are local level banking organizations operating in different States of India. They have
been created with a view to serve primarily the rural areas of India with basic banking and financial services.
However, RRBs may have branches set up for urban operations and their area of operation may include urban
areas too.
The area of operation of RRBs is limited to the area as notified by Government of India covering one or more
districts in the State. RRBs also perform a variety of different functions. RRBs perform various functions in
following heads:

 Providing banking facilities to rural and semi-urban areas.


 Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.
 Providing Para-Banking facilities like locker facilities, debit and credit cards
.

FINANCIAL INCLUSION :
Financial inclusion is the delivery of financial services at affordable costs to vast sections of disadvantaged and low
income groups (for example "no frill accounts").

WHY FINANCIAL INCLULSION IS IMPORTANT ?


The policy makers have been focusing on financial inclusion of Indian rural and semi-rural areas primarily

for three most important pressing needs:

1. Creating a platform for inculcating the habit to save money – The lower income category has

2. savings. The absence of savings makes them a vulnerable lot. Presence of banking services and products
aims to provide a critical tool to inculcate the habit to save. Capital formation in the country is also
expected to be boosted once financial inclusion measures materialize, as people move away from

traditional modes of parking their savings in land, buildings, bullion, etc.

2. Providing formal credit avenues – So far the unbanked population has been vulnerably dependent of

informal channels of credit like family, friends and moneylenders. Availability of adequate and transparent

credit from formal banking channels shall allow the entrepreneurial spirit of the masses to increase outputs

and prosperity in the countryside. A classic example of what easy and affordable availability of credit can

do for the poor is the micro-finance sector.

3. Plug gaps and leaks in public subsidies and welfare programmes – A considerable sum of money

that is meant for the poorest of poor does not actually reach them. While this money meanders through

large system of government bureaucracy much of it is widely believed to leak and is unable to reach the

intended parties. Government is therefore, pushing for direct cash transfers to beneficiaries through their

bank accounts rather than subsidizing products and making cash payments. This laudable effort is

expected to reduce government’s subsidy bill (as it shall save that part of the subsidy that is leaked) and

provide relief only to the real beneficiaries. All these efforts require an efficient and affordable banking

system that can reach out to all. Therefore, there has been a push for financial inclusion.
Organisational 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 seven 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 Managers
 Senior Manager
 Manager
 Officer / Assist

Amalgamation
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. At present there are 56 RRBs in India

List of Regional Rural Banks


1. Allahabad UP Gramin Bank,
2. Andhra Pradesh Grameena Vikas Bank
3. Andhra Pragati Gramin Bank
4. Arunachal Pradesh Rural Bank,
5. Assam Gramin Vikash Bank,
6. Bangiya Gramin Vikash Bank,
7. Baroda Gujarat Gramin Bank,
8. Baroda Rajasthan Ksethriya Gramin Bank,
9. Baroda UP Gramin Bank,
10. Bihar Gramin Bank,
11. Central Madhya Pradesh Gramin Bank
12. Chaitanya Godavari Grameena Bank,
13. Chhattisgarh Rajya Gramin Bank,
14. Dena Gujarat Gramin Bank,
15. Ellaquai Dehati Bank,
16. Gramin Bank Of Aryavart,
17. Himachal Pradesh Gramin Bank,
18. Jammu And Kashmir Grameen Bank,
19. Jharkhand Gramin Bank,
20. Karnataka Vikas Grameen Bank
21. Kashi Gomti Samyut Gramin Bank,
22. Kaveri Grameena Bank
23. Kerela Gramin Bank
24. Langpi Dehangi Rural Bank
25. Madhya Bihar Gramin Bank,
26. Madhyanchal Gramin Bank,
27. Maharashtra Gramin Bank,
28. Malwa Gramin Bank,
29. Manipur Rural Bank,
30. Marudhara Rajasthan Gramin Bank,
31. Meghalaya Rural Bank,
32. Mizoram Rural Bank,
33. Nagaland Rural Bank,
34. Narmada Jhabua Gramin Bank
35. Odisha Gramya Bank,
36. Pallavan Grama Bank,
37. Pandyan Grama Bank,
38. Paschim Banga Gramin Bank,
39. Pragathi Krishna Gramin Bank,
40. Prathama Bank,
41. Puduvai Bharathiar Grama Bank,
42. Punjab Gramin Bank,
43. Purvanchal Bank,
44. Saptagiri Grameena Bank,
45. Sarva Haryana Gramin Bank,
46. Sarva UP Gramin Bank,
47. Saurashtra Gramin Bank,
48. Sutlej Gramin Bank,
49. Telangana Grameena Bank, (Formerly known as Deccan Grameena Bank)
50. Tripura Gramin Bank,
51. Utkal Grameen Bank,
52. Uttar Bihar Gramin Bank,
53. Uttrakhand Gramin Bank
54. Uttarbanga Kshetriya Gramin Bank,
55. Vananchal Gramin Bank,
56. Vidharbha Konkan Gramin Bank
Functions of RRB
 RRBs grant loans and advances to small farmers and agricultural laborers so that they can start their own farming
activities including purchase of land, seeds and manure.
 RRBs provides banking services at the doorsteps of the rural people ,particularly in those area which are not
served by any commercial Bank
 The RRBs charges a lower rate of Interest and thus they reduce the cost of credit in the rural areas.
 RRBs provide loan and other financial assistance to entrepreneurs in villages, sub-urban areas and small towns
.So that they become able to enlarge their business.
 Loans to artisans to encourage them for the production of artistic and related goods.
 Encourage the saving habit among the rural and semi-urban population.

