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RURAL BANKS
The proposal for instituting a kind of rural banks was first mooted by the Banking Commission in its Report published in 1972. To strengthen the field of co-operative banking in the rural sector, the commission in proposed the creation of a new category of rural banks in one of the three possible ways: Conversion of selected viable or potentially viable primary agricultural societies (PACS) into rural co-operative banks which would provide a full range of banking facilities, together with certain closely allied nonbanking services. Restructuring a sound primary agricultural credit society as a subsidiary of a commercial bank. It is to be called rural subsidiary bank. Commercial banks may also set-up their own rural subsidiary banks with local participation in capital and management, where suitable primary societies are not available.
Based on the recommendation and after due consideration of the scheme suggested by the Narasimah Committees Report, the Government of India instituted Regional Rural Banks Ordinance, 1975, promulgated by the President of India on September 26, 1975.
Subsequently, on February 9, 1976, the Government of India passed the Regional Rural Banks Act, 1976, with clarification on some issues.
Operations of RRBs
In December 1989, 196 reporting RRBs have aggregate deposits of Rs. 3,644 crores and advances of Rs. 3,155 crores. Over 92 percent of the total advances are made by the RRBs to the weaker sections. Their advances under IRDP during 1986 amounted to Rs. 200 crores relating to 7,84,145 accounts.
1) The RRBs should be permitted to increase their authorised share capital from Rs.1 crore to Rs.5 crores and issued capital from Rs.25 lakhs to Rs.1 crore. 2) The sponsor banks should, on behalf of RRBs, invest the deposits kept by them in current account for SLR requirement in government securities. 3) The sponsor banks should lower the rate of interest on refinance from 8.5 percent to 7 percent. 4) New RRBs should be established only in consideration of the genuine need to serve a neglected area, especially tribal areas and people. 5) The coverage of RRBs be restricted to 2 districts in order to have a better supervision ad control of their branches.
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