1

In India, the most substantial part of the population lives in rural areas (65.97% in
2018, according to World Bank Development Indicators). Banking services are far off
from the rural population. Hence financial inclusion has been implemented by both the
Government and the Reserve Bank of India to bring the weak and deprived sections of
the society within the community of the Indian banking system. This paper discusses
only the Role of Rural Banking & its growth, expansion, and performance, etc. The
present study has been done covering ten years 2008-09 to 2017-18. This paper is
mainly focused on several Regional Rural Banks (RRBs) and their branch expansion,
deposits, advances, and profitability of RRBs during the study period to understand the
growth and performance of RRBs. It appears in the study that demand for credit has
increased in rural areas for different purposes along with the increasing trend of branch
expansion.
 2

Banks' functions and services significantly influence the modern economy's activities.
The banking sector forms the central part of the economic system. The Indian economy
is agricultural, and real India resides in the villages. The village's economy is the
backbone of the Indian economy (Kher, 2013, p.31). Rural development plays a
phenomenal role in the overall socio-economic development of a country like India,
where most of the population is living in rural areas. The rural sector affects almost all
economic activities across India and generates maximum employment for people. A
considerable part of the revenue is generated from the rural India. Rural funding was
required to provide protection and support to the rural population, such as lenders,
owners traders, etc., but they exploited farmers and small business owners by charging
high interest rates and forcing them to sell their produce at low prices. The rural
population also faces the threat of unpredictable agricultural production due to the
heavy dependence on monsoons. They also suffer from a lack of water supply,
fertilizers, and seeds in addition to other facilities due to lack of finance.

Regional Rural Bank

Regional Rural Banks (RRBs) are Indian Scheduled Commercial Banks (Government
Banks) operating at the regional level in different States of India. They have been
created with a view of serving primarily the rural areas of India with basic banking and
financial services. However, RRBs may have branches set up for urban operations and
their area of operation may include urban areas too.

History of RRB
Gandhi's Government to including rural areas in the economic mainstream since that
time about 70% of the Indian Population was of Rural Orientation.
 3
The development process of RRBs started on 2 October 1975, Gandhi Jayanti with the
forming of the first RRB, the Prathama Bank, Head Office at Moradabad (U.P.) with an
authorized capital of Rs 5 crore at its starting. Prathama Bank was sponsored by
Syndicate Bank. As of 2 October 1975 Out of the remaining four RRBs in the country,
one was Set up at Malda in West Bengal under the name of Gour Gramin Bank, which
was the first RRB in the Eastern Region of India. These Regional Rural Banks (RRBs) have
received high importance and attention in the rural credit system. Considering the
gross absence of banking facilities in the rural areas of the country, the Reserve Bank
of India in consultation with the Central Government, State Governments, and some
major nationalized sponsored banks set up some Regional Rural Banks in the late 1970s
to elevate the economic status of the rural poor as well as to inculcate a habit of saving
among the rural masses.

Objectives for the establishment of RRBs

 Resolving of credit gap in rural territory

 Monitoring the flow of rural deposits to urban areas

Minimizing the regional imbalances and extending rural employment

Role of Regional Rural Banking for Rural Development

The role of rural banks in rural development has escalated. Banks are functional in the
processes of saving, capital formation, investment, and production in the rural
economy. RRBs perform various functions which can be discussed under the following
headings:

 Facilitating banking conveniences in rural as well as semi-urban parts.

 Execution of government operations like payment of wages of “MGNREGA”

workers, dispersal of pensions, etc.
 4
 Enabling Para-Banking facilities like debit as well as credit cards, locker facilities,
internet banking, mobile banking, UPI, etc.

 Small financial banks.

Role of Regional Rural Banks in the Economic Growth of India

The real progress of the Indian economy lies in the development of the rural masses as
a result of unemployment, poverty besides other socio-economic backwardness.
Taking this as a point of view, RRBs were established by the Indian government to
expand the rural economy. Regional rural banks play a major role in India's financial as
well as economic growth. Rural banks encourage rural entrepreneurship and provide
an unequivocal response to the growing unemployment problem. Rural
entrepreneurship can bridge the huge gap and disparities in pay for rural in addition to
urban individuals. Rural banks encourage the promotion of savings among people and
inhabitants of financially weaker villages, leading to the mobilization and sharing of
savings between alternative uses and users. Rural people can use this money for
different types of rural development such as trade development, agricultural
development, and industrial development. Rural development plays a crucial role.

