Q. Which of the following grants/grant direct credit assistance to rural households?

  1. Regional Rural Banks
  2. National Bank for Agriculture and Rural Development
  3. Land Development Banks

Select the correct answer using below.

  • 1 and 2 only
  • 1 and 3 only
  • 1 and 3 only
  • 1, 2 and 3

Answer: (b) 1 and 3 only

Notes:
  • Regional Rural Banks and Land development banks provide direct credit assistance to rural households in the form of loans etc.
  • NABARD do not provide direct assistance. It “refinance” the assistance by other institutions.
Regional Rural Banks (RRBs)
  • RRBs are government-owned scheduled commercial banks of India that operate at the regional level in different states of India.
  • They serve the country’s rural areas and provide them with basic banking and other financial-related services.
  • Origin:
    • The Narasimham Committee on Rural Credit (1975) recommended the establishment of Regional Rural Banks (RRBs).
    • The establishment of RRBs finds its route in the ordinance passed on 26th September 1975 and the RRB Act 1976. 
    • Prathama Grameen Bank was the first RRB bank and was established on 2nd October 1975.
  • Functions:
    • To provide basic banking facilities to rural and semi-urban areas.
    • To effect some governmental functions, such as the disbursal of wages under the MGNREGA policy.
    • To provide other bank-related facilities such as locker facility, internet banking, mobile banking, debit and credit cards, etc.
    • Grant credit facilities to people in rural areas, such as small farmers, artisans, small entrepreneurs, etc.
    • To accept deposits from people.
  • Regulation: Regional Rural Banks are regulated by RBI and supervised by the National Bank for Agriculture and Rural Development (NABARD).
  • Ownership: RRBs are jointly owned by the Government of India (GOI), the Sponsor Bank and the concerned State Government with share proportions of 50%, 35% & 15%, respectively.
  • Management: The Board of Directors manages these banks, overall affairs, which consists of one Chairman, three Directors as nominated by the Central Government, a maximum of two Directors as nominated by the concerned State Government, and a maximum of three Directors as nominated by the sponsor bank.
National Bank for Agriculture and Rural Development (NABARD)
  • NABARD is a financial institution that was set up by the Indian government to promote sustainable agriculture and rural development in the country.
  • The functions of NABARD include the propagation of technological innovations, financial and non-financial solutions, and institutional development.
  • The government of India established NABARD under the outlines of the National Bank for Agriculture and Rural Development Act 1981.
  • It refinances all the financial institutions that finance the rural development projects for Agriculture and Rural Development or NABARD as it is the specific bank for looking after all agriculture and rural developments in the country.
Land development bank
  • A land development bank, abbreviated LDB, is a special kind of development bank in India. It is a quasi-commercial type that provides services such as accepting deposits, making business loans, and offering basic investment products.
  • The main objective of the LDB is to promote the development of land, agriculture and increase the agricultural production.
  • The LDB provides long-term finance to members directly through its branches.
  • The sources of funds of land development banks can include:
    • Share capital from state or private sources
    • Deposits from members or non-members
    • Issue of debentures
    • Accepting deposits
    • Reimbursements of subsidies from the government
    • Other funds
  • Land development banks provide long-term funds for various agriculture related projects besides development of land and business. The borrowing capacity of a member is generally determined according to the number of shares he holds in the bank.
    • The loans granted by land development bank is typically repayable within a 20 to 30-year period.
  • Normally, loans are granted up to 50% of the value of the land or up to 30 times the revenue. Loans are granted only after a thorough verification of security title-deeds as well as the necessity for the loan.
  • The rates of interest for LT loans are generally low and within the paying capacity of farmers. They are around 11 to 12%.