Plans to reduce their numbers to 38
The government has decided to start the consolidation process of Regional Rural Banks (RRB) after a gap of six years and bring down the number of such entities to 38 from 56 now.
In a communication to the chiefs of public sector banks, which are the sponsors of the RRBs, the finance ministry asked them to amalgamate the RRBs within a State. The ministry, in its letter in the first week of this month, also mentioned the list of RRBs which could be merged.
The letter, which has been reviewed by The Hindu, also asked the lenders to obtain a no-objection certificate from the board for the merger.
“It is envisaged that the RRBs within a state could be amalgamated. Accordingly, GoI, in consultation with Nabard, has approved the road map for amalgamation of RRBs, which will bring down the number of RRBs to 38 from 56,” the letter said.
The ministry expects that the consolidation process would enable RRBs to minimise their overhead costs, optimise use of technology, enhance capital base and area of operation and their exposure.
“Further, this will bring about better scale efficiency, higher productivity, robust financial health of RRBs, improved financial inclusion and greater credit flow to rural areas. It is expected that amalgamation will bring about better functional entities,” it said.
This is the third phase of consolidation among RRBs, but the first attempt by the present NDA government which came into power in 2014.
The first phase of consolidation was in 2004-05 when RRBs of same sponsor banks, within a state, were merged. As a result, the number of RRBs came down from 196 to 82. The second phase was in 2011-12, when RRBs with geographical contiguous areas of operation within a state were merged, across sponsor banks. As a result, the number of RRBs further declined to 56.
While RRBs have taken deep roots in the last four decades of their existence and become an important entity for rural credit, their financial viability became a matter of concern since 1980, just five years after their existence.
As a result, the government decided to start merging RRBs with commercial banks.
While consolidation among public sector banks remained at the drawing board, the government was successful in merging five associate banks of State Bank of India as well as Bharatiya Mahila Bank, with SBI in 2017-18.