REGIONAL RURAL BANKS (RRB)

 5
Type: Public

Industry: Banking, financial services

Founded: 2 October 1975 Gandhi Jayanti.
Headquarters: India Number of locations:21398 (as of 2017)
Products: Retail banking, corporate banking, investment
banking, mortgage loans, wealth management,
debit card, UPI, internet banking, mobile
banking, etc
Owner: Government of India (50%), Sponsor Banks
(35%), State Governments (15%)

Organizational structure
The organizational structure for RRBs varies from branch to branch and depends upon
the nature and size of the business done by the branch. The Head Office of an RRB
normally had three to nine departments. The following is the decision-making
hierarchy of officials in a Regional Rural Bank.

• Board of Directors • Senior Manager

• Chairman & Managing Director • Manager

• General Manager • Officer

• Assistant General Manager • Office Assistant

• Regional Manager/Chief Manager • Office Attendant

 6
List of Regional Rural Banks

Presently there are 43 RRBs in India.

Andhra Pradesh

• Andhra Pragathi Grameena Bank

• Chaitanya Godavari Grameena Bank

• Saptagiri Grameena Bank

Arunachal Pradesh

• Arunachal Pradesh Rural Bank

Assam

• Assam Gramin Vikash Bank

Bihar

• Dakshin Bihar Gramin Bank

• Uttar Bihar Gramin Bank

Chhattisgarh

• Chhattisgarh Rajya Gramin Bank

Gujarat
 8
• Baroda Gujarat Gramin Bank

• Saurashtra Gramin Bank

Haryana

• Sarva Haryana Gramin Bank

Himachal Pradesh

• Himachal Pradesh Gramin Bank

Jammu and Kashmir

• J&K Grameen Bank

• Ellaquai Dehati Bank Jharkhand

• Jharkhand Rajya Gramin Bank

Karnataka

• Karnataka Gramin Bank

• Karnataka Vikas Grameena Bank

Kerala

• Kerala Gramin Bank

Madhya Pradesh

• Madhyanchal Gramin Bank

• Madhya Pradesh Gramin Bank

Maharashtra

• Maharashtra Gramin Bank

• Vidharbha Konkan Gramin Bank

Manipur

• Manipur Rural Bank

Meghalaya

• Meghalaya Rural Bank

Mizoram

• Mizoram Rural Bank

Nagaland

• Nagaland Rural Bank

Odisha

• Odisha Gramya Bank

• Utkal Grameen Bank

Puducherry

• Puduvai Bharathiar Grama Bank

Punjab

• Punjab Gramin Bank

Rajasthan

• Baroda Rajasthan Kshetriya Gramin Bank

• Rajasthan Marudhara Gramin Bank

Tamil Nadu

• Tamil Nadu Grama Bank

Telangana

• Telangana Grameena Bank

• Andhra Pradesh Grameena Vikas Bank

Tripura

• Tripura Gramin Bank

Uttar Pradesh

• Aryavart Bank

• Prathama UP Gramin Bank

• Baroda UP Bank

Uttarakhand

• Uttarakhand Gramin Bank

West Bengal

• Bangiya Gramin Vikash Bank

• Paschim Banga Gramin Bank-Sponsor Bank-UCO

• Uttarbanga Kshetriya Gramin Bank

After 1947, RBI sought to expand rural access to formal credit via the cooperative
movement. However, by the mid-1960s it became apparent that increasing the
quantum of finance of credit cooperatives by the RBI could not address the central
problem. Still, the bulk of rural India remains without a source of formal credit.

After nationalization in 1969, the Reserve Bank of India focused on Rural Banking and
took control of the placement of banks as a means of advancing social objectives.
During this period more than 50,000 new branches were built primarily in unbanked,
rural locations. This represented a seven-fold increase in the proportion of rural
locations which were banked.

