Performance of Regional Rural Banks (RRBS) in India: An evaluating study

Since their inception, regional rural banks (RRBs) have taken deep roots and have become a sort of inseparable part of the rural credit structure in India. The financial viability of the RRBs has, however, been a matter of concern since the 1980s, just five years after their existence. A number of committees have gone into the issue of their financial viability and possible restructuring. This study follows a deductive approach. First the extent of the problem of the loss making RRBs has been studied to analyze if the problem is confined to some particular sponsor banks or States. Subsequently, an attempt is made to enquire as to factors that influence the performance of the RRBs and the role-played by the sponsor banks. The empirical analysis has been couched in terms of profit and loss making RRBs for a reasonably long (10-year) period to draw robust policy inferences.

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 improvable 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 a 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.