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LATEST NEWS UPDATES | Banks told to integrate operations with Regional Rural Banks for rural lending by Dheeraj Tiwari

Banks told to integrate operations with Regional Rural Banks for rural lending by Dheeraj Tiwari

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published Published on Sep 10, 2011   modified Modified on Sep 10, 2011

In an attempt to extend the reach of banks in rural and semi-urban areas, the finance ministry has asked public sector banks to integrate their operations with regional rural banks (RRBs).

"Charges for various banking services used by customers of RRBs are to be aligned with the sponsoring banks," a finance ministry official said on condition of anonymity. "Further, cheques or drafts issued by RRBs should be treated at par with their sponsoring bank."

The government expects RRBs to offer more, and quicker, loans to borrowers in India's hinterland as part of its financial inclusion drive. It wants RRBs to disburse at least s 51,000 crore worth of loans, or 10.7% of the 475,000 crore lending target it has set for public sector banks for the current fiscal.

The finance ministry has also directed public sector banks to relocate their branches from areas where there is an existing branch of an RRB. This will help in increasing the coverage area of banking services, the finance ministry official said.

"RRBs can play a major role in financial inclusion," the official said, adding, "they not only do agricultural lending, but also play a significant role for small and medium enterprises."

The government and the Reserve Bank aim to provide banking facilities in 73,000 villages with a population of more than 2,000 by March next year. This is estimated to provide bank accounts to about 50 million rural households.

"Regional banks are further asked to develop an e-governance plan within this month and adopt the human resource practices followed in their sponsoring banks," the above quoted official said.

RRBs have a network of 15,475 branches. Nearly a fifth of these are sponsored by the country's largest lender, State Bank of India. In order to meet its financial inclusion agenda, the government is looking to strengthen RRBs and has provided them 500 crore in 2011-12.

Under the new directions, employees of RRBs will be sent on deputation to sponsoring banks to give them better exposure and those above 45 years of age will not be appointed as chairmen of RRBs. Some public sector banks, however, said the integration of banking services would take some time.

"There are concerns over non-performing assets and lending practices followed by RRBs, which needs to be streamlined first," said an official with Bank of India.

Finance minister Pranab Mukherjee has directed RRBs to reduce the level of non-performing assets, or bad loans, to below 5% by the year-end. Under the new directives, chairmen of the sponsoring bank would have to review the status of audit of their sponsored RRBs.

Nearly 40 of the over 82 RRBs need capital support, which is pegged at 2,200 crore. The delay in investments from state governments has undermined RRBs ability to fund the farm sector.

The Economic Times, 10 September, 2011, http://economictimes.indiatimes.com/news/economy/finance/banks-told-to-integrate-operations-with-regional-rural-banks-for-rural-lending/articleshow/9929546.cms


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