Rural banking institutions play a very important role in the all-round development of
a rural area of the country. To support the rural banking sector in recent years, Regional
Rural Banks have been set up all over the country to meet the credit needs of the most
underprivileged sections of the society. These Regional Rural Banks (RRBs) have
received high importance and attention in the rural credit system. Considering the
gross absence of banking facilities in the rural areas of the country, the Reserve Bank
of India in consultation with the Central Government, State Government, and some
major nationalized sponsored banks set up some Regional Rural Banks in the late 1970s
to elevate the economic status of the rural poor as well as to inculcate a habit of saving
among the rural masses.

Rural Banking affects poverty in rural locations. Poverty is a central issue regarding
branch expansion. The increase in branches built in unbanked locations reduces
aggregate poverty whereas expanding branches in banked locations does not. There is
no reason to think that building bank branches in unbanked rural locations would affect
production and distribution relations in the urban sector. This paper will discuss the
various schemes introduced by the Government for rural development. Our focus, in
particular, would be on whether policy-driven branch expansion into unbanked
locations helps to fulfill the financial needs of rural people or not.

RRBs though operate with a rural focus are primarily scheduled commercial banks
with a commercial orientation. Beginning with the seminal contribution of Haslem
(1968), the literature probing into factors influencing the performance of banks
recognizes two broad sets of factors, i.e., internal factors and factors external to the
bank. The internal determinants originate from the balance sheets and/or profit and
loss accounts of the bank concerned and are often termed micro or bank-specific
determinants of profitability. The external determinants are systemic forces that reflect
the economic environment which conditions the operation and performance of
financial institutions. Several explanatory variables have been suggested in the
literature for both the internal and external determinants. The typical internal
determinants employed are variables, such as size and capital [Akhavein et al. (1997),
Demirguc-Kunt and Maksimovic (1998) Short (1979) Haslem (1968), Short (1979),
Bourke (1989), Molyneux and Thornton (1992) Bikker and Hu (2002) and Goddard et
al. (2004)]. Given the nature of the banking business, the need for risk management is
of crucial importance for a bank’s financial health. Risk management is a reflection of
the quality of the assets of a bank and the availability of liquidity with it. During periods
of uncertainty and economic slowdown, banks may prefer a more diversified portfolio
to avoid adverse selection and may also raise their liquid holdings to reduce risk. In this
context, both credit and liquidity risk assume importance. The literature provides
mixed evidence on the impact of liquidity on profitability. While Molyneux and
Thornton (1992) found a negative and significant relationship between the level of
liquidity and profitability, Bourke (1989) in contrast, reports an opposite result. One
possible reason for the conflicting findings may be the different elasticity of demand
for loans in the samples used in the studies (Guru, Staunton, and Balashanmugam,
2004). Credit risk is found to hurt profitability (Miller and Noulas, 1997). This result may
be explained by taking into account the fact that the more the financial institutions are
exposed to high-risk loans, the higher the accumulation of unpaid loans implying that
these loan losses have produced lower returns for many commercial banks
(Athanasoglou, Brissimis, and Delis, 2005). Some of the other internal determinants
found in the literature are funds source management and funds use management
(Haslam, 1968), capital and liquidity ratios, the credit-deposit ratio, and loan loss
expenses [Short (1979); Bell and Murphy (1969); Kwast and Rose (1982)]. Expense
management, a correlate of efficient management is another very important
determinant of a bank’s profitability. There has been extensive literature based on the
idea that an expenses-related variable should be included in the cost part of a standard
microeconomic profit function. In this context, Bourke (1989) and Molyneux and
Thornton (1992) find that better-quality management and profitability go hand in
hand. As far as the external determinants of bank profitability are concerned the
literature distinguishes between control variables that describe the macroeconomic
environment, such as inflation, interest rates, and cyclical output, and variables that
represent market characteristics. The latter refers to market concentration, industry
size, and ownership status. Among the external determinants which are empirically
modeled are regulation [Jordan (1972); Edwards (1977); Tucillo (1973)], bank size and
economies of scale [Benston, Hanweck and Humphrey (1982); Short (1979)],
competition [Phillips (1964); Tschoegl (!982)], concentration [Rhoades (1977); Schuster
(1984)], market growth [Short (1979)], interest rates as a proxy for capital scarcity and
government ownership (Short, 1979). The most frequently used macroeconomic
control variables are the inflation rate, the long-term interest rate, and/or the growth
rate of money supply. Revell (1979) introduced the issue of the relationship between
bank profitability and inflation. He notes that the effect of inflation on bank profitability
depends on whether banks’ wages and other operating expenses increase at a faster
pace than inflation. Perry (1992) in a similar vein contends that the extent to which
inflation affects bank profitability depends on whether inflation expectations are fully
anticipated. The influence arising from the ownership status of a bank on its
profitability is another much-debated and frequently visited issue in the literature. The
proposition that privately owned institutions are more profitable, however, has mixed
empirical evidence in favor of it. For instance, while Short (1979) provides cross-
country evidence of a strong negative relationship between government ownership
and bank profitability, Barth et al. (2004) claim that government ownership of banks is
indeed negatively correlated with bank efficiency. Furthermore, Bourke (1989) and
Molyneux and Thornton (1992) find ownership status is irrelevant in explaining
profitability. While many of the above factors would be relevant, it would be instructive
to scan the literature that has exclusively focussed on the RRBs
 Reddy (2006) assessed the total productivity of technical factors and changes in scale
efficiency in the RRB in the period 1996-2002 in his document "Productivity Growth in
Regional Rural Banks". The study revealed that the efficiency of RRBs was greater in
economically and socially developed regions during the study period. It also showed
that rural banks have significant economies of scale in terms of the assets and number
of branches in each bank. The growth in total productivity of rural banks is higher in
terms of profitability than the provision of services during that period and has also
indicated that the change in technical efficiency produces higher productivity growth
in the RRB. While Khankhoje&Sathye (2008), studied the production efficiency of RRBs
post-restructuring. The study period covers the years 1990-2002. The authors used the
DEA technique to measure efficiency, and their study reveals that there is an
improvement in production efficiency in rural banks after the restructuring, comparing
the average efficiency scores of the years before and after the restructuring. Similarly
Ibrahim (2010), in his article, studied the impact of the amalgamation of Regional Rural
Banks in India on the performance of the RRBs in the period 2001-2009. His study
reveals that there was a significant improvement in RRB's performance after the
amalgamation period. Capital funds have increased post-amalgamation, and the credit
deposit ratio has also increased over the years.

