Rrbs To Get More Freedom On Priority Advances

The Reserve Bank of India (RBI) has decided that the advances of the regional rural banks (RRBs) to the priority sector should constitute 40 per cent of their outstanding advances. The norm will come into effect from the financial year beginning April 1, 1997.

The apex bank move come as part of its efforts to facilitate the economic recovery of the 196 regional rural banks. Within this overall target of 40 per cent, 25 per cent (or 10 per cent of total outstanding advances), should be granted to the weaker sections of society. The RBI move is to bring the gramin banks in line with scheduled commercial banks, which are required to advance 40 per cent of total credit disbursed by them to the priority sector.

 

Besides, efforts are on to strengthen the central banks control over these banks. The RRBs have been asked to submit details of the position of their priority sector advances at the end of every six months. The RRBs will have to submit their first report of this kind on their financial position as on September 30, 1997, by October 31, 1997. Originally, the RRBs were allowed to lend only to the target group comprising small and marginal farmers, landless labourers, rural artisans and other weaker sections of the society. Subsequently, the RRBs were allowed to lend up to 60 per cent of their incremental lending during a year to non-target group of borrowers. This has now been further relaxed by the apex bank.

This policy initiative by the central bank will permit RRBs to place a larger percentage of their incremental deposits in more profitable accounts.

According to data for 1995-96, 152 RRBs out of the total 196 were making losses. The combined losses for the financial year was placed at about Rs 467.97 crore. The combined accumulated losses for the RRBs was a whopping Rs 2,152.09 crore.

The 196 RRBs in the country are owned jointly by the Centre, the state governments and a sponsoring public sector commercial bank with the Centre holding the majority 50 per cent stake. Recently, there have been several suggestions to dilute the governments stake in RRBs, especially the loss-making ones. The World Bank had also reportedly advised the government to increase the stake of the sponsoring commercial banks besides considering amalgamation of some of the loss-making RRBs each other or with the sponsoring public sector banks to make them more viable.