Objectives of RRB
The RBBs Act has made various provisions regarding the incorporation, regulation and working of RRBs.
According to this Act, the RRBs are to be set-up mainly with a view to develop rural economy by providing
credit facilities for the purpose of development of agriculture, trade, commerce, industry and other productive
activities in the rural areas.

Such facility is provided particularly to the small and marginal farmers, agricultural labourers, artisans, and small
entrepreneurs and for other related matters.
The objectives of RRBs can be summarized as follows:

(i) To provide cheap and liberal credit facilities to small and marginal farmers, agriculture labourers, artisans,
small entrepreneurs and other weaker sections.

(ii) To save the rural poor from the moneylenders.


(iii) To act as a catalyst element and thereby accelerate the economic growth in the particular region.

(iv) To cultivate the banking habits among the rural people and mobilize savings for the economic development
of rural areas.

(v) To increase employment opportunities by encouraging trade and commerce in rural areas.

(vi) To encourage entrepreneurship in rural areas.


(vii) To cater to the needs of the backward areas which are not covered by the other efforts of the Government?
PROBLEMS & CHALLENGES OF RRBs
1. 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.

2. High overdues 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.

3. 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.

4. Many RRB‘s are suffering from the problem of heavy loans because of low repaying capacity of their

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

IMPROVEMENT IN THE WORKING OF RRBs


1. The unique role of RRB in providing credit facilities to weaker sections in the villages must be preserved. The
RRB should exist as rural banks of the rural poor.
2. The RRB may be permitted to lend up to 25% of their total advances to the richer section of the village
society.

3. The State Government should also take keen interest in the growth of RRB.

4. Participation of local people in the equity share capital of the RRB should be allowed encouraged.

5. Local staff may be appointed as far as possible.

6. Cooperative societies may be allowed to sponsor or co-sponsor with commercial banks in the establishment of
the RRB.

7. A uniform pattern of interest rate structure should be devised for the rural financial agencies.

8. The RRB must strengthen effective credit administration by way of credit appraisal, monitoring the progress
of loans and their efficient recovery.

9. The credit policy of the RRB should be based on the group approach of financing rural activities.

10. The RRB may initiate certain new insurable policies like deposit-linked cattle and other animals insurance
policy, crop insurance policy or the life insurance policy for the rural depositors.

