1. INTRODUCTION:

Financial inclusion is drawing the “unbanked” population into the formal financial system so that they have the opportunity to access financial services ranging from savings, payments, and transfers to credit and insurance. It enables improved and better sustainable economic and social development of the country.

It helps in the empowerment of the underprivileged, poor and women of the society with the mission of making them self-sufficient and well informed to take better financial decisions. It neither implies that everybody should make use of the supply, nor that providers should disregard risks and other costs when deciding to offer services.

Both voluntary exclusion and unfavourable risk return characteristics may preclude a household or a small firm, despite unrestrained access, from using one or more of the services. Such outcomes do not necessarily warrant policy intervention. Rather, policy initiatives should aim to correct market failures and to eliminate non market barriers to accessing a broad range of financial services (Kunt, Klapper and Singer 2017).

Financial inclusion can help reduce poverty and inequality by helping people invest in the future, smooth their consumption, and manage financial risks. Adults around the world and in all income groups use an array of different financial services. However, many low-income adults rely on informal financial services (Collins et al., 2009). Financial inclusion takes into account the participation of vulnerable groups such as weaker sections of the society and low income groups, based on the extent of their access to financial services such as savings and payment account, credit insurance, pensions etc. and easy availability of financial services which allows maximum investment in business opportunities, education, saves for retirement, insurance against risks, etc. by the rural individuals and firms. It is a new paradigm of economic growth which plays a major role in driving away the poverty and is integral to the inclusive growth process and sustainable development of the country. It is a policy of involving a wider section of population deposit mobilization and credit intermediation (Hannig and Jansen 2010).

The nationalization of the banks in 1969 boosted the confidence of the public in the banking system of the country. However, in the early 1070’s there was a feeling that even after nationalization, there were cultural issues which made it difficult for commercial banks, even under government ownership , to lend to farmers. This issue was taken up by the government and it set up Narasimhan Working Group in (1975). On the basis of this committee’s recommendations a Regional Rural Banks Ordinance was promulgated in September 1975, which war replaced by the Regional Rural Banks Act 1976.

Regional Rural Banks came into existence on Gandhi Jayanti in 1975 with the formation of a Prathama Grameen bank. The rural banks had the legislative backing of the Regional Rural Banks act 1976. This act allowed the government to set up banks from time to time wherever it considered necessary. The prime objective behind establishment of RRB’s is a great saying by Gandhiji “Real India lies in the villages”. In October 1975, Prathama Bank was the first RRB that came into existence. RRB’s are also known as ‘Gramin Bank’ (Gramin in hindi means rural). The share capital of RRB was contributed by (owners) Government of India, the concerned State Government and the sponsored bank in the proportion of 50%, 15% and 35%, respectively. RRBs mobilize deposits primarily from rural/semi-urban areas and provide loans and advances mostly to farmers, rural and artisans as well as to the lower sector of the society.RBI in 2001 constituted a Committee under the Chairmanship of Dr V S Vyas on “Flow of Credit to Agriculture and Related Activities from the Banking System” which examined relevance of RRBs in the rural credit system and the alternatives for making it viable (Tankha 2015).

Beg (2014) (The Role of Regional Rural Banks (RRB’s) in Financial Inclusion: An Empirical Study in India)a study on the role of RRBs in India in financial inclusion. An effort has been made in the instant project to study and find out whether RRBs in this region has made any progress towards ensuring broader banking services for the rural poor people in strengthening the India’s position in relation to financial inclusion. Shanabhogara (2014) (Banking Sector Reforms and Development of Banking Industry, 2014) explained the development of RRB’s using models of SWOT analysis and Porters Five Forces Model. It discusses measures initiated by the Reserve Bank in India [RBI] in order to implement the Reforms and Measures. Abhay (2012) (A Study on Current Status of Regional Rural Banks in India, 2012) analyzed the financial performance of RRBs in India during the period 2006-07 to 2010-11. They had analyzed the performance using various key performance indicators such as number of banks, branches, loans, advances etc. and concluded a positive impact on the performance of RRBs. Rajan (2009) A Hundred Small Steps–Report of the Committee on Financial Sector Reforms, Financial Inclusion, broadly defined, refers to universal access to a wide range of financial services at a reasonable cost. These include not only banking products, but also other financial services such as insurance and equity products. Rangarajan (2008) committee on Financial Inclusion Measures and products designed to reach the unbanked and the poor have been advocated and consciously implemented for decades. However, in recent years, the starting point of the understanding of term ‘financial inclusion’ and the related product. Sahay et al. (2015) within the limitations of country level data, the IMF has related financial inclusion with a number of macroeconomic outcomes, including economic growth, stability and equality.

2. OBJECTIVES OF THE STUDY:

1. To study the financial inclusion and progress of regional rural banks in India.

2. To study absolute change in terms of increase/decrease in number of accounts, issue of Kisan Credit Card, General Credit Card from previous year to current year.

