Regional Rural Banks (RRBs) were established in 1975 under the provisions of the Ordinance promulgated on the 26th September 1975 and the Regional Rural Banks Act, 1976 with a view to develop the rural economy and to create a supplementary channel to the 'Cooperative Credit Structure' with a view to enlarge institutional credit for the rural and agriculture sector.

The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. The area of operation of the RRBs is limited to notified few districts in a State. The RRBs mobilise deposits primarily from rural/semi-urban areas and provide loans and advances mostly to small and marginal farmers, agricultural labourers , rural artisans and other segments of priority sector.

The GoI initiated a process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a State, with a view to provide better customer service by having better infrastructure, computerization, experienced work force, common publicity and marketing efforts etc. The amalgamated RRBs also benefit from larger area of operation, enhanced credit exposure limits for high value and diverse banking activities. As a result of the amalgamation, the number of the RRBs has been reduced from 196 to 82 as on 31 March 2011. The number of branches of RRBs increased to 16001 as on 31 March 2011 covering 620 districts throughout the country.

2. Performance of RRBs during 2010-11 ( 1 April 2010 – 31 March 2011)

2.1 Sources of Funds

The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank.

2.1.1 Owned Funds

The owned funds of RRBs comprising of share capital, share capital deposits received from the shareholders and the reserves stood at   13839 crore as on 31 March 2011 as against   12247 crore as on 31 March 2010; registering a growth of 13.0%. The increase in owned funds to the tune of   1592 crore was mainly on account of accretion to reserves by the profit making RRBs. The share capital and share capital deposits together amounted to   4273 crore of total owned fund while the balance amount of   9566 crore represented reserves.

2.1.2.Recapitalisation of RRBs
As a part of comprehensive restructuring programme, recapitalisation of RRBs was initiated in 1994-95 and an aggregate financial support of   3984.90 crore was provided to the RRBs by the shareholders by 31 March 2010.

The Chakrabarty Committee reviewed the financial position of all RRBs in 2010 and recommended for recapitalisation of 40 out of 82 RRBs for strengthening their CRAR to the level of 9%. According to the Committee, the remaining RRBs are in a position to achieve the desired level of CRAR on their own.Accepting the recommendations of the committee, the GOI along with other shareholders decided to recapitalise the RRBs by infusing funds to the extent of 2200 Crore. The implementation is already underway and is expected to be completed during 2012-13.

2.1.3 Deposits

Deposits of RRBs increased from   145035 crore to   166232 crore during the year registering growth rate of 14.6 %. Gurgaon GB reported the highest deposit growth rate of 37%. There are Sixteen (16) RRBs having deposits of more than   3000 crore each.

2.1.4 Borrowings

Borrowings of RRBs increased from   18770 crore as on 31 March 2010 to  26491 crore as on 31 March 2011 registering an increase of 41.1% . Borrowings viz-a-viz the gross loan outstanding constituted 26.8% as against 22.7% in the previous year.

2.2 Uses of funds

2.2.1 Investments

The investment of RRBs increased from   79379 crore as on 31 March 2010 to   86510 crore as on 31 March 2011 registering an increase of 8.98%. SLR investments amounted to   45022 crore where as non-SLR investments stood at   41488 crore. The Investment Deposit Ratio (IDR) of RRBs progressively declined over the years from 72% as on 31.3.2001 to 52.04% as on 31 March 2011.

2.2.2 Loans & Advances

During the year the loans outstanding increased by   16098 crore to   98917 crore as on 31 March 2011 registering a growth rate of 19.4% over the previous year. Meghalaya Rural Bank recorded the highest growth rate of 35 % during the year 2010-11.

2.2.3 Loans Issued

Total loans issued by RRBs during the year increased to   71724 crore from   56079 crore during the previous year registering a growth of 27.9%. Samastipur Kshetriya GB reported highest growth rate of 123% during 2010-11 followed by Andhra Pradesh GVB at 112%.

2.3 Working Results

2.3.1 Profitability

75 RRBs (out of 82 RRBs) have earned profit (before tax) to the extent of   2421 crore during the year 2010-2011. The profit was marginally lower than the previous year. After payment of Income Tax of   635 crore, the net profit aggregated to   1786 crore.The remaining 7 RRBs incurred loss to the tune of   71 crore.

2.3.2 Accumulated Losses

As on 31 March 2011, 23 of the 82 RRBs continued to have accumulated losses to the tune of     1532 crore as against     1775 crore (27 RRBs) as on 31 March 2010. The accumulated loss decreased by    243 crore during the year under review.

2.3.3 Non-performing Assets (NPA)

The Gross NPA of RRBs stood at   3712 crore as on 31.03.2011(i.e.3.75%). The percentage of Net NPA of RRBs has shown an increase from 1.8% to 2.05% during the year.The data revealed that 15 RRBs had gross NPA percentage of less than 2%, whereas 33 RRBs had it above 5%.

2.3.4 Recovery Performance

There has been an improvement in the recovery percentage during 2009-10 from 80.09% as on 30 June 2009 to 81.18% as on 30 June 2010. The aggregate overdues, however, increased by   934 crore to    9805 crore as on 30 June 2010.

2.3.5 Credit Deposit Ratio

The aggregate CDR of RRBs increased over the years from 41.83% as on 31 March 2002 to 59.5% as on 31 March 2011. Eight of the RRBs reported CDR of more than 100%.

2.3.6 Productivity of Branch and Staff

The branch productivity increased to  16.57 crore in 2010-11 from   14.72 crore in 2009-10 with a growth of 12.57%. Similarly, staff productivity in 2010-11 increased to   3.78 crore from   3.70 crore in 2009-10 with a growth of 2.16%.

2.4 Initiatives during the year

Regional Rural Bank Service Regulations-2010

a. Based on the recommendations of Amaresh Kumar Committee, the GoI issued the RRB Service Regulations 2010.

Regional Rural Bank Appointment & Promotion Rules 2010

b. GoI also notified the RRB Appointment & Promotion Rules 2010, in July 2010.

c. CBS for RRBs

The RRBs were required to ensure that their branches are put on CBS platform so that they can provide hassle free and any where banking services to their clients. 80 RRBs have since been fully migrated to CBS as on 30m September 2011. NABARD is providing financial assistance to identified 28 weak RRBs to the extent of 40% for core banking solution from Financial Inclusion Technology Funds (FITF) and rest of the cost will be shared by the Sponsor Bank (50%) and the RRB (10 %)

d.Financial Inclusion

As envisaged by the Government of India, RRBs as a group have become a strong intermediary for financial inclusion in rural areas by opening a large number of “No frills” accounts and by financing under General Credit Card (GCC), as per RBI guidelines. As on 31 March 2011 there were 255.06 lakh No Frills accounts.

The number of branches of RRBs increased to 16001 as on 31 March 2011 from 15480 as on 31 March 2010.

e. Interest Subvention to RRBs

The continuance of the interest subvention scheme was announced in the Union budget 2010-11. Interest subvention of 1.5% per annum was available to RRBs for deploying their own funds for crop loan upto   3 lakh per farmer, provided the ultimate borrower get such loans at 7% interest per annum. An additional subvention of 2% was announced during the year to those farmers who repaid crop loans promptly within one year of disbursement. Thus, the interest paid on crop loans by such farmers was effectively at the rate of 5%.