Centre proposes plan to reduce regional rural banks from 43 to 28: Report

The Union government has come up with a proposal to reduce the number of regional rural banks to 28, reported news agency Reuters citing a government document. The move could help lenders not only cut costs but also avoid undue competition among sponsoring public sector banks.

Regional rural banks– 50% owned by the federal government, 35% by sponsor or scheduled banks and 15% by state governments– provide credit to small farmers, agricultural labourers and businesses in rural areas. The planned merger of these banks, cutting down the numbers from 43 to 28, would result in one regional rural bank in each state, according to the report.

The RRBs have suffered from inadequate access to capital and technology.

In June, two major bank unions --All India Bank Officers' Confederation (AIBOC) and All India Bank Employees Association (AIBEA)-- sought the merger of 43 RRBs with 12 scheduled commercial banks for improving the operational efficiency and viability of the banking sector. The unions argued that the competition among the sponsor banks and the RRBs was leading to a waste of scarce financial resources as they were offering same type of services to few select customers in the rural areas.

“The RRBs and the Commercial Banks are competitive amongst each other in the same market place wooing same targeted group of customers and offering identical banking services in many areas. However, RRBs are constrained to the extent that they are not in a position nor authorised in certain cases to offer all the modern banking products that are available in the country. The customers of RRBs are discriminated to that extent,” they had said in a statement.

"Merger of RRBs with Sponsor Banks will ensure delivery of uniform product range to the entire clientele ensuring accelerated growth of the rural economy and priority sector lending so vital in the govt.’s plan for a robust Indian Economic growth,” they added.

In September, Business Standard reported that the ministry of finance was planning to merge the regional rural banks under “One State, One RRB” policy. The report suggested that the RRBs will be merged within a state under one sponsor bank based on performance.

India started consolidating the sector in 2004-05, reducing the number of regional rural banks from 196 to 43 in 2020-21.

The latest proposal includes merging two regional banks in the poll-bound western state of Maharashtra and four lenders in southern Andhra Pradesh state, among others, according to the Reuters report.