SYLLABUS
GS-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Context: The Department of Financial Services (DFS), under the Ministry of Finance, has approved Viability Plan 2.0 for Regional Rural Banks to strengthen their financial sustainability and operational efficiency.
Key Highlights of Viability Plan 2.0
- The framework includes 30 performance parameters designed to comprehensively assess the functioning and health of RRBs.
- The plan is anchored around four major pillars: operational excellence, asset quality, profitability, and growth.
- The key critical metrics across these four pillars include: Capital to Risk Weighted Assets Ratio (CRAR), credit-deposit ratio, digital adoption, Non-Performing Asset (NPA) levels, recovery performance, profitability ratios and performance in implementation of Government schemes.
- The revised framework will be implemented for a period of three years from FY 2025–26 to FY 2027–28.
- It builds upon the earlier Viability Plan implemented during FY 2021–22 to FY 2024–25, which focused on institutionalising performance monitoring and improving governance standards.
Significance of the Plan
- Strengthening Rural Credit Delivery: Viability Plan 2.0 is expected to improve the financial health of RRBs, thereby enhancing their ability to provide timely and affordable credit to agriculture and rural sectors.
- Enhancing Financial Inclusion: By emphasising digital adoption and operational efficiency, the framework can strengthen the reach of banking services in underserved rural and remote areas.
- Improving Governance and Accountability: The introduction of measurable performance indicators will improve transparency, accountability, and institutional monitoring across RRBs.
- Supporting Rural Economic Growth: Stronger RRBs can play a critical role in financing rural enterprises, self-help groups, and MSMEs, thereby contributing to employment generation and local economic development.
- Reducing Financial Vulnerabilities: Greater focus on asset quality and recovery performance can help reduce NPAs and improve the long-term sustainability of rural banking institutions.
About Regional Rural Banks (RRBs)
- Regional Rural Banks were first established in 1975 on the recommendations of the Narasimham Working Group (1975) to bridge the credit gap in rural areas and support weaker sections of society.
- They were granted the statutory recognition under the Regional Rural Banks Act, 1976.
- RRBs are jointly owned by:
- Government of India (50%)
- Concerned State Government (15%)
- Sponsor Bank (35%)
- Their primary objective is to provide affordable credit to:
- Small and marginal farmers
- Agricultural labourers
- Rural artisans
- MSMEs and rural entrepreneurs
- RRBs operate under the regulatory supervision of the Reserve Bank of India and the National Bank for Agriculture and Rural Development.
- RBI regulates their banking operations and prudential norms.
- NABARD supervises their functioning and supports capacity building and rural credit planning.
- Similar to commercial banks, RRBs are required to maintain Cash Reserve Ratio (CRR) with RBI, and Statutory Liquidity Ratio (SLR) in prescribed liquid assets.
- RRBs are also subject to a Priority Sector Lending (PSL) norm of 75% of their Adjusted Net Bank Credit (ANBC), with a major share of lending directed toward agriculture and allied rural activities.
- Following multiple phases of consolidation, the number of RRBs has reduced significantly, and currently 28 RRBs operate across India.