Understanding Regional Rural Banks Establishment

Regional Rural Banks (RRBs) are a type of banking institution in India operating at the regional level in different states. They were created with the specific aim of serving the rural areas and ensuring sufficient institutional credit for the rural sector, especially for small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs.

The establishment of these banks was a significant step towards financial inclusion in rural India. Such crucial policy decisions are often based on the recommendations of expert committees formed by the government to study specific areas.

Committee on Rural Credit Recommendations

To address the challenges in providing credit to the rural population, the Indian government constituted a committee to study the matter and provide recommendations. This committee's report paved the way for the creation of Regional Rural Banks.

The committee whose recommendations led to the establishment of Regional Rural Banks was the Narsimha Committee. Set up in 1975, this committee specifically looked into the needs of rural credit and suggested the formation of new banks that could combine the local feel and familiarity of cooperatives with the professional management and resource base of commercial banks.

Based on the recommendations of the Narsimha Committee, the Regional Rural Banks Act was passed in 1976, and the first five RRBs were established on 2nd October 1975, even before the Act was formally passed, via an ordinance.

Examining Other Committees

Let's briefly look at why the other options are not related to the establishment of Regional Rural Banks:

• Rekhi Committee: This committee was primarily related to indirect taxes (customs and excise duties).
• Kelkar Committee: There have been multiple Kelkar Committees, but prominent ones dealt with tax reforms (Task Force on Direct and Indirect Taxes) or infrastructure financing. None are known for recommending the establishment of RRBs.
• Tandon Committee: This committee is known for its recommendations on methods of lending by commercial banks, focusing on working capital finance. It did not recommend the establishment of RRBs.

Therefore, the establishment of Regional Rural Banks was a direct outcome of the recommendations made by the Narsimha Committee on Rural Credit.

Conclusion on RRB Establishment

The question asks about the committee whose recommendations led to the establishment of Regional Rural Banks on Rural Credit. The historical context and banking reforms in India confirm that the Narsimha Committee played this pivotal role.

Revision Table: Key Committees in Indian Banking

Additional Information: Regional Rural Banks and Rural Credit

Regional Rural Banks (RRBs) are joint ventures owned by the Government of India, the concerned State Government, and a Sponsor Bank. They operate within a limited local area notified by the government.

Their primary objective is to provide credit and other banking facilities to the small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs in rural areas. They play a vital role in mobilising savings from rural households and channelising them into productive uses locally.

The Narsimha Committee envisioned RRBs as institutions combining the strengths of cooperative societies (local feel, low cost) and commercial banks (professionalism, resources) to better serve the unique needs of the rural population regarding credit and banking services.