Discuss the objectives and functions of Regional Rural Bank.

Ans. To accelerate the pace of national economic development, former Prime Minister Mrs. Indira Gandhi announced a twenty point economic program. This program provided for ending rural indebtedness and providing financial facilities for rural development. Under this program, it was decided to establish Regional Rural Banks as an alternative arrangement to provide financial assistance to farmers. It is notable that the Banking Commission 1972 had also suggested establishing such institutions. 

Under the twenty point economic program, the initial target was to establish 50 Regional Banks. It was also planned to open 50,000 branches of these banks. 

• 1. Cooperative and Commercial banking institutions failed to demonstrate their interest and ability to meet the financial needs of small and marginal farmers in the Indian context.
• 2. It was also experienced that the rural branches of commercial banks cannot effectively solve the rural credit problem, because the officers operating these branches do not have the mindset, living standards and salary levels conducive to the expansion and management of rural credit facilities. Due to their own limitations, they cannot meet the financial needs of small farmers, laborers, landless farmers, etc.

Therefore, the need was felt to establish such institutions that are different from both cooperative and commercial banking institutions in dealing with local and rural credit problems and have the organizational efficiency and ability to mobilize deposits available in commercial banks. 

Thus, based on the facts described above, the issue of establishing Regional Rural Banks was given a concrete shape. These banks are expected to succeed in areas where both cooperative and commercial banking institutions have failed. It can be noted that the aim of establishing Regional Rural Banks is not to compete with other institutions operating in the field of rural credit, but to function as their subsidiary institution. 

Each Regional Rural Bank has been sponsored by a nationalized bank. The capital of these banks consists of amounts contributed in a predetermined proportion by the Central Government, respective State Government and the sponsoring nationalized bank. 

The authorized capital of each Regional Rural Bank is fixed at Rs 1 crore. The paid up capital is Rs 25 lakhs. Out of the paid up capital, the contribution of the Central Government, State Government and sponsoring bank is 50 percent, 15 percent and 35 percent respectively.

The Board of Directors is entrusted with the management of Regional Rural Banks. The total number of members of the Board of Directors is 9. The Chairman and three Directors are appointed by the Central Government. Other directors are nominated by the sponsoring bank (three) and the respective State Government (two). 

Functions of Regional Rural Banks - 

The functions to be performed by these banks are:

• 1. To provide financial assistance to rural workers, laborers and general public for agriculture, trade, industry and other productive activities for the development of rural economy of the country. 
• 2. To provide financial assistance to small and marginal farmers, rural workers and laborers and general public. 
• 3. To meet the financial needs of the above classes of persons at an interest rate lower than the normal interest rate based on their requirements. 
• 4. The functioning of these banks is very simple and most transactions are provided to be accounted for in the local language.
• 5. The area of operation of Rural Banks has generally been kept limited to one or two districts so that they can pay special attention to local needs. 
• 6. Salaries and allowances to be given to employees in these banks are determined separately. While determining the allowances, the remuneration received by government employees and employees of local bodies in that area is kept in view. This provision has been made so that the establishment and operating expenses of Rural Banks can be reduced.

The decision to establish Rural Banks in the field of rural credit is an entirely new step. The main objective of establishing these banks is to provide financial assistance to the weaker sections of rural areas so that they can improve their standard of living and accelerate the economic development of the country. For their success, it is necessary that the responsibility of their management be entrusted to those who are committed to rural finance and development so that credit arrangements with a rural perspective can be made. 

Regional Rural Banks and Cooperative Credit Institutions - 

There is a difference between Regional Rural Banks and Cooperative Credit Institutions. Generally, a cooperative credit society relies on its apex institution for financial resources. While Rural Banks have set the goal of collecting deposits for their funds. 

Regional Rural Banks are expected to incorporate the strengths of both cooperative and commercial banks. For example, like cooperative credit institutions, the management of these is also entrusted to those who are dedicated to rural finance and development. Efforts have been made to make their financial strength and operational efficiency similar to that of commercial banks. It is hoped that in the long run, Rural Banks will be able to play an important role in the field of rural development. Effective coordination between commercial banks, cooperative credit institutions and these regional rural banks is absolutely necessary for their success.

Rural Banks should establish their branches only in those areas where commercial banks and cooperative credit institutions have not achieved adequate success. In addition, in order to prevent unnecessary competition with cooperative credit institutions, the areas of operation of Rural Banks and cooperative credit institutions should be divided geographically. There should be no competition between cooperative credit institutions and rural banks. Strong decisions at the state level can prove more useful in this regard. 

For Regional Rural Banks to become an influential institution in the country's social and economic transformation, it is necessary that they develop their functioning distinctly differently from the functioning of commercial banks. In changing circumstances, it is necessary to change the traditional approach. Rural banks have not only to function as a source of credit but also to actively contribute to rural economic planning. As public sector institutions, they have to actively contribute to make agriculture, animal husbandry and rural industries more productive. 

Rural banks have to fulfill social objectives along with commercial objectives. In this regard, they can arrange recurring credit so that the customer can use credit up to a certain amount. It is necessary for the employees working in rural banks to have a rural background so that they can understand local problems in the right context. A local board can be appointed for the successful operation of rural banks. Rural banks are expected to function as an effective mechanism for economic development and social change.