3. RRB’s ACHIEVEMENT UNDER FINANCIAL INCLUSION STRATEGY:

The Swabhimaan programme launched by the Ministry of Finance, Government of India and the India Banks’ Association (IBA) aimed to bring banking within the reach of the masses through brick and mortar branches or through various forms of ICT-based models including through business correspondents (BCs). All public and private sector banks were advised to draw a three-year financial inclusion plan (FIP) starting from April 2010, duly approved by their Board and with related business plans. The spectacular growth numbers in the parameters being tracked by FIPs would appear to suggest that the financial inclusion project is on track in terms of achievements and initiatives aimed at financial inclusion. Banks have made notable, sporadic, efforts at innovation in support in the introduction of technology, financial literacy and other methods of expanding outreach, with RRBs too contributing in equal measure.

The experience of the FIFs to increase outreach to an increasing large number of villages and unserved areas have fed into the Pradhan Mantri Jan-Dhan Yojana (PMJDY) launched in 2014. According to the PMJDY Mission document, though the banks achieved their targets under the first phase of the Swabhimaan campaign, it had very limited reach and impact. Public Sector Banks (PSBs) including RRBs estimated that by 31 May 2014, out of the 131.4 million rural households which were allocated to them for coverage, about 59.4 million remained uncovered.

The table 1 shows the number of accounts opened in RRB which includes rural as well as urban accounts under PMJDY is 3.02 crores with total balance of Rs. 3493.76 crores and have only 50 crores zero balance accounts. As we know that this PMJDY scheme was to include rural people to the banking system where as of now by 2015 nearly 3.02 accounts have been opened. This is a remarkable position as compare to the private banks where the data shows only 0.69 crores accounts have been opened in rural and urban area as of 2015 with 1095.93 crores which is comparatively very less to RRB.

4. RRB’s PROGRESS UNDER FINANCIAL INCLUSION THROUGH DIFFERENT VARIABLES 2013-2017:

CHART Showing: Banking outlets in villages (No’s)–Branches

Source: Reserve Bank of India- Regional Rural Bank Progress Report (2013-17)

CHART 2 Showing: Banking outlets in villages (No’s)–Branchless mode

Source: Reserve Bank of India- Regional Rural Bank Progress Report (2013-17)

CHART 3: Basic Savings Bank Deposit Account (BSBDA) through branches (No. in millions)

Source: Reserve Bank of India-Regional Rural Bank Progress Report (2013-17)

CHART 4: KCCs-Total (Amt. in Rs. billion)

Source: Reserve Bank of India-Regional Rural Bank Progress Report (2013-17)

CHART 5: GCCs-Total (Amt. in Rs. billion)

Source: Reserve Bank of India-Regional Rural Bank Progress Report (2013-17)

CHART 6: ICT A/Cs-BC Total Transactions (Amt. in Rs. billion)

Source: Reserve Bank of India-Regional Rural Bank Progress Report (2013-17)

5. FINDINGS OF RRB’s PROGRESS UNDER FINANCIAL INCLUSION THROUGH DIFFERENT VARIABLES 2013-2017

The RRB’s progress in terms of banking outlets in villages’ variable shows positive result from 2013 to 2016 and in 2017 there is slight decrease in the no. of branches opened. From 2013 to 2017 many branches have been opened and it is the sign of unbanked people are included in banking system under financial inclusion. At the same time branchless mode branches are more in number from 2013 to 2017. If there is no specific branch through BC’s or of other banking service, many branchless mode outlets of RRB have shown positive growth.

The other important variables of this paper like BSBDA, KCC, GCC and ICT a/c transactions have shown positive growth since 2013 to 2017. As we know RRB is concentrating mainly in rural areas where most of the people are not included to the banking system. As per different variables progress report of RRB’s there is more number of KCC and GCC issued to the accounts holders and through ICT many transactions have been increased since 2013.

Hence the objective of financial inclusion through RRB in India shows positive trend.

6. RRBS: OUTSTANDING ISSUES AND POLICY IMPERATIVES:

The following major issues need to be addressed:

1. RRBs to scale-up through privatisation and further rounds of amalgamation to be moved up in the financial value chain. If so, how is that going to affect their ability to serve their original mandate? How are the emerging entities such as small banks, MUDRA and payment banks positioned in relation to RRBs, now and in the future?

2. The viability of RRBs–Is there a need for a modified

view to implement strategies of cross subsidization and even more ambitious and alternative accounting frame that takes into account their special charter and area of operations? From the point of view of sustainability RRBs want to be allowed to expand their non-priority sector portfolio as well in view of the asset concentration risk and other low profitability. However, RBI does not allow them to open branches in urban areas.

3. Investment issues–RRBs, instead of focusing on lending are content to place funds mobilized through deposits in government and PSU bonds and with their sponsor banks, often in excess of the statutory liquidity ratio. As a result RRBs’ investments in government securities and PSU bonds and debentures have increased while they have been hesitant to augment their loan portfolios. What incentives can be created to break this phenomenon and the dependence on sponsorship banks for off-take of the RRBs’ investment funds?

4. Human Resource Issues–The constant refrain in both the literature as well as from the field is about the two-fold effect of the HR factor, of how the high wage structures are determined by commercial bank rates and skills and nature of personnel are not appropriate for the banking business undertaken by RRBs.

