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Journal for Studies in Management and Planning
Available at https://pen2print.org/index.php/jsmap/
ISSN: 2395-0463
Volume 05 Issue 02
February-2019
Available online: https://pen2print.org/index.php/jsmap/ P a g e | 94
A Study of the Efficiency of the Rural Banks in India
MR. RAJESH KUMAR
ASS PROF- Institute of Engineering &Technology Alwar (Raj.) And
RESEARCH SCHOLAR-Rajasthan Technical University-Kota (Rajasthan)
DR. O P PATHAK
HOD Department of Management studies- Institute of Engineering &Technology Alwar (Raj.)
Abstract:
The objective of this paper is to assess the performance of Regional Rural Banks (RRBs) in India
and to investigate whether the restructuring of regional rural banks in India has helped improve
their production efficiency. Several committees have emphasized the need to improve the
efficiency of these banks which are an important arm of the rural credit system in India.
Improved production efficiency in provision of services would mean lower cost and financially
sustainable operations.
The study finds that efficiency of rural banks has significantly improved after restructuring. It
seems the policy of the Government of India to restructure these banks has shown positive
results and the study recommends its continuance
.Key Words: Rural Banking efficiency, Indian Rural Banking, Economic Development, Rural
Economy, Rural Banks, multi-agency approach
1. Introduction
A study of the efficiency of the rural banks is to assess the performance of Regional Rural Banks
(RRBs) in India. There was a feeling that though commercial banks had branches in rural areas
these were used mainly to mobilise resources which were then deployed in urban areas. The idea
behind setting up the RRBs was that the resources mobilised in rural areas would be used for
lending in rural areas. In so doing, however, these banks were required to be run on commercial
principles.
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ISSN: 2395-0463
Volume 05 Issue 02
February-2019
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Table 1 showing Number of Branches of Banks in rural India
1990 1995 2000 2004
Commercial
Banks
20348 18495 18472 18002
District Central
Co-operative
Banks
10585 11653 12407 12547*
Regional Rural
banks
14443 14509 14301 14433s
Source: Report of Reserve Bank of India, Report on Performance of Banking in India, and
Statistical Tables relating to banks in India (various years) * for 2003.
2. Problem Identification
Their efficient operation was crucial to achieve one of the major policy objectives of the
Government of India, like to help in eradication of rural poverty. As the banks were operating
under several restrictions, improving efficiency is an important strategy to reduce costs and
generate surplus – something that is necessary for their long-term sustainability.
Table 2 showing Key banking indicators of RRBs
Year No. No. of Branch Bank Deposit
(Rs. Billion)
Amount of
Advance (Rs.
Billion)
1990 196 14443 41.51 35.54
1995 196 14509 111.50 62.91
2000 196 14301 322.04 131.84
2003 196 14433 500.98 221.58
2004 196 14446 563.50 261.14
(Source: Table 2. NABARD 2004, Regional Rural Banks Key Statistics, NABARD )
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Journal for Studies in Management and Planning
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ISSN: 2395-0463
Volume 05 Issue 02
February-2019
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3. Objectives of the Research
The following are the specific objectives of the Study: -
1. To study of Efficiency of rural banks in rural development.
2. To initiate adequate strategic measures given their importance in achieving national
objective of alleviation of rural poverty.
3. To study the role of National Bank for Agriculture and Rural Development for
development of rural banking.
4. To study the reasons for inefficiencies
4. An overview of the Rural Banks in India
RRBs play important role in the rural credit market of India. The GOI introduced a various
schemes for restructuring of these banks to make them operationally efficient and financially self
sustainable. Several measures were initiated. To enhance financial viability of these banks, a new
set of prudential accounting norms of income recognition, asset classification, provisioning, and
capital adequacy were implemented. Banks were also required to make full provisioning for bulk
of their non-performing assets. Permission was also granted to introduce new services, such as
loans for consumer durables.
RRBs were set up on the recommendations of The Narasimham Working Group as at that that
time about 70% of the Indian Population was of Rural Orientation. It was in order to provide
access to low-cost banking facilities to the poor, that the Narasimham Working Group (1975)
proposed the establishment of a new set of banks, as institutions which "combine the local feel
and the familiarity with rural problems which the cooperatives possess and the degree of
