REGIONAL RURAL BANKS (Syllabus: GS Paper 3 – Economy)

Context: Union Finance Minister recently emphasised regional rural banks (RRBs) to upgrade their digital capability and increase penetration under Pradhan Mantri Mudra Yojana.

Regional Rural Banks

• About: RRBs, are government-owned scheduled commercial banks in India, functioning at the regional level across different states.
• These banks cater to rural areas, offering essential banking and financial services to the rural population.
• Origin: The Narasimham Committee on Rural Credit (1975) recommended establishing RRBs, which was realized through the RRB Act 1976 and an ordinance on September 26, 1975.
• The first RRB, Prathama Grameen Bank, was founded on October 2, 1975.
• Functions of RRBs: Providing basic banking services in rural and semi-urban areas, facilities such as locker services, internet and mobile banking, debit and credit cards, extend credit to rural individuals like small farmers, artisans, and entrepreneurs, while also accepting deposits.
• Regulation: RBI, and NABARD supervises RRBs.
• Ownership; Government of India (50%), Sponsor Bank (35%), and relevant State Government (15%).
• Management: Board of Directors with a Chairman, Directors nominated by the Central and State Governments, and those nominated by the sponsor bank.

Pradhan Mantri Mudra Yojana: A flagship scheme of the Government of India to extend affordable credit to micro and small enterprises. Mudra schemes are designed to bring enterprises into the formal financial system, or to “fund the unfunded”.  MUDRA does not lend directly to micro-entrepreneurs/individuals. It has created three products i.e. 'Shishu', 'Kishore' and ‘Tarun’.