11. The RRB may relax their procedure for lending and make them more easy for village borrowers.

12. Co-ordination between district level development planning and district level credit planning is also required
in order to chart out the specific role of the RRB as a development agency of the rural areas.
RRB Achievements under Financial Inclusion
Strategy
Measures and products designed to reach the unbanked and the poor have been advocated and consciously
implemented for decades. However, in recent years, the starting point of the understanding of term ‗financial
inclusion‘ and the related products is associated with the report of 21 the Rangarajan Committee on Financial
Inclusion (2008)5. Elaborating the thrust of financial inclusion by the RBI, its Deputy Governor states that RBI “are
marketing the paradigm of financial inclusion through the bank-led model” (Chakrabarty, 2011).
Thus, the RBI perception appears to be that financial inclusion is largely a matter related to banks’ initiatives
rather than the concern of a wider range of players in microfinance covering PACS, MFIs, SHGs, etc.
Consequently the financial inclusion discourse has focused on bank-level products and initiatives and the
corresponding targets. The two planks of the commercial banks‘ involvement in the larger financial inclusion
project have been (i) avenues for outsourcing through different types of agent structures above; and (ii) the
introduction of IT-based devices and innovations for low-cost operations and for accounting and MIS. In fact,
the current financial inclusion campaign has been positioned as a kind of successor to the (less than successful)
earlier attempts at inclusive finance through RRBs, SHGs, etc. The approach to RRB reform (of recapitalization
and amalgamation) too had been seen as one which was politically pragmatic characterized by an indifference
towards the financial inclusion objective of RRB operations (MCril, 2008). Nevertheless it was also observed
that despite the apparent importance of commercial banks even in the rural areas however they were neither able
nor willing to serve the poorest sections of the population. By comparison, in the credit categories of direct
relevance to financial inclusion, RRBs held over a quarter of agricultural credit accounts and over half of all
artisan/tiny industry loan accounts with barely 11% respectively in the total credit for these two categories. It
also showed that RRBs had a far higher proportion of small loan accounts than other types of banks.
In similar vein, the Annual Report 2013–14 of RBI (RBI, 2014) has stated that microfinance institutions and
small RRBs can certainly help in furthering access to finance. However, they cannot on their own bridge the
gaps. Well-capitalized and robust financial institutions are needed to take up the financial inclusion agenda.
The Swabhimaan programme launched by the Ministry of Finance, Government of India and the India Banks‘
Association (IBA) aimed to bring banking within the reach of the masses through brick and mortar branches or
through various forms of ICT-based models including through business correspondents (BCs). All public and
(All figures in No. of Accounts No. of Rupay Debit Balance In Accounts % of Zero Balance
crores) S.No. Cards Accounts

private sector banks were advised to draw a three-year financial inclusion plan (FIP) starting from April 2010,
duly approved by their Board and with related business plans. The spectacular growth numbers in the parameters
being tracked by FIPs would appear to suggest that the financial inclusion project is on track in terms of
achievements and initiatives aimed at financial inclusion. Banks have made notable, sporadic, efforts at
innovation in support in the introduction of technology, financial literacy and other methods of expanding
outreach, with RRBs too contributing in equal measure.

The major initiatives under FIF have been: (i) support to cooperative banks and RRBs for setting up financial
literacy centres; (ii) assistance to RRBs for demonstrating banking technology; (iii) support for migration of data
of PACS to CBS of cooperative banks; and(iv) financial education and literacy programmes in schools and
through common service centres. The major initiatives under FITF have been: (i) ICT solutions for RRBs
adopting BC/ BF model; (ii) Support for CBS of weak RRBs; (iii) Assistance for CCBs and RRBs for RuPay
KCC and RuPay Debit Card and for purchase of additional PoS devices; and (iv) Support to RRBs and
cooperative banks for ATM inter-change charges. The six Pillars are: Under Phase I (up to 15 August 2015): (1)
Universal access to banking facilities; (2) Providing basic banking accounts for saving and remittance and RuPay
debit card with in-built accident insurance cover of Rs. 1,00,000 and RuPaycard; (3) Financial literacy
programme. Under Phase II (15 August 2015–15 August 2018): (4) Overdraft facility of up to Rs. 5,000 after six
months of satisfactory saving/credit history. A Credit Guarantee Fund would be created for coverage of defaults
in overdraft accounts; (5) Micro-insurance; (6) Unorganized sector pension schemes like Swavalamban.
The experience of the FIFs to increase outreach to an increasing large number of villages and unserved areas
have fed into the Pradhan Mantri Jan-Dhan Yojana (PMJDY) launched in 2014. According to the PMJDY
Mission document, though the banks achieved their targets under the first phase of the Swabhimaan campaign, it
had very limited reach and impact. Public Sector Banks (PSBs) including RRBs estimated that by 31 May 2014,
out of the 131.4 million rural households which were allocated to them for coverage, about 59.4 million
remained uncovered. Comprehensive financial inclusion (FI) under the mission is based on six pillars of
achievement with well-defined targets.

