9 Difficulties Faced By Regional Rural Banks

The following were the main problems faced by the RRBs till recently.

(i) Running into losses:

During 1997-98, out of 196 RRBs, 70 RRBs incurred losses amount­ing to Rs. 230.76 crore in total. The accumulated losses of all RRBs up to the end of March 1998 amount to Rs. 3116.00 crore.

This may be due to heavy overhead costs, reduction in lending rates, lower profit margins, heavy increase in salaries and allowances of staff, etc. During 2001-02, out of 196 RRBs, 167 made net profit of Rs. 699.93 crore while 29 suffered losses amounting to Rs. 92.05 crore. The accumulated losses of all RRBs declined to Rs. 2792.59 crore as on March, 2001.

(ii) Slow progress:

The progress of RRBs is not up to the expectation and is slow when comparing with other types of banks because of many restrictions on their operations. For example till 1996, RRBS were permitted to lend only under priority sector schemes.

(iii) Limited scope of investment:

The basic objective of RRBs was to provide credit facilities to poor and weaker sections of society, i.e., to small and marginal farmers and other weaker sections. They were originally having limited scope to invest their surplus funds freely.

(iv) Delay in decision making:

The RRBs are controlled directly and indirectly by various agencies, i.e., the sponsoring bank, NABARD, RBI, besides Central Government. Thus, it takes long time to take decisions on some important issues. This, in turn affects the progress of RRBs. However, since end 1997, the operational responsibility of RRBs has been passed on to sponsor bank.

(v) Lack of co-ordination:

Lack of co-ordination between the RRBs and sports or banks regarding branch expansion, policy making, etc., are also the important causes for the slow progress of RRBs.

(vi) Difficulties in deposit mobilization:

The RRBs are aiming at catering to the needs of poor and are not serving the needs of the rich. So, the RRBs are not able to attract the deposit from that potential sector.

(vii) Lack of training facilities:

Generally the staff of RRBs is urban-oriented and they may not know the problems and conditions of rural areas. Lack of training facility concerning these areas also affects the growth of RRBs.

(viii) Poor recovery rate:

The recovery performance of the RRBs is not up to the mark. The /ate of recovery in respect of many RRBs is around 55 per cent only.

(ix) Capital inadequacy:

The capital adequacy is the very basis to financial soundness. There is capital inadequacy in RRBs as most of the RRBs have huge losses in their 3alance Sheet eating away all the Capital of RRBs.