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

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).