Table : Pradhan Mantri Jan - Dhan Yojana (Accounts Opened As on 15.07.2015)


Rural Urban Total
1 Public 7.24 5.98 13.22 12.25 15698.68 50.83
Sector
Banks
2 Rural 2.57 0.44 3.02 2.19 3493.76 50
Regional
Banks
3 Private 0.41 0.28 0.69 0.61 1095.93 47.83
Banks
Total 10.21 6.71 16.92 15.05 20288.37 50.59

CURRENT CENERIOS OF RRBs UNDERE


FINANCIAL INCLUSION
Regional Rural Banks (RRBs) set up under the RRB Act, 1976 -- provide credit and other facilities to small
farmers, agricultural labourers and artisans, among others, in the rural areas.

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Evolution of RRBs - A Holistic Review


Some stakeholders, while noting the many achievements of RRBs, are inclined to have an extremely positive
view of the role played by RRBs in priority sector lending, agricultural lending and financial inclusion. At the
same time, another set of stakeholders bemoan the fact that RRBs have failed to play a more social role in
enabling both the financial and wider areas of development and empowerment of the poor and unbanked
population. To assess the relative strength of these positions it may be in order to bring together various thematic
questions that have been raised across this paper. It is, for example, necessary to consider the tension between
the mission of RRBs and their profitability; questions of cross-subsidization or otherwise across portfolios within
the RRBs and how to interpret the RRB demand for a level playing field with commercial banks.

For this a holistic approach in examining the evolution and performance of RRBs is required that goes beyond
narrow growth and outreach indicators. Equally, it is necessary not merely to look at RRB aggregates, or even
comparative figures for RRBs vis-à-vis other financing agencies such as cooperative banks and commercial
banks. Given their original charter, it is equally vital to consider whether RRBs have been able to locate their
operations into rural areas such that the poorer sections are able to benefit from them. There is reason to believe
that sufficient initiatives have not been taken to bring about such a widening of the customer base, nor has
poverty outreach been a theme in the discourse about RRBs, at least since the year 2000 or so. Indeed if poverty
targeting was part of the RRB brief it seems to have disappeared.

If we have a closer look at the composition of the portfolio of the RRBs, we find that it is predominantly

agricultural, but also devoted to short-term credit. Data has been provided which has shown the limited

proportion and scope of investment credit being provided by RRBs. The agricultural borrowers favoured by

RRBs probably constitute no more than the next to last segment of the rural population. There is thus reason to

believe that landless and non-farm clients have not been the recipients of a fair share of RRB lending, despite the

continuation of asset-based credit programmes of the government - as successors to the IRDP in the form of

SGSY and now NRLM. The limited flow of credit to the rural underprivileged is further illustrated by the low

credit-deposit ratios. Responsible for these ratios is undoubtedly the widely reported phenomenon of RRBs

placing deposits with their sponsor banks as risk-free investments instead of lending them to the target clientele.

This nexus allows sponsor banks to access low-cost resources through their respective RRBs while at the same

