I. Introduction

The large scale persistence of rural poverty even after the first two decades of planning made the planners to realise that achieving faster economic development alone may not bring about any significant reduction in rural poverty. The realisation was based on the view that percolation of the benefits of growth to the rural poor has been hindered to a great extent by the existing inequitable distribution of productive resources like land and capital. Such a view led to the adoption of measures which were directly aimed at improving the access of the rural poor to the productive resources.

One of the areas wherein attempts were made in the above direction was the institutional credit system. The need to improve the access of the rural poor to institutional credit came to be perceived as a step which could help in strengthening their capital and asset base. This in turn was expected to bring about reduction in rural poverty and inequality. Several policy initiatives were taken to ensure an easy flow of credit to the rural poor. The creation of Regional Rural Banks (RRBs) in 1975 to cater exclusively to the credit needs of rural poor like small and marginal farmers, rural artisans and agricultural labourers was one such initiative. The RRBs came into being mainly as a sort of via media between the commercial banks and the cooperatives which had for long neglected the rural poor for various reasons. They were expected to serve the rural poor by combining in them the local feel of and familiarity with rural problems which the cooperatives have, and the managerial and business abilities possessed by the commercial banks. Any economic non-viability which may arise out of such a target oriented banking proposition was to be considered as a price worth paying for the broader social objective sought to be achieved through such a reform.

Since their inception, the RRBs have made an impressive progress in terms of their number and coverage. By 1992 there were 196 RRBs with over 14,500 branches spread over 385 districts in the country. However, their growing non-viability has put their future form and existence in doubt. Having now been allowed to lend a part of their funds to non-target group, the RRBs have lost their original identity as the small man’s bank.

Despite their existence for over one and half decades, the role of the RRBs as an institutional reform in the field of rural credit has not been properly assessed or analysed. The failure of the commercial banks and cooperatives to bring the rural poor effectively under their network was attributed mainly to their policy of collateral-based lending. Such a policy, given the inequitable distribution of assets in the rural areas had resulted in the skewed distribution of institutional credit and access to it. The creation of RRBs to exclusively serve those who were earlier neglected by the institutional credit agencies was expected to improve their access and make the distribution of institutional credit more even, if not totally reverse the old pattern.

Keeping the genesis of the RRBs in view, this paper attempts to study as to how far the RRBs have succeeded as an institutional reform in the field of rural credit. In what way their policies have been different from those of the other institutions so as to enable the rural poor to have a better access to institutional rural credit. These objectives have been examined here with reference to the functioning and performance of a RRB in Karnataka namely, Tungabhadra Gramin Bank (TGB). The TGB is the first RRB to be set up in South India in 1976. It serves the districts of Bellary and Raichur with a network of 163 branches. The objectives of this study have been fulfilled mainly by analysing the nature of the selected RRB’s lending policies and practices and the pattern of distribution of its loans across different sections of the society. While the lending policies of the RRB have been examined mainly by going through its annual reports and other published and unpublished records, the analysis of the distribution pattern of its loans is based on the data derived from the survey of 197 randomly selected borrower households of the TGB. These borrower households have been selected in such a way as to represent not only different loan purposes/schemes/categories but also different agro-economic regions of the districts. While the information about the borrowings of the sample households has been obtained from the loan ledgers, the socio-economic details have been collected through the household survey conducted during 1989.