The following are some of measures suggested by RRBs and others to improve the performances of RRBs and to cut down their losses.

1. Increased training facility should be provided for RRB staff.

2. Customer Orientation

Considering the vastness and diverse nature of operations of the rural financing the RRBs need to evolve more customer oriented practices and products suitable for rural clien­tele whose requirements are in small units.

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(a) Participation in Government sponsored programme:

The distribution of targets for the poverty alleviation programmes has been disproportionately high for RRBs as compared to their capacity. Also, the recovery performance under the Government sponsored programmes is low. Hence, the target should be lowered for RRBs.

(b) Deposit mobilization:

States like Kerala, Gujarat, certain parts of Uttar Pradesh, Andhra Pradesh, etc., have good potential for RRBs to mobilize deposits from NRIs. RRBs could be permitted to accept such deposits.

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(c) Priority sector advances:

The security norms for advances are prescribed by RBI. The norms may be left to the judgement of the banks so that the same may be considered by them flexibly while assessing the project feasibility and reliability of the loans.

(d) Business:

There is a need to evolve a policy permitting RRBs to undertake all types of credit activities in rural areas subject to their own security and safety norms under prudent supervisory arrangement.

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(e) Cover against natural calamities and credit risk:

Loans issued for agricultural crop production bear high risk. At the same time insurance cover for crops is inadequate and settlement of claims takes long time. A system of comprehensive crop insur­ance covering all crops is essential to safeguard the interest of RRBs.

(f) The exposure norm:

The exposure norm for investment by RRBs is prescribed at a maximum of 25% of the capital funds of the RRB or 25% of the paid up share capital of the company whichever is less.

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In view of the limited avenues open for invest­ments vis-a-vis large investible resources available with RRBs, particularly after infusion of recapitalization funds, there is a need to allow them to invest in diverse types of securities and institutions.

Until the RRBs develop their capacity to moni­tor multiple investment portfolios their investments in the schemes of institutions such as UTI, IDBI, SIDBI, SBI which carry less or no risk, may have to be excluded from the exposure limit.

3. Restructuring of RRBs/Branches

(a) The RRB, whose area of operation does not offer adequate potential to generate required business for turning around, may be permitted to extend the area of opera­tion to one or more districts, provided there is no RRB already functioning in the district.

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(b) RRBs should be free to relocate their existing loss-making branches to more poten­tial centres beyond their service areas.

(c) The issued capital of RRBs may be enhanced and brought at par with local area banks at Rs. 5.0 crore.

4. Prudential Regulation

(a) Capital adequacy:

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Capital adequacy is very basic to financial soundness of institu­tions. A capital adequacy of 8% may be prescribed even in the case of RRBs. How­ever; the same may be achieved only in stages.

(b) Write-off of Loss assets:

Presently, the balance sheets of RRBs are contaminated with non-recoverable loans to the varying extent. There may be a system of periodical write-off of loss assets.

(c) Compliance:

A stricter compliance by RRBs on important disciplinary measures may be ensured by introducing a suitable monitoring mechanism.

5. Recapitalization of RRBs

As at March 1998, 168 RRBs are having accumulated losses aggregating to Rs. 3116 crore in their Balance Sheet. The three shareholders of RRBs agreed to provide additional capital to write-off these losses. This infusion of additional capital to write-off past losses is known as “Recapitalization”.

This process has started since the year 1994-95. Up to March 1999,5 phases are over. During the 5 phases, Central Government, State Governments and Sponsor Banks put together provided Rs. 1852 crore as additional capital to 175 RRBs.

The Government of India has further allocated Rs. 168 crore towards this purpose in the Union Budget for 1999 – 2000. The capital is provided in the same ratio of 50:15:35 as mentioned earlier.

6. Legal and Operational Issues

(a) Legal arrangements for recovery:

The loan dues from borrowers of RRBs being small, the recovery tribunals established under the financial sector reform cannot cater to the needs of the RRBs. State Government may make suitable machinery available to RRBs in line with co-operatives.

(b) Income tax:

The RRBs are exempted from payment of any tax as they are treated at par with co-operative societies. However, some of the IT authorities have inter­preted the provisions to the disadvantage of the RRBs. Hence, there is a need to suitably amend Section 23 of RRBs Act in line with the provisions of Section 22 thereof.

(c) Business approach:

The procedures for a ailment of loans needs further simplifica­tion for extending timely credit. The procedural requirements may be curtailed in case of regular depositors and creditworthy borrowers. The saving linked credit approach may be practised even in case of individuals by the branches of RRBs.