time enabling the latter to avoid unprofitable and risky avenues of lending. This type of distortion is an inevitable
outcome of the steps taken to capitalize and amalgamate
Role and Challenges in Financial Inclusion: RRB
Products and Perspectives
This section summarizes the activities of selected RRBs and views of their leadership on their financial inclusion
models and challenges. A small sample of four RRBs was contacted in connection with this policy paper. While
it is a small sample, it represents a diverse set of RRBs with varying scale of operations and business strategies.
Two of the RRBs are drawn from the poorest states viz. Uttar Bihar Grameen Bank and Kashi Gomti Samyut
Grameen Bank, Uttar Pradesh and the other two are from the relatively progressive states of Southern India.
Table 3 provides a profile of the sample RRBs. It will be seen that while deposits of all RRBs are substantial in
keeping with the size of their geographical coverage, the scale of lending operations are significantly higher in
the southern states. In the case of the RRB from UP, the levels of loan outstanding are extremely low by
comparison. This throws up a range of CD ratios from about 30 per cent to over 116 per cent, as against an all
India average of 66 percent or so. Recovery percentages are quite uniform, except in the UP RRB, and all RRBs
realize a positive net profit during the current year, as in previous years. This data captures several of the
peculiar features of RRB lending - the low CD ratio for RRBs in regions other than some of the southern states,
and the positive net profits regardless of the level of CD ratios and the relative income from loans and other
statutory and non-statutory investments - with the latter invariably being extremely high. This further illustrates
the failure of the RRBs to step up the scale of their lending to the priority sector and their target population.
Table : Profile of Sample RRBs
Rs. crores (as on 31 Karnataka Vikas Uttar Bihar Kashi Gomti All India
March 2014) Grameen Bank Grameen Bank Samyut Grameen (57 RRBs)
Andhra Pradesh Bank (U.P.)
GVB
Sponsor Bank SBI Syndicate Bank Central Bank of Union Bank of
India India
No. of districts 8 9 18 8 642
covered
No. of 704 545 1020 414 19082
branches

ABSTRACT

Regional Rural Banks (RRBs) in India have been established to spread the banking amongst rural poor, based on the
recommendation of various expert committees. RRBs have special role to play in spread of banking, now known as
financial inclusion, in rural and semi urban areas to include the rural mass in banking network and thereby help them the
rural poor, small and marginal farmers, artisans, agricultural labors, and even small entrepreneurs.

There are three RRBs working in Gujarat namely Baroda Gujarat Gramin Bank, Dena Gujarat Gramin Bank and Saurashtra
Gramin Bank, covering different parts of the state. The present study makes an attempt to analyze performance of these
three RRBs in role of financial inclusion. The financial inclusion is measured in terms of (1) branch expansion measured by
ratio of branch in rural and semi urban areas as well as ratio of single branch in rural area to total branches and (2) spread
of credit in terms of Credit deposit ratio, taking published data of last 8 years from 2005-06 to 2012-13. The analysis of
performance is made with the help of trend analysis and ANOVA. Finding shows that overall there is declining trend in
terms of financial inclusion by all RRBs in Gujarat in post-merger period. The findings are in line with earlier studies.
Role of RRBS in Financial Inclusion Empirical Evidence
from RRBS in Gujarat

Financial Inclusion

The term "financial inclusion" has gained importance since the early 2000s and more so with the launch of recent
„Jan Dhan Yojana‟ by Government of India, a result of findings about financial exclusion and its direct correlation to
poverty.

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of
disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not
available or affordable. It is argued that as banking services are in the nature of public good; the availability of
banking and payment services to the entire population without discrimination is the prime objective of financial
inclusion public policy.

Realizing the need to provide institutional credit to rural poor and save them from the ruthless clutches of
unorganized sector lending the Regional Rural Banks (RRBs) were established for the first time in India way back in
the year 1975 and therefore, no study on financial inclusion is complete without mention of Regional Rural Banks.

Regional Rural Banks (RRBs)

The RRBs are meant for the development of rural economy by pooling credit gap especially to the rural poor by
providing credit. The main objectives of establishment of RRBs is given in the Multi Disciplinary Edu Global Quest
(Quarterly), Volume-4, Issue-3 #15, July 2015
RRBs Act of 1976 were “to develop the rural economy in 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
the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs and for matter connected
therewith and incidental thereto”.

Regional Rural Bank network in India


The RRBs were established as a part of expanding institutional credit to rural poor. Since the inception of RRBs in
1975, the growth and working of RRBs are governed by policy measures. Accordingly it is divided into three broad
phases namely inception and growth phase (1975-1990), reform phase (1991-2005), and reconstruction / post
merger period (2005 onwards).

The inception and growth phase showed remarkable increase in branch network. Started with modest number of 6
RRBs in the year 1975, it jumped to 40 RRBs in next year and reached to the spread 196 RRBs through 14433
branches in 372 districts by the year 1990.

It stagnated to the same number (196 RRBs ) all the years from year 1991 to 2005 with slight increase in number of
branches reaching to 14484 number of branches by the year 2005 covering 523 districts. However this period called
second phase, faced severe financial viability problems.

