The Hindu Business Line : A new role for RRBs

The All India Regional Rural Bank Employees' Association's call to amalgamate all Regional Rural Banks (RRBs) into a single entity is a variation on its suggestion last year to compress all the 196 RRBs into six zonal units presided over by an apex body. There is little doubt that the RRBs need reorganising now more than ever before because they appear to have succeeded in bridging two apparently unbridgeable goals — efficient working with target focusing. That is a good sign; but it also poses a major problem.

Data from the Reserve Bank of India suggest that the RRBs are profitable units after decades of being in the red. In 2004-05, of the 196 units, 167 earned net profits of Rs 904 crore while 29 incurred losses of Rs 154 crore. This is in sharp contrast to 1993 when 172 units were in the red. This performance may be credited to the sponsor banks for inculcating a business instinct into the RRBs. Over the years RRBs have turned increasingly to investing; the RBI notes an increase in their investment-deposit ratio from 25 per cent in 2003 to 37 per cent in 2005. But the credit-deposit ratio has been higher, though skewed towards the non-agriculture sector; from 45 per cent in 2003 it has risen to 51 per cent in 2005. A blend of loans to non-agriculture sector and income from investments has brought a number of RRBs into the black. Judged by prudential norms, the RRBs are doing fairly well; they are also catering to the needs of agriculture credit. The issue is whether they are meeting the credit needs of small and marginal farmers and if this will square with the present urges of the sponsor banks not merely to get the RRBs into the black but also show increasing profits.

Currently, the RRBs' outstanding advances are roughly divided between non-agriculture and farm sectors, unlike in the past when they were skewed towards the former. Short-term crop loans too have risen in 2005 over 2003. But advances to this sector, particularly the small/marginal farmers and artisans, will have to be ramped up in view of the current concerns with agriculture. The alarming number of suicides among apparently even rich farmers suggests that the RRBs are failing to make their mark. The rural sector needs massive credit and the RRBs can fulfil these needs. But to do that, a new institutional arrangement with mutually compatible stakeholders and objectives needs to be devised.

One way of doing this would be to re-focus the RRBs as development finance entities under an apex agency (not the Nabard, which is a refinance agency) devoted solely to the credit needs of the rural economy. The current arrangement in which the sponsor banks have to combine two incompatible goals will not hold for long.

More Stories on : Editorial | Regional Rural Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
India-US economic relations on a high

How `permanent' the BPO units?

A new role for RRBs

Patience on the plane

What can be more fearsome than the accounting link to Genghis Khan?

De-constructing good intentions

No more `chalta hai'

Empowering through entrepreneurship

Social inclusion

Save the poor

CAG report