National Rural Bank

The Central Government is mulling to set up a National Rural Bank to ease the agricultural woes in India.

What is a National Rural bank?

The National Rural is an envisaged attempt of the policymakers to create a large bank to look specifically after the agriculture sector. This may or may not be created by the amalgamation of the Reginal Rural banks (RRBs). However, an amalgamation will improve the efficiency of scale, increase productivity and financial health of the RRBs. This will enable them to generate greater credit flow to rural areas.

What are the RRBs?

• The RRBs are Scheduled Commercial Banks (Government Banks) of India which have been created with a view of serving the rural areas of India with banking and financial services.
• These banks operate only at regional levels of the state.
• The RRBs are owned by the Central Government, the State Government and the Sponsor Bank (Any commercial bank can sponsor the regional rural banks) who hold shares as follows in the RRB: Central Government 50%, State Government 15% and Sponsor Banks 35%.
• While there were 196 RRBs, the number has been progressively brought down to 45 after several rounds of mergers and amalgamations.

Past Instances

Even in the past, various politicians and economists had suggested the setting up of a national rural bank of India by amalgamating the regional rural banks (RRBs) which improve the efficiency of the banks operating in the rural areas.