Based on various recommendations, the RRBs are restructured by merging various RRBs in the year 2005 in order to
make them financially viable. In 2005-06, the Government of India initiated the process of structural consolidation
of RRBs by amalgamating RRBs sponsored by the same bank within a State as per the recommendations of the Vyas
Committee (2004). The amalgamated RRBs were expected to provide better customer service due to better
infrastructure, computerization of branches, pooling of experienced work force, common publicity, marketing
efforts etc., and also derive the benefits of a large area of operation, enhanced credit exposure limits and more
diverse banking activities. As a result of the amalgamation, the number of RRBs in India was reduced from 196 to 64
as on 31st March, 2013 and in Gujarat it was reduced from 9 to 3. Multi Disciplinary Edu Global Quest (Quarterly),
Volume-4, Issue-3 #15, July 2015
Research problem
Gujarat is one of the industrially advanced states. For the sustainable progress of the state the development of rural
economy is equally important. RRBs have been assigned the special role of development of rural economy by
facilitating to the rural poor, the credit facilities for agriculture, trading, self-employment and so on of each religion.

Reviewing the three phases of RRBs in India, Prabha Singh et al (2009) pointed out that by the inception and
expansion phase (1976 -1990) which saw rapid growth of RRBs activities; the reform phase (1991-2005) which
raised the profitability of these banks at the cost of massive rural disintermediation, particularly of the targeted
borrower categories and the most recent phase is of stock taking and perhaps some repositioning to strike a balance
in the conundrum of „viability versus outreach‟.

In this context this study intends to analyze performance of these three RRBs in role of financial inclusion. The
financial inclusion is measured in terms of (1) branch expansion in rural and semi urban areas and (2) spread of
credit, taking published data of last 8 years from 2005-06 to 2012-13.

Literature Review
Hemlata & Poonamsing (2009) studied on “Financial inclusion through Regional Rural Banks”. Analyzing the macro
level data on RRBs related to manpower deployment, savings mobilization, credit disbursement, regional outreach,
saving mobilization across regions, credit disbursed across regions, micro financing in post merger period, the study
recommends that RRBs should extend their services in to unbanked areas and increase their credit deposit ratio and
thereby play special role in financial inclusion.

Chidambaram (2007) noted that RRBs in India made considerable progress in deposit mobilization, credit
dispensation and profit making during the period 2002-03 to 2004-05. As a result of amalgamation, RRBs were in a
position to provide better customer services with better infrastructure and policies of experienced staff. He further
mentions that the reform phase supplanted made a singular focus on commercial profitability for the Regional Rural
Banks. In a sense, the reforms of the Regional Rural Banks were no different from the reforms of the Multi
Disciplinary Edu Global Quest (Quarterly), Volume-4, Issue-3 #15, July 2015
commercial banks. The same set of policies was implemented and the same set of standards set to calibrate their
performance. Not surprisingly then, the Regional Rural Banks started aping the commercial banks in their activities -
banks relocated to more promising areas; investments in government securities and PSU bonds and debentures
increased while banks were hesitant to increase their loan portfolios; credit was extended mainly under non-priority
sector heads so that the proportion of priority sector loans declined despite the dilution of the priority sector
definition in several ways; interest rates on lending were deregulated which resulted in high interest rates charged
by the Regional Rural Banks; credit to deposit ratio became less than half of the pre-reform levels indicating
increased net transfer of resources from the rural poor to the urban rich; regional imbalances aggravated; and the
small borrowers, the principal clients of the Regional Rural Banks were overwhelmingly sidelined. By the beginning
of the present decade, the carefully built structure of rural development banking in India had all but collapsed.

