IBPS Test 21

Regional Rural Banks were established in India in 1975 following the recommendations of the Narasimham Working Group, with the specific mandate of taking banking services to the rural population and providing credit to small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs in rural areas. The institutional design of RRBs reflected a deliberate attempt to combine the local knowledge and reach of cooperatives with the managerial and technical expertise of scheduled commercial banks. Each RRB is jointly owned by the central government, a sponsor bank, and the concerned state government in a fixed proportion, with the sponsor bank holding the largest share and being responsible for providing managerial and technical assistance to the RRB. RRBs operate in specified geographical areas, typically one or more districts, enabling them to develop deep understanding of local economic conditions, crop patterns, and credit needs. Over the decades since their establishment, RRBs multiplied in number across the country, and while many performed valuable developmental roles, a significant proportion accumulated large financial losses arising from priority sector mandates, high non-performing assets, weak management, and limited business diversification. The recapitalisation of RRBs by the government and sponsor banks became a recurring requirement, straining public finances. The amalgamation of RRBs was therefore pursued as a policy to create larger, more financially viable entities that could benefit from economies of scale, maintain adequate capital, and invest in technology. Successive rounds of amalgamation reduced the number of RRBs from over one hundred ninety at their peak to around forty-three by the early 2020s. Further consolidation is under consideration. Sponsor banks of merged RRBs needed to align their technology platforms, harmonise product offerings, and integrate human resources while maintaining service continuity for millions of rural customers. The recapitalisation framework requires the central government, state government, and sponsor bank to contribute in their respective ownership proportions whenever capital infusion is needed to maintain minimum capital adequacy requirements. RRBs have increasingly adopted core banking technology, mobile banking, and business correspondent networks to extend their reach and improve service quality. The business correspondent model, which deploys agents at the village level to provide basic banking services including account opening, deposit collection, and loan disbursement, has been particularly effective in extending RRB services to habitations that cannot be served by brick-and-mortar branches. The role of RRBs in the implementation of government schemes including PMJDY, PM Kisan, and MGNREGS payment disbursements has been significant, particularly in districts where commercial bank presence is limited.