Are RRBs serving the objective

The Regional Rural Banks (RRBs), set up in the mid-1970s to provide financial services to agricultural workers and labourers, have been struggling right from the beginning. Several of them are now facing an existential crisis due to dwindling business and soaring bad assets. Bids made from time to time to prop them up through various means of handholding by the Union and state governments and the sponsoring commercial banks, which jointly own the RRBs, have failed to produce the desired results. Consequently, many of them have either collapsed or got merged with their parent banks.

While the number of RRBs has nearly halved — from 82 to 43 — their non-performing assets have more than doubled — from 2.05 per cent to 4.68 per cent — in the past one decade. This, notably, has happened at a time when the overall business of the rural financial institutions has generally been looking up as indicated by the surge in the share of commercial banks in agricultural loans from 65 per cent in 2010-11 to 76 per cent in 2021-22. The volume of the credit disbursed by the RRBs, on the other hand, has shrunk from 13 per cent to 11 per cent during this period.

It raises a serious question as to how far the RRB’s are relevant in current time. Similarly performance of Cooperative Banks also has not been upto the mark. The NPA has been increasing and banks also not performing optimally. RBI needs to give a serious thought on operation of RRB’s and Cooperative Banks.