The government has chalked out a plan to merge 13 more Regional Rural Banks (RRBs) as a part of its consolidation strategy to make them viable. With these mergers, the total number of RRBs in India drops to 82 from the present 95. The criteria for merging RRBs would be based on geographical proximity and contiguity.
In September 2005, the government merged 101 such banks, bringing down the total number of RRBs to 95 from 196. ?Our internal analysis show that 13 more RRBs can be merged,? a finance ministry official told FE.
The government expects the mergers to staunch bleeding by these banks. By March end, 39 loss-making RRBs were in the red by as much as Rs 2,814 crore after they failed to recover farm loans. Total lending by RRBs are around Rs 50,000 crore. In addition, these banks were hit by a wage hike.
Although RRBs have a deposit base of around Rs 90,000 crore, they have a low earning capacity, suffer poor recoveries, high operational costs and low profitability, as their operations are restricted to target groups.
Finance minister P Chidambaram recently announced a Rs 1,850-crore rescue package to help ailing RRBs write off losses by March 2010. ?Net non-performing assets of all the RRBs, now at 3.4% of their loan advances, has to be brought down to 1.3% or less by March 2010,? he had said.