Finance Ministry Starts 4th Phase Of Regional Rural Banks Consolidation – News18

Last Updated:November 05, 2024, 14:37 IST

Finance Ministry initiated the 4th round of consolidation for Regional Rural Banks

The Department of Financial Services has sought comments from the chiefs of sponsor banks of RRBs by November 20.

In a bid to achieve operational efficiency and cost rationalisation, the Finance Ministry has initiated the fourth round of consolidation for Regional Rural Banks (RRBs) and the number of such banks is likely to come down to 28 from 43 at present.

Roadmap for Merging Regional Rural Banks (RRBs)

As per the roadmap prepared by the Finance Ministry, 15 RRBs operating in various states would be merged.

States Affected by RRB Consolidation

Among states that will see consolidation of RRBs include Andhra Pradesh, which has the maximum number of RRBs (4), Uttar Pradesh and West Bengal (3 each), and Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Rajasthan (2 each).

Special Case: Telangana

In the case of Telangana, the amalgamation of RRBs will be subject to bifurcation of assets and liabilities of Andhra Pradesh Grameena Vikas Bank (APGVB) between APGVB and Telangana Grameena Bank.

Objectives and Rationale for Consolidation

“Given the rural expansion of RRBs and agro-climatic or geographical ethos and in order to retain the USP of RRBs viz the closeness to communities, it is the felt need to embark on further consolidation of RRBs towards the goal of ‘One State-One RRB’ so as to derive the benefit of scale efficiency and cost rationalisation,” Department of Financial Services said in a communication to head of state-owned banks.

Implementation Plan

A road map has been prepared in consultation with NABARD for further consolidation which will bring down the number of RRBs to 28 from 43, it said.

Consultation with Stakeholders

The Department of Financial Services has sought comments from the chiefs of sponsor banks of RRBs by November 20.

Historical Context of RRB Consolidation

The Centre had initiated structural consolidation of RRBs in 2004-05 which resulted in reduction of such institutions from 196 to 43 till 2020-21 through 3 phases of amalgamation.

Purpose and Legal Framework of RRBs

These banks were formed under the RRB Act, 1976, with an objective to provide credit and other facilities to small farmers, agricultural labourers and artisans in rural areas.

Amendments to the RRB Act

The Act was amended in 2015 whereby such banks were permitted to raise capital from sources other than the Centre, states and sponsor banks.

Currently, the Centre holds 50 per cent in RRBs, while 35 per cent and 15 per cent are with the concerned sponsor banks and state governments, respectively.

Even after stake dilution, the shareholding of the Centre and the sponsor public sector banks together cannot fall below 51 per cent, according to the amended Act.

Bank Unions’ Perspective on Mergers

Earlier in June, two bank unions — AIBOC and AIBEA — had demanded the merger of RRBs with their respective Sponsor Banks to ensure overall efficiency and viability of the banking sector.

Technological Transition in Mergers

The merger of RRBs with their sponsor banks will be a seamless technological transition, the All India Bank Officers’ Confederation (AIBOC) and All India Bank Employees Association (AIBEA) said in a letter addressed to Finance Minister Nirmala Sitharaman.

(With PTI inputs)