5. Technology–A host of technological applications await introduction in the banking system, and with the inevitable time lag, with the RRBs. A case in point is the RBI clearance for mobile applications to be used by RRBs.

6. Finally, regarding Financial Inclusion, while a host of measures and products have been introduced by the different RRBs given their strengths and sponsor bank initiatives, an important client has been given short shrift in the quest for profitability. SHGs constitute a natural partner for RRBs badly in need of sustenance. However, what may be required is the development of a critical mass of SHGs in each area, which permits large-scale operations and economies of scale. For this, the support of NRLM and NABARD, as part of a multi-pronged effort could provide the answer. It could also lead on to further scaling up of financial services, as larger livelihoods efforts are undertaken. Related to financial inclusion is another important area - that of the BC model, the viability of which is still open to question and renewed efforts need to be made to generate an appropriate business model.

7. FUTURE CHALLENGES FOR REGIONAL RURAL BANKS:

Even after the positive findings that RRB’s are successful in achieving the objective of financial inclusion to a great extent, still they have to overcome the following challenges to the path of Financial Inclusion:

1. All backward sections and informal sectors should be included up to a large extent

2. Rural people are not much aware of financial inclusion because of illiteracy and the access to financial services should be increased.

3. People consider that financial services are costly and access is difficult because of the several reasons and this thought needs to be addressed.

8. CONCLUSION:

RRBs serve the backward section of the society, the rural poor and people belonging to the lower income group. These banks play a significant role in ensuring sustainable development through financial inclusion. RRB’s is an important player in Indian financial System because of penetration and the increasing amount of loans and customers. The dream of inclusive growth is still a dream but will be overcome with continual growth of RRBs and effective financial services. Thus at the end the paper concludes the RRBs have been able to achieve their objective to a great extent by providing banking and financial services to the rural people of India.

Summing up, while the achievements of RRBs in terms of rural outreach and financial inclusion, especially as compared to other financing agencies, are impressive there remains divided opinion on their future role for many reasons. As per the recent achievement they have not fully utilized their potential, especially in the area of credit disbursement. The creation of a range of banking entities appears to crowd into the space presently being occupied by the RRBs. Initiatives such as the amendment to the RRB Act, that seek to create a role for private players in RRB ownership appear to have been pushed through without a wider consultation and consideration of alternative options. Calls for further amalgamation of RRBs to the state level also can contribute to further distancing them from their original mandate.

More specifically, both at the level of RBI and NABARD on the one hand, and the sponsor banks on the other, a range of policy and regulatory norms and measures have been be identified that need to be considered to better direct the RRBs in the service of the relatively poor and unbanked clients. In fact, especially with the advent of more players in the space for providing financial services to SMEs, it is an opportune moment for the RRBs to re-examine the place of the poorest segment in their operations and lending portfolio. Similarly, there is need to revisit the RRBs old relationship with SHGs through bank linkage, where experience shows that a critical mass of clients aggregated through this agency or cluster-level federations could lead to viable operations. Such an approach could help both to reposition RRBs as development oriented banks in the service of the poor, as well as to be in harmony with the objectives and programmes of financial inclusion.

9. REFERENCES:

1 Ajay Tankha, (2015). Regional Rural Banks and Financial Inclusion: Policy Imperatives, Poorest States Inclusive Growth (PSIG) Programme.

2 Alfred Hannig and Stefan Jansen, (2010). Financial Inclusion and Financial Stability: Current Policy Issues, No. 259, ADBI Working Paper Series.

3 Asli Demirguc-Kunt Leora Klapper Dorothe Singer, (2017). Financial Inclusion and Inclusive Growth A Review of Recent Empirical Evidence, Policy Research Working Paper 8040.

4 B.G Srinivas, Raghavendra Shanabhogara (2014). Banking Sector Reforms and Development of Banking Industry.

5 Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven. 2009. Portfolios of the Poor. Princeton, N.J.: Princeton University Press.

6 Dr. Mahammad Paheem Beg, (2014). The Role of Regional Rural Banks (Rrbs) in Financial Inclusion: An Empirical Study in India Paripex Indian Journal Of Research, Vol: III, Issue I.

7 Raghuram G. Rajan (2009). (A Hundred Small Steps–Report of the Committee on Financial Sector Reforms.

8 Reserve Bank of India-Regional Rural Bank Progress Report (2013-17)

9 Sahay, R., M. Cihak, P. N’Diaye, A. Barajas, S. Mitra, A. Kyobe, Y. Nian Mooi, and S. Reza Yousefi. 2015. “Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?” IMF Staff Discussion Note 15/17, September.

10 Soni Kumar Anil, KapreAbhay (2012). A Study on Current Status of Regional Rural Banks in India.

Received on 24.03.2018 Modified on 15.04.2018

Asian Journal of Management. 2018; 9(3):1117-1122.

DOI: 10.5958/2321-5763.2018.00178.6

S.No.	Bank	No. of Accounts	No. of Rupay Debit Cards			Balance In Accounts	% of Zero Balance Accounts
		Rural	Urban	Total
1	Rural Regional Banks	2.57	0.44	3.02	2.19	3493.76	50