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4th Round of Regional Rural Bank (RRB) Consolidation Initiated by Government

  • November 8, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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4th Round of Regional Rural Bank (RRB) Consolidation Initiated by Government

Sub : Eco

Sec: Monetary Policy

  • Objective of Consolidation:
    • The Finance Ministry has proposed to reduce the number of RRBs from 43 to 28 across India, aiming for ‘One State-One RRB’ to enhance cost efficiency and operational effectiveness.
    • The purpose is to ensure that each state has only one consolidated RRB to cater to the rural population with improved cost efficiency and larger operational scale.
  • Guiding Principles of Amalgamation:
    • In each state, the RRB with the largest business among the merging RRBs will be the transferee RRB.
    • The sponsor bank of the transferee RRB will continue as the sponsor bank of the new, amalgamated RRB.
    • The name of the newly amalgamated RRB may include the state’s name and “Gramin” in the local language.
    • The head office of the merged RRB will preferably be located at the existing head office of the transferee RRB or at the state capital.
  • Background and Historical Consolidation:
    • RRBs have been consolidated in a phased manner based on recommendations of Dr. Vyas Committee (2001).
    • The first consolidation of RRBs began in 2004-05, resulting in a reduction from 196 RRBs to 43 by 2020-21 across three phases.
    • The current fourth round of consolidation is motivated by the need to minimize overhead expenses, optimize technology, expand capital, and strengthen rural outreach.
  • Significance of RRBs in Rural Economy:
    • RRBs play a vital role in supporting the rural economy, especially through agriculture loans.
  • As of March 31, 2024:
    • RRBs’ deposits totaled ₹6.6 lakh crore, comprising 3.2% of all bank deposits in India.
    • RRBs’ advances reached ₹4.7 lakh crore, accounting for 2.9% of all bank advances.
    • About 70% of RRBs’ credit supports the agriculture sector, and 64% targets weaker sections, including small and marginal farmers.
  • Recent Financial Performance:
    • RRBs collectively posted a record net profit of ₹7,571 crore in FY 2023-24.
    • The Gross Non-Performing Assets (GNPA) ratio for RRBs was 6.1%, the lowest in the last 10 years.

About Regional Rural Banks (RRBs)

  • Genesis: Established in 1975 on the recommendations of the Narsimhan Working Group (1975), after promulgation of an ordinance, which was later replaced by the Regional Rural Banks Act, 1976.
  • Shareholding Pattern: Centre holds a 50% stake, Sponsor Banks hold 35%, and State Governments hold 15% in RRBs.
  • They are Scheduled Commercial Banks (Government Banks) regulated by RBI and supervised by National Bank for Agriculture and Rural Development (NABARD).
“Fiscal policy and monetary policy are the two tools used by the state to achieve its macroeconomic objectives.” 4th Round of Regional Rural Bank (RRB) Consolidation Initiated by Government

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