On the other hand, Khan and Ansari (2015) analyzed the financial performance of
RRBs based on some key performance indicators such as branch expansion, deposits,
accumulated losses, investments, and trends of profit over the period 2012-15. Their
study found that overall there has been a remarkable development despite the
decline in investment and losses incurred by 5 RRBs. Whereas Singh (2017) has
examined the performance of Regional Rural Banks of India over the period 1975-
2015 in his paper. The study result shows that the number of branches of RRBs has
increased. The deposit mobilization per RRBs and average deposit per branch and
bank have also significantly increased from 1976 to 2015. The study finds that the
overall performance of RRBs has considerably improved during the study period in
India. Similarly Ghouse& Reddy (2017) analysed the financial performance of RRBs in
India during 2007-17. Their study disclosed that there is a notable variation in the
growth of RRBs during the study. It has also been found that RRBs have failed to
maintain the flow of growth in deposits.

Correspondingly Pattanayak(2018) conducted a review on the evolution of rural

finance to know its impact on poverty reduction of the rural population who have lower
income. He concluded that poverty reduction could be possible by the successful
execution of some programs like financial inclusion, financial literacy, easy access to
financial services, efficient rural financial system, etc. While Agarwal and Reddy (2019)
carried out a study to analyze the performance of RRBs in India. It was found in the
study that there was a substantial increase in both the number of branches and
deposits and outstanding advances. Profit of RRBs has also increased during the study
period. Similarly Tigari, Harish, and Gaganadeepa(2019) conducted a study to analyze
the credit structure of Pragathi Krishna Gramin Bank and its role in rural development.
Their study found that the respective bank provided loans to a maximum people of in
rural areas for several purposes like agriculture, self-employment, and entrepreneurial
activities for tiny firms. The study concluded on points that RRBs and rural development
have closely relied on each other, and the growth and development of the rural
economy largely depend on RRBs in our country. Whereas Das (2020) investigated the
effectiveness and performance of RRBs in general and Tripura Gramin Bank, in
particular, covering the period from 1998-99 to 2017-18 in his paper. The study
concluded that the performance of Tripura Gramin Bank was good concerning branch
expansion, profitability, rural development, deposit mobilization, and credit disposal
during the study period.
 To examine the growth pattern of Regional Rural Banks through

