The finance ministry has drawn up a proposal to amalgamate Regional Rural Banks (RRBs), in a bid to ensure that each state has only one such bank that works with enhanced cost efficiency.
The aim is to reduce the number of such rural banks to 28 from 43 now, according to a note from the Department of Financial Services to sponsor public-sector banks.
This is the fourth round of consolidation of RRBs, which play a major role in rural economy, especially as agriculture loan providers.
To enable RRBs to minimise their overhead expenses, optimise the use of technology, enhance the capital base and area of operation and increase their exposure, the Centre initiated structural consolidation of RRBs in 2004-05, which had led to a reduction in the number of RRBs from 196 to 43 till 2020-21 through three phases of amalgamation.
“Given the rural expansion of RRBs and agro-climatic/geographical ethos and in order to retain the USP of RRBs viz. the closeness to communities, it is the felt need to embark on further consolidation of RRBs towards the goal of ‘One State-One RRB’ so as to derive the benefits of scale efficiency and cost rationalisation,” it wrote to Chairman/MDs and CEOs of sponsor banks of RRBs.
As per the guiding principles suggested, the RRB with largest business among the amalgamating RRBs in the state would be the transferee RRB in the state.
The sponsor bank of the transferee RRB, would become the sponsor bank of the amalgamated RRB. Name of the amalgamated RRB may include name of the state and Gramin in the local language. The head office of the amalgamated RRB may preferably be located at the head office location of the transferee RRB or it may be established in the state capital.
RRBs play a crucial supporting role in the rural economy. About 70% of Regional Rural Banks credit flows through agricultural sector, 64% is targeted towards weaker sections including small and marginal farmers. As of March 31, 2024, RRBs together had deposits worth Rs 6.6 lakh crore or 3.2% share of all bank deposits. The RRBs share in advances was Rs 4.7 lakh crore or 2.9% of all bank advances.
According to the plan drawn up by the finance ministry, four RRBs sponsored by different public sector banks in Andhra Pradesh would be merged into one, which would be sponsored by Canara Bank. Three RRBs in Uttar Pradesh would be amalgamated and Bank of Baroda would be the sponsor of the merged RRB. Punjab National Bank would be the sponsor of the three merged RRBs in West Bengal. Two RRBs in each of these states would also be amalgamated: Bihar, Gujarat, J&K, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan and Telangana.
RRBs have recorded the highest ever consolidated net profit of Rs 7,571 crore in FY 2023-24. The Gross Non-Performing Assets (GNPA) ratio of 6.1% is the lowest in the previous 10 years. The shareholding pattern of RRBs is Centre 50%, sponsor banks 35% and states 15%.