MICROCAPITAL BRIEF: Reserve Bank of India Asks Rural Banks to Open 25 Percent of New Branches in Unbanked Areas

The Reserve Bank of India (RBI), the country’s financial regulatory authority, recently tasked regional rural banks (RRBs) to ensure that at least one-quarter of their proposed branches are sited in unbanked parts of the country. RBI reportedly said that RRBs are an integral part of the rural credit system and are expected to play an increasingly important role in the development of rural areas. “RRBs are, therefore, advised to allocate at least 25 per cent of the total number of branches proposed to be opened during a year in unbanked rural (Tier 5 and Tier 6) centres.” Tier 5 and Tier 6 centres are unbanked rural centers that do not have a brick and mortar structure for customer-based banking transactions. RRBs can open branches in Tier 2 to Tier 6 centres (towns with a population of up to 99, 999 as per Census 2001) without prior permission of RBI. However, opening of branches in Tier 1 centres (towns with a population of 100,000 and above) requires prior permission of the Reserve Bank.

Census figures from 2011 indicate that about 58.7 percent of households had access to banking services. In a survey of 240 million households in India, 140 million reported availing of banking service, while nearly 100 million households had no access to banking services. This mandate to RRBs is part of RBI’s strategy to increase banking penetration and financial inclusion in the country.

By Chioma Okwudiafor, Research Associate

About Reserve Bank of India Established in 1935,the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. RBI’s reserves stood at USD 302 billion at the end of 2011.

Sources and Additional Resources:

India Times Story: “RRBs asked to open at least 25 pc branches in unbanked areas” http://articles.economictimes.indiatimes.com/2012-11-06/news/34946268_1_rrbs-regional-rural-banks-financial-inclusion

MicroCapital Story: October 23, 2012, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Convenes Financial Inclusion Advisory Committee” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-convenes-financial-inclusion-advisory-committee/

MicroCapital Story: June 21, 2012, “MICROCAPITAL BRIEF: Number of No-Frills Bank Accounts In India Surpasses 100m”
https://www.microcapital.org/microcapital-brief-number-of-no-frills-bank-accounts-in-india-surpasses-100m/

MicroCapital Universe Profile: Reserve Bank of India
https://www.microcapital.org/microfinanceuniverse/tikiindex.phppage=Reserve+Bank+of+India+%28RBI%29

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