The Performance of Regional Rural Banks (RRBs) in India:Has Past
Anything to Suggest for Future

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Introduction
Regional Rural Banks have been in existence for around three
decades in the Indian financial scene. Inception of regional rural banks
(RRBs) can be seen as a unique experiment as well as experience in
improving the efficacy of rural credit delivery mechanism in India.


Restructuring Strategies
The financial viability of RRBs has engaged the attention of
the policy makers from time to time. In fact, as early as 1981, the
Committee to Review Arrangements for Institutional Credit for
Agriculture and Rural Development (CRAFICARD) addressed the
issue of financial viability of the RRBs. The CRAFICARD
recommended that ‘the loss incurred by a RRB should be made
good annually by the shareholders in the same proportion of their
shareholdings’. Though this recommendation was not accepted,
under a scheme of recapitalisation, financial support was provided
by the shareholders in the proportion of their shareholdings.
Subsequently, a number of committees have come out with different
suggestions to address the financial non-viability of RRBs.



Review of Literature
RRBs though operate with a rural focus are primarily scheduled
commercial banks with a commercial orientation. Beginning with
the seminal contribution of Haslem (1968), the literature probing
into factors influencing performance of banks recognises two broad
sets of factors, i.e., internal factors and factors external to the bank.
The internal determinants originate from the balance sheets and/or
profit and loss accounts of the bank concerned and are often termed
as micro or bank-specific determinants of profitability.



Performance of RRBs in the Spatial Dimension: Some Stylised Facts

The RRBs, over the years have made impressive strides on
various business indicators. For instance, deposits of RRBs have
grown by 18 times and advances by 13 times between 1980 and 1990.
Between 1990 and 2004, deposits and advances grew by 14 times
and 7 times, respectively (Table 1). Between the year 2000 and 2004,
loans disbursed by RRBs more than doubled reflecting the efforts
taken by the banks6 to improve credit flow to the rural sector. The
average per branch advances also increased from Rs.25 lakh in March
1990 to Rs.154 lakh in March 2003.