FM Asks RRBs to Expand their Branches with CBS to Achieve
FM Reviews Performance of RRBs in Annual Review Meeting
Secretary Financial Services, Shri R. Gopalan, Deputy Governor RBI, Dr. K.C. Chakravarty, Chairman NABARD, Shri U.C.Sarangi and Additional Secretary, Financial Services, Shri Rakesh Singh were also present on this occasion among others.
Following is full text of the speech delivered by the Finance Minister Shri Pranab Mukherjee on this occasion:
“I am happy to be here in the annual review meeting of Chairmen of RRBs and General Managers of Sponsor Banks. Such meetings are being organized regularly since January 2007 and have helped in preparing a realistic action plan for strengthening the RRBs on a sustainable growth trajectory. I hope that this meeting will help us in further consolidating the efforts being made by the RRBs, Sponsor Banks, Govt Of India, NABARD and the Reserve Bank of India.
As you are aware, the first batch of RRBs were established on 2 October 1975 and their number gradually increased to 196 in 1986. The RRBs were designed as unique financial institutions with exclusive focus on development of rural areas. It was expected that these institutions would provide efficient financial services at affordable cost to the disadvantaged sections of the rural population.
Government of India had initiated a series of measures in the recent years to strengthen the RRBs to emerge as strong financial institutions for meeting the financial needs of the rural population. In the wake of the announcement in the Union Budget 2007-08, 27 RRBs which had negative networth as on 31 March 2007 have been recapitalized. A conducive policy environment has been created for expanding the branch network of RRBs. The branch licencing norms have been made flexible. RRBs have responded to these measures and have opened 716 branches during the last 02 years.
For further improving the financial health of RRBs, the Government of India started the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same Sponsor Banks within the State. The process of amalgamation is almost complete. As on date, there are 82 RRBs (46 amalgamated and 36 stand alone) with a branch network of 15,475 branches covering 619 districts, 26 States and 01 Union Territory (Puducherry).
RRBs are expected to play a vital role in promoting financial inclusion in the country. To achieve this objective, RRBs are being supported out of the Financial Inclusion Fund and Financial Inclusion Technology Fund set up in NABARD. NABARD had launched a pilot project for facilitating Financial Inclusion with ICT in 15 RRBs. The pilot project is expected to cover 150 villages in 30 districts of 14 States. All RRBs need to draw up individual plans for financial inclusion in their areas of operation at the earliest and also adopt the BC / BF model.
I am happy to note that RRBs have shown improved performance in many areas. The total loan outstanding of RRBs as on 31 March 2010 was Rs.83,562 crore whereas the deposits amounted to Rs.1,42,814 crore. The ground level credit flow of RRBs has improved from Rs.43,367 crore to Rs.56,268 crore thereby recording an appreciable growth rate of about 30%. A significant part of their performance is substantial lending to the priority sector. RRBs are mandated to lend 60% of their loans to the priority sector. During the last three years, RRBs have not only achieved the target fixed for the purpose but have maintained priority sector loans above 80%. I am also happy to note that RRBs have maintained their focus on agriculture as over 61% of the priority sector loans are for agriculture sector. The RRBs have also improved the health of their credit portfolio as the net NPA has now reduced to 1.62%. Only three RRBs are now making losses.
There is no doubt that the enabling environment created by Government of India, RBI and NABARD has helped the RRBs in improving their performance. Still, there are many areas of concern. 30 RRBs had accumulated losses to the tune of Rs.1,808 crore. All weak RRBs need to chalk out a time bound action plan to wipe out the accumulated losses and simultaneously achieve all the prudential norms.
In the last review meeting held in August 2009, I had expressed concern that a very large number of RRBs continued to have low CRAR. It was also observed during the review that some of the RRBs presently having reasonable CRAR would also be not able to maintain it on account of certain expenditure they might have to incur in the coming years for payment of enhanced wages and installation of CBS. To address this situation, a Committee was set up under the Chairmanship of Dr. K C Chakravarty, Deputy Governor, RBI to analyse the financials of RRBs and suggest measures so that each RRB has atleast 9% CRAR by 2012. The Committee has already submitted their report. The report is now under examination in consultation with NABARD and RBI. I am sure the implementation of the feasible recommendations of the Committee would help the RRBs to emerge as stronger financial institutions.
It is imperative that all RRBs embrace the latest technology for providing services to their customers. I have been constantly laying emphasis that all RRBs in a time bound matter should have all their branches under Core Banking Solution. I understand that 21 RRBs have now covered their entire bank branch network under CBS. 10 more RRBs are on the way to achieve full coverage of their branches under CBS. However, it is a matter of concern that CBS is yet to take roots in 51 RRBs. I would urge upon all the RRBs and their sponsor banks to attach utmost priority to CBS and in today’s meeting a time bound programme should be fixed for CBS implementation for each of the RRBs.
The sponsor banks also need to closely monitor the performance of their sponsored RRBs and provide timely guidance to them wherever necessary. It has been brought to my notice that some of the sponsor banks have withdrawn the Chairmen of RRBs before the completion of their tenure. Though the premature withdrawal must be for valid reasons, this could affect the performance of the RRBs in an adverse way, besides impacting the morale of the staff of RRBs. I suggest that the sponsor banks take all precautions at the time of selection of Officers for the post of Chairman of RRB so as to ensure that they continue to guide the RRBs for a period of at least three years.
I understand that of the 46 amalgamated RRBs, 39 are now scheduled by Reserve Bank of India. In case of 7 other RRBs, NABARD is required to undertake their inspection with reference to their annual accounts as on 31 March 2010. I would impress that this process of scheduling the remaining banks should be completed at the earliest.
I have noted that RRBs (officers and employees) Service Regulations 2010 have since been issued by GOI and the process has been initiated by the RRBs for adoption of these regulations. The new Appointment and Promotion (officers and employees) Rules have already been issued on 13.7.2010 for publication in the Gazette of India. These measures should help in improving productivity and business of the RRBs.
Keeping in view the expectations from the RRBs, the training and capacity building of RRB Officers and Staff need to be given utmost priority. A Committee set up for the purpose has identified a number of areas for capacity building of RRBs. All the RRBs should prepare a comprehensive plan for meeting the training needs of its staff members. A mechanism should be created for providing funding support to RRBs for conducting these training programme duly involving NABARD, sponsor banks and the RRB itself.
In the light of the ninth bipartite settlement between the Indian Banks Association representing the managements of the Public Sector Banks and the United Forum of Bank Union representing the associations/unions of all PSBs, the wage revision of the pay and allowances of the RRBs has also been taken up. The additional cost burden of the arrears is likely to be Rs 791 crores , which will bring down the total profits of the RRBs from Rs 2374 crores , as on 31st March, 2010 to Rs 1615 crores , adjusting for the additional cost burden of arrears on the RRBs. This is likely to lead to more RRBs going into losses against only three loss making RRBs at present. Yet the Government is committed towards fulfilling its obligation of giving equal pay scales corresponding to those of nationalized banks to the RRB employees. I am happy to announce that we are fulfilling the Government commitment of giving equal pay scales corresponding to those of nationalized banks to the RRB employees, as per Ninth Bipartite Settlement.
I look forward to our deliberations today and am sure that the gathering will have fruitful discussions and come out with pragmatic and innovative suggestions for further improving the performance of RRBs.”