1. Genesis and Establishment
- Recommendation: Based on the Narasimham Working Group (1975) on rural credit.
- Legal Framework: Established under the Regional Rural Banks Act, 1976 (initially set up via an Ordinance in 1975).
- First RRB: Prathama Bank, Moradabad (UP), sponsored by Syndicate Bank, established on October 2, 1975.
- Objective: To provide banking services to rural areas, particularly to small/marginal farmers, artisans, and small entrepreneurs, combining the “local feel” of cooperatives with the “business efficiency” of commercial banks.
2. Ownership and Regulation
- Ownership Structure:
- Central Government: 50%
- State Government: 15%
- Sponsor Bank: 35%
- Regulation & Supervision:
- Regulator: Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
- Supervisor: NABARD (National Bank for Agriculture and Rural Development).
- Tax Treatment: For taxation purposes, RRBs are treated as Cooperative Societies under the Income Tax Act.
3. Operational Mandates
- Priority Sector Lending (PSL): Unlike Scheduled Commercial Banks (40%), RRBs have a higher target of 75% for PSL.
- CRAR (Capital to Risk Weighted Assets Ratio): Must maintain a minimum CRAR of 9%.
- Recapitalization: In 2021–2023, the government infused over ₹10,000 crore to strengthen their capital base.
4. Structural Transformation: Amalgamation
India is currently transitioning towards a “One State, One RRB” model to improve efficiency and scale.
- Impact of 2025 Amalgamation: 26 RRBs were merged into 11 entities across 11 states/UTs.
- Reach: As of late 2025, these 28 RRBs cover 700 districts with over 22,000 branches.
Committees
- Dantwala Committee (1977): Investigated RRB operations; recommended their extension to areas with weak credit structures.
- Kelkar Committee (1986): Recommended no new RRBs be established; suggested strengthening existing ones.
| Feature | Regional Rural Banks (RRBs) | Scheduled Commercial Banks (SCBs) |
| Ownership | Tripartite (50:15:35) | Multiple (Public/Private/Foreign) |
| PSL Target | 75% | 40% |
| Supervisor | NABARD | RBI |
| Area | Regional (Districts/State) | National/International |
Q. With reference to Regional Rural Banks (RRBs) in India, consider the following statements:
I. They were established based on the recommendations of the Dantwala Committee.
II. The State Government holds the smallest equity share among the three stakeholders.
III. They are regulated by NABARD under the Regional Rural Banks Act, 1976.
Which of the statements given above is/are correct?
(a) I and II only
(b) II only
(c) I and III only
(d) II and III only
Answer: (b)
Explanation:
Statement I is incorrect: they were recommended by the Narasimham Committee.
Statement II is correct: State Govt (15%) < Sponsor Bank (35%) < Centre (50%).
Statement III is incorrect: they are regulated by RBI and supervised by NABARD.