Thus the above findings lead to formulation of the following hypothesis:

Ha0: There is no significant change in terms of financial inclusion of BGGB in Gujarat

Ha1: There is significant decline in terms of financial inclusion of BGGB in Gujarat

Hb0: There is no significant change in terms of financial inclusion of DGGB in Gujarat

Hb1: There is significant decline in terms of financial inclusion of DGGB in Gujarat

Hc0: There is no significant change in terms of financial inclusion of SGB in Gujarat

Hc1: There is significant decline in terms of financial inclusion of SGB in Gujarat

As the Banking policies of post liberalization allowed banks to focus on financial viability allowing shifting branches
to profitable area, and dilute the lending to non priority sector, focus on financial viability and thereby allowing bank
to park the spare fund into government securities rather than allowing more credits to most of the banks followed
the similar pattern and therefore it is hypothesized as under :

Hd0: There is no significant difference in terms of financial inclusion of three RRBs in Gujarat

Hd1: There is significant difference in terms of financial inclusion of three RRBs in Gujarat Multi Disciplinary Edu
Global Quest (Quarterly), Volume-4, Issue-3 #15, July 2015
Framework of the Study
Taking Hundekar (1995) study as the basis, the following ratios are considered for measuring the performance of
financial inclusion by RRBs in Gujarat.

A) Branch expansion policy

Ratio of rural and semi-urban branches to total branches of the Bank.

The RRBs are meant for only rural areas, and to know whether the particular bank is rural biased or urban-biased,
the ratio of rural and semi urban branches to total branches of particular bank is analyzed.

Ratio of rural and semi urban branches to total branches of the bank

= rural &semi- urban branches/ total branches of the bank*100

Ratio of single branches in rural centers to total branches of the Bank.

The effectiveness of branch expansion policy of the banmay also evaluate on the basis of its performance in opening
branches at the banked places or unbaked places. This can be judged by the ratio of single branches in rural centers
to total branches of the bank. Ratio of single branch in rural center to total branches of bank

= single branches in rural center/total branches of the bank*100

B) Credit management

Credit deposit ratio

The ratio is obtained by dividing the total credit provided by the deposits mobilized. It indicates the extent to which
the particular bank has been benefited in the form of credit expansion out of deposits generated from that bank.
This ratio carried out by-

CDR ratio = total credit of the bank/total deposits of the bank*100 Multi Disciplinary Edu Global Quest (Quarterly),
Volume-4, Issue-3 #15, July 2015
Research Methodology
The present study is based on secondary data. The relevant secondary data have been collected from the annual
reports of all three RRBs in Gujarat. The study is for eight year period starting from 2005-06 to the year 2012-13. In
order to analyze the data statistical tools of trend analysis and ANOVA are used with the help of SPSS Software.

Findings and Discussion of the Study


Table-1 Findings of RSB CDR Performance in terms
the Study RBB of Financial Inclusion
(Ratio of Single Rural (Credit deposit Ratio)
(Ratio of Rural and Branch to total
Semi-urban Branches branches of RRB)
to total branches of
RRB)

Trend Analysis R2 R2 R2 Any pattern in


Financial
/actual trend /actual trend /actual trend
Inclusion
performance ?

BGGB - 0.942*/ 0.674** significant


decline in
(Graph 1) Downward / Downward
financial
(Graph 2) (Graph 3) inclusion
performance

DGGB 0.895** 0.963*/ - Some


improvement in
/2nd degree ploy 2nd degree poly. (Graph 6)
later years but
(Graph 4) (Graph 5) ANOVA analysis
show no
significant
difference than
other two Banks

SGB 0.758*/ 0.967*/ - significant


Downward decline in
(Chart 3) Downward (Graph 9)
financial
(Graph 7)
(Graph 8) inclusion
performance
ANOVA No significant No significant Significant -
difference difference difference

(Table 2.1 to 2.3)

- - BGGB & DGGB is -


lower than SGB

No significant
Difference in BGGB
and DGGB

1. Branch Expansion:

As shown in Table-1 both the ratios related to branch expansion in unbanked/ rural area namely (1) Ratio of rural
and semi urban branch to total branch of RRB and (2) Ratio of single branch in rural area to total branches in the
bank show downward ratio for BGGB and SGB whereas the same for DGGB show 2 nd degree polynomial trend.
Further ANOVA analysis show that for both the ratios there is no significant difference among three RRBs, meaning
the all the three RRBs in Gujarat are showing decline in branch expansion in unbanked area which counter serves
the social objective of RRBs of financial inclusion.

