Assessing Non-Performing Assets and their Implications on the Strategic Landscape of Regional Rural Banks in India

Abstract

Financial institutions play a crucial role in fostering sustainable economic development within nations, and India, having recently attained the fifth rank in global economic power as of 2024, aims to ascend to third place within the next five years en route to becoming a developed nation by 2047. To achieve this ambitious goal, providing ample credit facilities to rural communities becomes imperative, thereby necessitating the establishment of Regional Rural Banks (RRBs). Founded as regional and rural-focused entities under the Regional Rural Bank Act of 1976, RRBs draw capital from the Government of India, State Governments, and Sponsor Banks. Their primary objective is to serve as professionally managed conduits for credit allocation to both priority and non-priority sectors. Operating across 26 states and 3 Union Territories, RRBs extend loans and advances to urban, semi-urban, and rural areas. However, they currently grapple with challenges pertaining to loan recovery, leading to a decline in their financial robustness. This study scrutinizes the trajectory of outstanding loans and advances, recovery performance, gross NPAs, and profitability of RRBs spanning from 2014 to 2023, leveraging data sourced from NABARD annual reports, RBI reports, and key statistics and financial statements of RRBs. Through an exploration of the causes and reasons underlying NPAs and proposed remedial measures, this research aims to furnish stakeholders with insights essential for preserving the asset quality of RRBs.