A Study on the Viability of RRBs as Rural Financial Institutions in the Liberalised Environment

In India an array of financial institutions are operating in the area of rural financing. Among those institutions Regional Rural Banks (RRBs) are prominent. RRBs came into existence in 1975, with the recommendation of Narashimham Committee. The idea was to provide efficient service to the rural sectors so that the rural economy could provide the necessary input to the overall economy. But after few years of their operation, people started questioning their viability. The dwindling profit, poor recovery and bad quality of assets have become the cause of worry. The concerns became more serious when these RRBs failed to perform in the last ten years of liberalized regime. During this phase, a large amount of capital was infused to many ailing RRBs through budgetary provisions. There salary structure was also revised to bring parity with other commercial banks. Despite of these and other sops, their performance has not registered any significant recovery. The responsibility of catering to the need of rural masses and at the same time competing with other commercial banks, have put them in a piquant situation. The poor recovery of rural loans and growing operating expenditure are the main stumbling blocks for their growth in profitability. The all-India figure as on 31st March 2001 shows that they have a poor credit deposit ratio at 41 percent; bad recovery at 69 percent and the level of their non-performing assets is around 18 percent, which is alarming. All these corresponding parameters in NE region are further discouraging. Huge accumulated losses are still rolling in their balance sheets. The micro-level study of Subansiri Gaonlia Bank (SGB), indicates that over the last 4 years the performance has improved to a great extent. But a poor recovery rate at 19 percent and a high level of NPA at 52 percent show the precarious condition of this RRB. Every effort has thus to be made by RRBs to improve their portfolio quality and to arrest further slippage of assets to NPAs. Participation of local bodies, SHOs, NGOs etc. in the recovery drive and scientific (pre and post sanctioning) credit monitoring with adequate branch autonomy is need of the hour