2. Credit Management:

In case of Credit deposit Ratio (CDR), it shows downward trend for BGGB and no pattern /trend is found for SGB and
DGGB. The further analysis by ANOVA shows that there is a significant difference in this ratio of three RRBs. The
post hoc analysis shows that there is significant difference in CDR of three banks. From Table-1 we found that CDR is
significantly lower in BGGB than SGB, similarly, it is significantly lower in DGGB than SGB while there is no significant
difference between BGGB and DGGB for credit deposit ratio.

The above findings lead to reject the null hypothesis and accept alternate hypothesis that there is no significant
improvement in financial inclusion by BGGB, DGGB and SGB.

This can be attributed mainly to policy related to RRBs to treat RRBs in similar line to commercial banks with a single
focus on financial profitability

Suggestions
At Bank level:

1. All the three RRBs shall evolve strategy at Bank level like embracing technology, collaboration with branches of
commercial banks, post office, micro finance groups to extend the outreach in unbanked area in cost effective
manner.

2. Taking SGB‟s case the other two RRBs namely BGGB and DGGB should try to improve credit deposits ratio. Low
Credit deposit ratio is a matter of concern for bank. Bank shall

Multi Disciplinary Edu Global Quest (Quarterly), Volume-4, Issue-3 #15, July 2015

Policy level:
On the basis of above findings following suggestions are offered for formulating a rural banking policy it is hoped
that these suggestions will go a long way in improve working of RRBs:

1. RRBs branch should be allowed to finance within a block rather than a few villages. This will increase its business
and include healthy competition amongst rural branches of other banks.

2. RRBs staff should have technical knowledge of agriculture, rural crafts and artisans as well understanding rural
credit system and environment with aptitude for working in rural areas. For this purpose RRBs should provide
training to their staff according to requirements and recruit only those persons who are capable to do work
according to above requirements. These personnel should use regional language in dealing with customers.

3. Any credit program launched for weaker sections should have consumption credit component enabling them to
be away from the money lender. This will also stop diversion of loan amount to unproductive program.

4. With credit and savings scheme RRBs should be involved in group liability, insurance against risk and productive
employment to generate income for landless labourers and poor rural women. Self-help groups (SHGs) may be
helpful for providing credit facilities to individuals. These SHGs which work devotedly for the rural people should
also be involved in every stage of the project cycle i.e. from project identification beneficiary selection, appraisal
right up to the evaluation stage.

5. RRBs are facing competition with rural branches of commercial banks. Commercial banks work in the same area
of operation and provide services to big farmers. Generally these banks do not provide loans to small and marginal
farmers, rural artisans and landless labourers. To avoid unnecessary competition, RBI and sponsor banks should
make a policy for transfer of business from rural branches of commercial banks to RRBs. This process would have
two fold benefits. On the one hand, it will provide business of

Multi Disciplinary Edu Global Quest (Quarterly), Volume-4, Issue-3 #15, July 2015
rich farmers to RRBs to increase the profit and on the other hand, avoid wasteful competition with commercial
banks.

6. Separate credit plan for excluded Regions: The committee recommends that RRBs operating in predominantly
tribal areas and having high levels of exclusion may prepare annual credit plans having a separate components for
excluded groups, which would integrate credit provision with promotional assistance such as agricultural services
and BDSs for the farm and non-farm sectors respectively including entrepreneurship development and formation
and strengthening of producer‟s organizations like dairy cooperatives, refinance and promotional support may be
provided by NABARD to RRBs on a large scale for implementation of this credit plans.

7. Minimum benchmark of credit- deposits ratio of 60 percent needs to be insisted upon for each bank/ RRB in every
rural district of the country to ensure adequate credit flow to the rural and semi urban sectors.

Contribution of the study


The result is in line with earlier studies by Hemlata & Poonamsing (2009), Chidambaram (2007) and Singh et al (2009).
Thus, this study supports the earlier study empirically and contributes to the present literature on RRBs in India.

Conclusion
RRBs were opened with serving social objective. It has all the more important role to play in today‟s market economy for
financial inclusion. New initiatives like micro finance or Jan Dhan Yojana are well come steps but at the same time
Government of India must take policy measures to strengthen the already deep rooted institutions like RRBs to play more
effective role in financial inclusion and thereby lead the nation to sustainable economic development.

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