branch expansion and deposit mobilization during the study

 To analyze the profitability of RRBs

 To analyze the impact of the number of branches of RRBs, the total

deposits of RRBs and total advances of RRBs on the profitability of

RRBs

 To make important suggestions to improve the working of RRBs

Sources of Data Secondary data has been used for analysis in this study. The data were

collected from various journals, research papers, articles, books, and RBI reports. The

study analyses the financial performance and growth of RRBs by using tables, diagrams,

charts, ratios, and regression analysis.

Financial performance analysis is mostly made to evaluate the growth, profitability,
and financial soundness of the bank by identifying the information limited to the
financial records. Available. For this reason, subsequent factors have been
considered:

 State-wise- Wise Number of Branches of Regional Rural Banks

 State-wise- Wise Deposits of Regional Rural Banks

 State Wise Credit- Deposit Ratio of Regional Rural Banks

Scope and Period of the Study

 The study is based on the growth and performance of Regional Rural Banks in India.
Hence, the study covers all Regional Rural Banks in India to the fulfillment of
objectives of the study.
 This study is done for a period of 5 years, covering 2018-19 to 2022-23
 Table 1: Number of Branches of Regional Rural Banks (as of end-March)

State-wise Number of Branches of Regional Rural Banks

(As at end-March)

22321
22350
22300
No. Of. Branches

22250 22187
22172
22200
22130
22150
22100 22042
22050
22000
21950
21900
2019 2020 2021 2022 2023
YEAR

Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, RBI,
various issue

INTERPRETATION
It is visible from Table 1 that the number of branches of Regional Rural Banks
expanded over the period (2019-2020) in an increasing direction.
 Table 2: State Wise Deposits Of Regional Rural Banks (as of end-March) (Rs. Billion )

State-wise Deposits of Regional Rural Banks

700000
597073
600000 546237
510900
500000 467422
426568
Amount

400000

300000

200000

100000

0
2019 2020 2021 2022 2023
Years

Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, RBI,
various issue

INTERPRETATION
Table 2 shows the Y-o-Y growth in deposits from 2018-19 to 2022-23. During 2009-10,
there was an increase of 39.97% in deposits as compared to 2018-19.
 Table 3: State Wise Credit-Deposit Ratio Of Regional Rural Banks (as at end-March)

State-wise Credit-Deposit Ratio of Regional Rural

Banks (As at end-March)
71.4
72
70.3
70
Credit-Deposit Ratio

68.1
68 66.7

66 64.4
64

62

60
2019 2020 2021 2022 2023
Years

Source: Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, RBI,
various issue

INTERPRETATION
Table 3 indicates the C/D ratio, which is flexible throughout the study period. The
Credit-Deposit ratio of RRBs in 2018-19 was 66.7% showing a steady growth to 70.3%
in 2022-23.
 To conclude, the continuous growth of the number of RRBs and their branches all
over India has assisted in dropping the regional imbalance concerning banking
assistance in India, especially in rural areas. The establishment of RRBs in terms of
deposit mobilization, branch expansion, and credit development besides deployment
in weaker and poorer parts of rural areas attempts to provide banking to the doorsteps
of rural households are appreciable. It is distinctly noticeable from the above analysis
that RRBs are achieving their objective successfully by providing banking services to
rural areas in India where banks are not reachable. The increasing trend of deposits
and advances of RRBs depicted that rural banks enable the rural people self-employed
by providing easy availability then cheaper credit to the rural poor who are dependent
on private lenders, to inspire rural savings for creative activities, and to create
employment (Das, Sujit 2020). Thus RRB is providing the strongest banking network by
expanding their branch throughout rural areas of India. The government should make
some effective policies and initiate some programs to make Rural Banks profitable and
feasible. Despite some revelations about the performance of RRBs, the study has some
limitations such as only the growth and performance of RRBs are analyzed by taking
some of the KPIs, i.e. number of RRBs, branch expansion, deposit mobilization,
creditdeposit ratio, and net profit. Other financial parameters are ignored in this study
for analysis. The study doesn't cover all the issues and challenges of RRBs, and only a
few issues are analyzed here. The regression model reveals that the number of
branches of RRBs and total advances of RRBs are statistically significant associations
among the net profit of RRBs (Sig. < 0.10) whereas total deposits of RRBs is a statistically
insignificant association among net profit of RRBs (Sig. > 0.10).
At present 43 RRBs have been playing a significant part in rural areas by providing
banking services to a maximum number of villages covering every district of India. It is
required to strengthen the position of RRBs in India for developing the rural economy.
The following are some suggestions for policymakers of the banking sector for further
decision-making process.

