Consolidation to cut RRB count to 44 in short term

Written by Arun S | New Delhi | Updated: Jan 29 2013, 09:04am hrs
In a bid to optimise the efficiency of regional rural banks (RRBs), the Centre is making efforts to further lower their number to 44 from the current level of 67 by amalgamating them on the basis of geographic contiguity. The aim is to have just eight RRBs in the country by 2030.

The department of financial services has asked RRBs operating in the same geographies to merge with a single sponsoring bank for better use of the latest technology and other resources, as well as to expedite the implementation of the financial inclusion programme, official sources told FE. The department has also asked the sponsoring banks concerned to issue no-objection certificates for this strategy.

However, discussions with states, which hold a 15% stake in these banks, are proving to be tough with states such as Tamil Nadu, Kerala and Haryana yet to give any response to the Centre on the initiative, sources said. Punjab, which had earlier given its consent, later withdrew it citing difficulties without giving a detailed explanation. While the state holds 15% each in an RRB, the Centre has a 50% stake and the bank sponsoring the RRB has a 35% holding.

The first phase of consolidation saw the number of RRBs falling from 196 in 2005 to 82 by the end of March 2012. Here, consolidation was carried out by merging different RRBs within a state with their respective sponsoring banks.

In the second phase, which started this fiscal, the strategy is to amalgamate RRBs operating in geographies that are contiguous even if they are sponsored by different public sector banks. The newly amalgamated RRB will then come under the sponsorship of a major bank operating in the state/region.

RRBs have around 18,000 branches across the country in rural areas and small towns, and they did total business of R3.25 lakh crore in 2011-12, posting a a net profit of R1,900 crore.

VK Bannigol, joint secretary, All India Regional Rural Bank Employees Association, said the association has proposed to the finance ministry about setting up an independent RRB in each state, which would act as the local head office to a centralised National Rural Bank of India. The national body can then take decisions for the local RRBs.

Delinking of RRBs from sponsoring banks was important as the interests of the RRBs and their sponsoring banks in terms of expansion of operations and acquisition of business were at odds in many instances.