A mission adrift ~ II

The RRB Act has been amended to allow capital infusion from the market in such a way that the combined share of the Centre and sponsor bank can be reduced to 51 per cent against the present level of 85 percent (50 plus 35), whereby the private players will have a role relatable to their share in the business of RRBs. That means the commercial profit goal will take precedence over social profit, and banks will become purer commercial banks, which goes against the interest of small and marginal farmers who account for more than 90 percent of the farming community, and whose protection is vital

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While the motive of the Regional Rural Banks was social profits as opposed to commercial profits, some commercial losses were unavoidable and were supposed to be treated as the social cost for the benefit of financing the farmers and rural poor.

The income and employment generated through bank finance were considered as the real profit of these social banks.

So, in their lending, the banks were prohibited from insisting on any collateral. Only the output/assets created out of the loans were treated as security. For instance, if a small farmer was lent money for crop production, the crop to be produced was hypothecated, not the land on which the crop was grown. So, the commercial losses were not unanticipated but were in the very design of the RRBs.

True that by the early 1990s, before the reforms, 173 of 196 RRBs were in losses, and only 23 earned some profit. Then came the reforms, overwhelmed by the losses. The character of the RRBs has changed; not a simple change but a sea change.

For achieving economies to scale, now the 196 RRBs are condensed into 28, one-state-one RRB as opposed to the original one district-one RRB concept. So the regional nature of regional rural banks has disappeared.

These 28 RRBs have 22,069 branches as of March 2024 ~ roughly 14 per cent of commercial bank branches. Of them, 1,766 branches are located in urban and metropolitan areas, and 20,303 in rural and semi-urban areas (20 per cent of such commercial banks’ rural branches of 1,00,686). The urban and metropolitan presence of RRBs denotes their urban interest or discarding of their rural character. More than the presence of branches in urban areas, the fund utilization of RRBs in urban areas is more worrisome; it opposes the goal of ploughing back the rural resources into rural areas themselves.