 Recapitalization of RRBs by additions of capital fund.

 Improvement in productivity and profitability of RRBs by adoption of IT in banking

activities and regulatory costs in addition to enhancing the income.

 Policies should be implemented and initiated by the government for branch

expansion in weaker than remote areas of India to enable rural people with banking
services.

 RRBs need to redeploy people and re-skill them according to the need. RRB
employees should match the requirements of modern banking (recommendations of
SK Mitra committee on HR policy for RRBs).

 Low-interest credit should be provided to small borrowers like farmers, artisans, small
entrepreneurs, etc.

 A maximum part of the deposits should be mobilized by the rural banks among the
rural population to make them employed economically strong and developed.

 Government should encourage the formation of self-help groups in rural areas by

direct engagement of RRBs.  The government should initiate proper action counter to
the defaulters in addition it shouldn’t make any announcements that lead to an
increase in NPA levels in rural banks.

 A uniform interest rate outline should be applicable for the rural financial agencies.
 The RRBs must reinforce proper credit administration as per credit appraisal and also
observe the growth of loans besides their well-organized recovery system. (Kanika&
Nancy, 2013)

 The RRBs may relax the procedure for lending as well as make it easier for village
borrowers.

 RRBs should develop good customer relations with rural customers in addition to
creating confidence among them to avail the banking services.

 Lastly, RRBs required to focus on increasing profits to survive in a competitive

environment along with other activities
References:

 Government of India Report of the Committee on Rural Banks,

(Chairman-M, Narasimhan), New Delhi, 1975.
 Government of India. Parliament of India (Loksabha), (2004). Motion for
consideration of ‘The Regional Rural Banks (Amendment) Bill, 2004.
 Kumar, A.K. & Soni, A.K, [2013].A study on the current status of Regional
Rural Banks in India.
 Parmar, B.J., & Ranpura, D.B.[2013].A study on the use of Internet
banking among rural consumers. Asian Journal of Management.
 Khankhoje, Dilip and Dr. Milind Sathye, 2008. “Efficiency of Rural Banks:
The Case of India”, International Business Research-CCSE, Vol-1, No.2
 Das, Dr.Sujit (2020), “An Analytical Study on Regional Rural Banks in India
in the Context of Performance and Efficiency: Special Reference to
Tripura Gramin Bank”, Purakala 31(23): pp.14-34
 Annual Reports of NABARD
 Statistical Report of RBI
 Annexure- IA

Supervisor's Certificate

This is to certify that Mr. Santu Karmakar a student of B.Com.

A general student of Chakdaha College under the University of
Kalyani has worked under my supervision and guidance on
his/her Project Work and prepared a Project Report with the title
Growth of Rural Banking in India which he is submitting, is his
genuine and original work to the best of my knowledge.

Place: Signature
Date: Name: Soumya Sourav Basu
Designation: Associate Professor
Chakdaha College

Annexure- IB
 Student's Declaration

I hereby declare that the Project Work with the title Growth of Rural Banking in India
submitted by me for the partial fulfillment of the degree of B.Com. General under the
University of Kalyani is my original work and has not been submitted earlier to any
other University /Institution for the fulfillment of the requirement for any course of
study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me. However,
extracts of any literature that has been used for this report have been duly
acknowledged providing details of such literature in the references.

Place: Signature

Date: Name: Santu Karmakar

Address: Address – Gayeshpur,

7 No Ward, Holding No. 213,
Near Nabin Sangha Club
PIN: 741234,
Reg. No.: 010953