Reform Measures Introduced For Regional Rural Banks

Some of the suggestions listed above may not be implemented for certain practical rea­sons/problems by the concerned authorities. We may also discuss few of them here.

RRBs were set-up mainly to improve the economic conditions of the regions by provid­ing adequate credit to the neglected sections of the population. Poverty Alleviation programmes are mainly intended to help such sections of the society. Hence, the suggestion to reduce the target has no valid reasons.

Priority Sector Advances

Till 1996, RRBs were permitted to provide credit only to “Target Group” borrowers who are the main beneficiaries under priority sector advances.

RRBs are now required to provide compulsory credit to priority sector only to the extent of 40 per cent of their outstanding advances as in the case with commercial banks. Security norms against all advances are prudential banking policy to ensure safety of funds. Hence, banks are expected to follow such a policy.

NRI Deposits

The RRBs are slowly moving away from provider of credit to Investor of funds. Unless, RRBs collectively reveal a marked shift towards increased lending operations, the funds mobilized from NRIs will remain idle funds or flow into increased investment activity.

Fur­ther, this facility may merely shift funds from PSU banks to RRBs and not from foreign banks or private sector banks since PSU bank branches are the main competitors in rural and semi- urban areas.

Foreign/ new private sector banks do not open branches in those areas. RBI, however, permitted RRBs to maintain non-resident rupee accounts from the year 2001.

Exposure Norms

Exposure norms are universal banking feature. In India, it is now reduced to 20 per cent. However, some of the international Banks have actually fixed a lower limit for their opera­tions. It is not a prudent measure to put all or most of the eggs in a single basket.

Institutions like IDBI, SIDBI or ICICI provide long-term finance. Although many of these institutions are directly or indirectly owned by Government, there is no guarantee that these institutions will not lose money in their operations.

For example, IFCI has large quantum of possible loss asset in their balance sheet. Similarly, investment institutions like UTI may also lose money if capital market fares badly as it happened to it in 1998. More so RRBs are not expert bankers in credit appraisal or in investment decisions. Hence, it is not desirable to relax the norms.

In all, 142 RRBs showed improvement in their performance either by way of increase in profits or reduction in losses or by shifting from loss position to profit position. The number of RRBs, which has wiped out the accumulated losses increased to 80 as on 31 March 2001 from 55 at the end of the previous year.

These RRBs together have also built up reserves of more than Rs. 1,265 crore as on 31 March 2001. Another 90 RRBs have attained current viability and reduced their accumulated losses to Rs. 1,700.46 crore as at the end of 31 March 2001 from Rs. 1,872.49 crore at the end of the previous year. RRBs as a group have earned an aggregate net profit of Rs. 600.62 crore during 2000-01 as against Rs. 429.96 crore in the previous year.

The accumulated losses of RRBs as a group declined from Rs. 2,978.90 crore as on 31 March 2000 to Rs. 2,792.59 crore as on 31 March 2001.

Impact of Restructuring Programme on RRBs

During 2001-02, 167 RRBs earned profit of Rs. 699.93 crore as against only 32 RRBs earning profit of Rs. 29 crore during 1994-95. The losses incurred by the RRBs reduced from Rs. 423 crore (164 RRBs) to Rs. 92.05 crore (29 RRBs) during the same period.

The RRBs as a group made a profit of Rs. 73 crore for the first time during 1997-98 and improved the same further to Rs. 601 crore and Rs. 699.93 crore during the last two years, i.e., 2000-01 and 2001-02.

The viability based categorization of RRBs as on 31 March 2001 shows that of the 196 RRBs, 80 RRBs have wiped off their accumulated losses and in a way attained a sustainable viability whereas 90 other RRBs have achieved a turn around and attained a current viability status leaving only 29 RRBs which continued to incur losses.

The total loans disbursed by RRBs have increased from Rs. 1,440 crore in 1993-94 to Rs. 6,938 crore in 1999-2000 and further to Rs. 8,783 crore in 2000-01. The total outstanding advances of RRBs stood at Rs. 15,816 crore as on 31 March 2001compared to Rs. 5,253 crore as on 31 March 1994.

The recovery performance of RRBs improved consistently from around 40% as on 30 June 1992 to around 65% in 1999-2000 and further improved to 70.59% as on 30 June 2001. The NPAs of RRBs have also declined at 19 per cent of total loans outstanding as on 31 March 2001 as against 43 per cent as on 31 March 1996.

Despite the limitations most RRBs, barring a few chronically weak banks have per­formed reasonably well during 2001 and still better in 2002. They have realized that there is no future for them unless they help themselves. All RRBs have improved their performance due to the policy measures initiated.

The infusion of additional funds has helped the indi­vidual banks selected during 1994-95 in improving their earning capacity. Even in case of non-selected banks the efficiency level appears to have been perceptibly improved.

To speed up the process further policy measures such as appropriate legal support, strengthening of the labour laws and personnel policies, professionalizing RRB boards allowing greater free­dom to the boards in self governance, freedom relating to certain aspects of loaning processes, creation of more conducive recovery climate, etc., are needed.

The structural composition may also need to be more flexible in terms of ownership and branch network. Greater responsibil­ity and opportunities for RRBs are emerging out of the Banking Sector Reforms and efficient banks may gain more strength while the weaker ones may find their existence difficult.

Local Area Bank (LAB)

Reserve Bank issued guideline in 1996 for setting up LABs with the private sector. These banks are set up to provide credit facility for various economic activities at rural and semi- urban areas as in the case of RRB.

Reserve Bank till May 2003 granted license to five Local Area Banks in four states. However, one of the licenses has been cancelled by Reserve Bank on January 2002. Presently 4 Local Area Bank have been operating with one each in the states of Karnataka, Andhra Pradesh, Gujarat and Punjab. The performance of these banks is given in the following table.