Regional Rural Banks (RRBs) are government owned scheduled commercial banks of India that operate at regional level in different states of India. These banks are under the ownership of Ministry of Finance , Government of India. They were created to serve rural areas with basic banking and financial services. However, RRBs also have urban branches.

TOPICS COVERED IN THE ARTICLE

  • About Regional rural Bank
  • Mandate of Regional Rural banks
  • Definitions

ABOUT REGIONAL RURAL BANK

RRBs were set up as state-sponsored, regionally based and rural oriented institutions under the Regional Rural Banks Act, 1976. RRBs are regulated by Reserve Bank of India and are supervised by NABARD.RRBs are jointly owned by the Centre, the state government concerned and sponsor banks with the issued capital shared in the proportion of 50%, 15% and 35%, respectively.

MANDATE OF RRB IS TO

  • Serve the credit needs of the small and marginal farmers, agricultural labourers, socio-economically weaker section of population for development of agriculture, trade, commerce, industry and other productive activities.
  • Reduce regional imbalances and increase rural employment generation activities.
  • Develop such measures which could restrict the outflow of rural deposits to urban areas It was set up on the basis of the recommendations of the Narasimham Working Group (1975), and after the legislations of the RRB Act, 1976.
    Issues faced by RRBs: inadequate finance, High overdues and poor loan recovery, lack of technology, procedural rigidities etc

SOME DEFINITIONS

Liquidity Adjustment Facility

LAF is used in monetary policy which enables banks to borrow money through repurchase agreements (repo) against the collateral of Government securities including State Government securities or banks to lend to the RBI using reverse repo contracts

Marginal Standing Facility

MSF is a very short-term borrowing scheme for scheduled commercial banks.

• MSF had been introduced by RBI to reduce  volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
• MSF rate is generally higher than Repo rate

Call/notice money market

Call/notice money market forms an important segment of the Indian money market.

• Under call money market,  funds are transacted on overnight basis and under notice money market, funds are transacted for the period between 2 days and 14 days.

For similar notes on Economy topics, refer to the linked article.