Why in News?
Regional Rural Banks losing ground to private banks amid tech challenges.
What are regional rural banks?
- Inception – It was established in 1975, the first RRB was Prathama Bank, in Moradabad, Uttar Pradesh.
- Objective – It aims to provide banking and credit facilities for agriculture and rural sectors, combining the features of cooperatives with the professionalism of commercial banks.
- Ownership – RRBs are sponsored by
- Central Government – 50% of stakes
- State Government – 15% of stakes
- Commercial Bank – 35% of stakes
- All public sector banks, except Punjab & Sind Bank, sponsor one or more RRBs.
- J&K Bank is the only private sector bank that sponsors an RRB.
- Services offered – They provide various banking services in rural and semi-urban areas like
- Banking norms - The interest rate on the loan are very low compared to commercial banks, making it easier for rural people to access credit.
- They have higher priority sector lending responsibility to lend a minimum of 60% of all its capital to agriculture sector and other priority sectors such as
- Small or medium sized manufacturing or service businesses or housing in rural area.
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Status of RRB’s in India
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- Number - 43 RRBs sponsored by 12 Scheduled Commercial Banks.
- Branches – 21,995 branches across 28 states & 8 Union Territories.
- 92% of branches are in rural or semi-urban areas.
- Coverage – 305.3 million deposit accounts & 29 million loan accounts.
- Loss-Making RRBs – Six RRBs reported losses in FY 2022-23.
- Profitable RRBs – Seven RRBs turned profitable during FY 2022-23.
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Why there is a large digital deficit in RRBs?
- As farmers become more digitalised, they look for internet banking.
- RRBs are serving the third generation of farmers, and the new generation demands digital banking and other advanced services.
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Digital deficit
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- Also known as digital divide, it is the disparities in access, adaptation and application of information and communication technologies (ICTs).
- Access divide- This refers to the physical availability of technology and internet connectivity, heavily influenced by socio-economic factors and geographic location.
- Use divide- This highlights the differences in digital skills among individuals, which can prevent effective use of available technologies.
- Quality of use divide - Lack of knowledge to utilize technology effectively for maximum benefit.
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Digital deficit in RRBs
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- Less Mobile Banking licence – Only 31 RRBs have acquired mobile banking licence.
- Fewer Internet Banking license – only 17 RRBs have internet Banking facilities.
- Low UPI adoption – Only 26 RRBs have been on boarded to BHIM UPI.
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- Lack of basic infrastructure – Some branches even have a single room doubling as a washroom and the cash rooms are poorly maintained, with faded walls and an unpleasant odour.
- Subpar operation – There are issues of mismanagement and a lack of professionalism have impeded progress.
- In western Uttar Pradesh, many RRB branches lack security guards despite holding cash reserves of around Rs 10 lakh.
- Staffed by just a manager and a cashier, these branches often operate in subpar conditions.
- Outdated tools – RRB is struggling to provide ATM cards and cheque books immediately to the new customers whereas in private banks, customers receive all the basic tools within hours.
- Financial issues - A significant burden of non-performing assets (NPAs) has persisted, leading banks to focus their efforts on reducing these problematic loans.
Non-Performing Assets (NPAs) are the assets which ceases to generate income for the bank.
- Limited Connectivity- Poor internet connectivity in rural areas can hinder the deployment and effectiveness of digital banking solutions.
- Traditional Focus- RRBs have traditionally focused on providing basic banking services and may not have prioritized digital banking as a core function.
- Competition from their sponsor – The increasing presence of private sector banks has made the situation more challenging.
- RRB’s Sponsor banks itself have emerged as their primary competition.
What are the steps taken to improve the status of RRB’s?
- Recapitalization – Government have infused Rs 10,890 crore into RRBs during FY22 and FY23.
- Technological Upgrades – Efforts are underway to enhance RRBs' digital capabilities, supported by the Finance Minister's emphasis on technological improvements.
- In 2023, Government emphasized the need for RRBs to upgrade their digital capabilities and increase penetration under the Pradhan Mantri Mudra Yojana.
A 2022 National Bank for Agriculture and Rural Development (NABARD) report highlighted that RRBs need to enhance their loan recovery processes through technology, policy improvements, and best Practices.
What lies ahead?
- Modernize IT Systems- Upgrade to advanced core banking systems to enhance efficiency and provide digital banking services.
- Equip branches with tools like ATMs, cash deposit machines, and cheque imaging systems to streamline customer transactions.
- Develop user-friendly digital interfaces for online and mobile banking to enhance the customer experience.
- Improve connectivity- Invest in better internet infrastructure and connectivity, especially in remote and rural areas.
- Upgrade data management systems – For better handling of customer information and financial data.
- Policy Updates- Align policies with modern banking practices to facilitate smoother digital transformation.
- Capacity development- Provide comprehensive training programs for staff on new digital tools and technologies.
- Enhance physical security- Measures like security guards and surveillance systems to protect cash and digital assets.
References
- Business Standard | Regional Rural Banks
