Context:
In a significant structural reform aimed at enhancing operational efficiency and cost rationalisation, the Union Ministry of Finance is gearing up to implement the ‘One State-One Regional Rural Bank (RRB)’ policy. The move will see the consolidation of 43 existing RRBs into 28, a transformative step in India’s rural banking landscape.
Key Highlights of the Consolidation Plan
- 15 RRBs are set to be merged across various states.
- States such as Andhra Pradesh (with 4 RRBs), Uttar Pradesh, and West Bengal (3 each) will undergo major restructuring.
- Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha, and Rajasthan—each with 2 RRBs—will also see mergers.
- In Telangana, bifurcation of assets and liabilities between Andhra Pradesh Grameena Vikas Bank (APGVB) and Telangana Grameena Bank has been finalized, paving the way for consolidation.
Background and Rationale
- The plan is a continuation of a three-phase RRB consolidation journey that began in 2004-05, which had already brought down the number of RRBs from 196 to 43 by 2020-21. The fourth and final round is expected to conclude soon, sources indicate.
Financial and Operational Performance
- Capital infusion: As a preparatory measure, the Centre allocated ₹5,445 crore over two years (starting FY 2021-22) to strengthen the capital base of these RRBs.
- Record profits: In FY 2023-24, RRBs achieved their highest-ever consolidated net profit of ₹7,571 crore.
- Capital Adequacy: Reached a historic high of 14.2% as of March 31, 2024.
- Asset Quality: Gross Non-Performing Assets (GNPA) dropped to 6.1%, the lowest in the last decade.
Technological Modernisation and Reach
RRBs are increasingly adopting digital banking services, enhancing customer accessibility and efficiency. As of March 31, 2024:
- 43 RRBs are operating
- 22,069 branches span across 26 States and 3 Union Territories (Puducherry, Jammu & Kashmir, and Ladakh)
- Covering 700 districts of India
Governance Structure
- Shareholding pattern:
- Centre: 50%
- Sponsor Banks: 35%
- State Governments: 15%
- Even after capital dilution (as per the 2015 amendment to the RRB Act, 1976), the combined shareholding of the Centre and sponsor banks cannot fall below 51%.
Strategic Vision: Toward Inclusive Rural Credit Delivery
Originally created under the RRB Act of 1976, these banks were envisioned to provide credit and financial services to small and marginal farmers, agricultural labourers, and rural artisans. With the upcoming consolidation, the government seeks to streamline operations, enhance credit flow, and align RRBs with the goal of Viksit Bharat (Developed India).
