Regional rural banks (RRBs) and their sponsors have decided to set up a working group under Karnataka Gramin Bank chairman Shreenath H Joshi to firm up a road map to undertake a massive technological upgrade at RRBs and bring them on a par with commercial lenders on this front, official and banking sources told FE.
Amithabh Banarjee, chairman of Aryvart Bank, will be the “alternate chairman” of the group. It will also have a senior representative from Nabard, which is a supervisory authority of RRBs, one of the sources said.
The move comes after finance minister Nirmala Sitharaman, at a meeting with chiefs of various public sector banks and RRBs last month, asked sponsor banks to “formulate a clear road map in a time-bound manner to further strengthen the RRBs and support the post pandemic economic recovery”, given their crucial role in boosting credit flow in rural India. The Indian Banks Association was impressed upon to take the initiative to ensure technological advancements at RRBs, which is a key prerequisite to modernising them.
The working group will comprise senior representations (general manager level) from sponsor banks, heads of select RRBs and those heading IT operations at some of them.
According to RBI data, RRBs remained unprofitable for nearly two decades since their inception in 1975, thanks to limited operational flexibility, inadequate scope for expansion or diversification and small ticket but high-risk lending profiles. In 1994-95, the government started reforms which, coupled with capital infusion, helped them turn profitable. However, at the end of March 2005, about 42% of the RRBs still carried legacy losses.
To improve their operational viability and to take advantage of economies of scale, the government initiated a consolidation programme in 2005-06. In the first phase, RRBs belonging to the same sponsor bank within a state were amalgamated. After three phases of amalgamation (the latest one was in 2018-19), the number of RRBs which had sponsors dropped from 196 in 2005 to 43 at the end of March 2021, while the number of standalone RRBs that have never undergone any amalgamation stood at nine.
RRBs, historically, have witnessed a higher gross non-performing assets (GNPA) ratio than commercial banks. As of March 2021, while the GNPA ratio of commercial banks hit 7.3% of their advances, that of RRBs was 9.4%, showed RBI data.