Regional Rural Banks (RRBs) in India – Objectives & Functions

Regional Rural Banks (RRBs) have played a significant role in India’s financial inclusion journey, particularly in rural areas. These banks have been instrumental in providing banking services, credit facilities, and agricultural finance to the rural population, thereby uplifting the socio-economic conditions of rural communities.

This article aims to shed light on the significance of RRBs, their functioning, and their impact on rural development, making it a relevant topic for the UPSC examination.

What are Regional Rural Banks (RRBs)?

RRBs (Regional Rural Banks) are Indian government-owned scheduled commercial banks that operate at a regional level in several states. These banks were established to provide basic banking and financial services to rural communities, particularly in remote and underbanked areas. Moreover, RRBs aim to promote financial inclusion and cater to the banking needs of the rural population.


  • Opening branches in rural areas.
  • Providing loans for agricultural development.
  • Generating employment opportunities.
  • Encouraging savings and accepting deposits.
  • Protecting people from money lenders’ exploitation.
  • Reducing the cost of providing loans in rural areas.


The ownership structure of Regional Rural Banks (RRBs) in India is as follows:

  • Central Government: 50%
  • Concerned State Government: 15%
  • Sponsor Bank: 35%

Background & Establishment of RRBs

In the 1970s, rural areas in India faced significant challenges in accessing formal banking services and credit facilities, leading to the exploitation of rural communities by moneylenders and informal credit sources. This hindered rural development and financial inclusion.

Narasimham Working Group: The Narasimham Working Group was formed in 1975 to address these issues. Under the chairmanship of M. Narasimham, the group recommended reforms in the banking sector, mainly rural credit delivery. It recognized the need for specialized institutions to provide affordable credit and banking services to rural communities.

R. R. Kamath Committee: The R. R. Kamath Committee, constituted in 1975, conducted a feasibility study on establishing Regional Rural Banks (RRBs). It examined aspects such as organizational structure, ownership pattern, capital requirements, and operational frameworks for these banks.

Regional Rural Banks Act, 1976: Based on the Kamath Committee’s recommendations, the Regional Rural Banks Act was passed in 1976. This Act provided the legal framework for establishing and functioning RRBs in India. It outlined ownership patterns, governance structures, and operational guidelines, ensuring autonomy while subjecting RRBs to regulatory oversight.

India’s First Regional Rural Bank (RRB)

The first RRB, Prathama Bank, sponsored by Syndicate Bank, was established on October 2, 1975, in Moradabad, Uttar Pradesh. Subsequently, more RRBs were established across different states in India, each sponsored by a nationalized commercial bank. These banks operated as autonomous entities with separate legal statuses.

Regulations of Regional Rural Banks (RRBs) in India

The regulation of RRBs in India is carried out by two key regulatory bodies:

  • Reserve Bank of India (RBI)
  • National Bank for Agriculture and Rural Development (NABARD)

1. Reserve Bank of India (RBI)

The RBI is the central bank of India and is responsible for the overall regulation and supervision of banks in the country. The RBI regulates RRBs through various acts and regulations, including:

  • RBI Act, 1934: This act empowers the RBI to regulate and supervise banking activities in India, including RRBs.
  • Banking Regulation Act, 1949: This act provides the legal framework for the functioning, licensing, and regulation of banks, including RRBs.

The RBI sets guidelines, norms, and regulations related to capital adequacy, risk management, asset classification, provisioning, governance, and other aspects of banking operations. It conducts regular inspections, issues directives, and ensures compliance with RRBs.

2. National Bank for Agriculture and Rural Development (NABARD)

NABARD is a specialized development bank dedicated to promoting rural development in India. It acts as the apex regulatory body for the rural banking sector, including RRBs. NABARD’s key regulatory responsibilities for RRBs include:

  • Monitoring and Supervision: NABARD monitors and supervises the functioning of RRBs to ensure compliance with regulatory guidelines and best practices. It conducts inspections, reviews financial performance, and assesses governance standards of RRBs.
  • Policy Formulation: NABARD formulates policies, guidelines, and regulations related to credit, lending practices, risk management, financial inclusion, and other areas concerning RRBs. It sets the direction for the development and growth of the rural banking sector.
  • Capacity Building and Assistance: NABARD provides technical and managerial support to RRBs for their development and capacity building. It offers training programs, workshops, and guidance to enhance the operational efficiency and effectiveness of RRBs.

Functions of Regional Rural Banks (RRBs)

The following are the functions of Regional Rural Banks (RRBs):

  • Accepting Deposits: RRBs accept deposits from individuals and organizations, including current accounts, savings accounts, fixed deposits, and recurring deposits. This helps in mobilizing savings from rural communities and promoting financial inclusion.
  • Extending Loans: RRBs provide loans and credit facilities to various sectors, including agriculture, small and marginal farmers, artisans, micro, small, and medium enterprises (MSMEs), housing, and other priority sectors. This helps in promoting rural development, entrepreneurship, and economic growth.
  • Disbursing Government Payments: RRBs play a vital role in disbursing government payments such as wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), pensions under social welfare schemes, and other poverty alleviation programs. This ensures timely and efficient delivery of benefits to beneficiaries.
  • Providing Agency Services: RRBs offer agency services on behalf of other financial institutions and government departments. This includes a collection of utility bill payments, issuance of Kisan Credit Cards (KCC), distribution of government schemes, and acting as business correspondents for larger banks.
  • Facilitating Financial Inclusion: RRBs contribute to enhancing financial inclusion by reaching out to unbanked and underbanked areas. They provide basic banking services, including opening accounts, remittance services, and other financial products, to individuals and communities who have limited access to formal banking services.
  • Offering General Utility Services: RRBs offer general utility services such as ATM services, debit card issuance, online banking, mobile banking, and other digital banking services. These services enhance convenience and accessibility for customers in rural areas.
  • Assisting in Foreign Exchange: RRBs facilitate foreign exchange transactions and services for their customers, including currency exchange, outward remittances, and inward remittances. This enables individuals and businesses in rural areas to engage in international transactions.


  • RRBs operate as commercial banks and mobilize savings.
  • They provide loans for agriculture, allied activities, retail trade, and small rural industries.
  • RRBs target small and marginal farmers, landless laborers, and rural artisans.
  • They contribute to poverty alleviation through the Integrated Rural Development Programme.
  • RRBs have a Priority Sector Lending (PSL) target of 75% for agricultural activities and vulnerable sectors.
  • They support regional cooperative institutions in strengthening their financial bases.
  • RRBs play a vital role in promoting financial inclusion and rural development.


In conclusion, Regional Rural Banks (RRBs) in India play a vital role in providing banking and financial services to the rural population. They mobilize savings, grant loans for agriculture and rural industries, and target vulnerable groups. RRBs contribute to poverty alleviation, promote financial inclusion, and support rural development, making them crucial institutions in India’s banking sector.

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