One State, One RRB: Streamlining Regional Rural Banks For Enhanced Efficiency, Growth

Starting next month, the government will implement the "one state-one RRB" plan by merging 15 regional rural banks across 11 states to improve efficiency and reduce costs.

With this fourth round of consolidation, the total number of RRBs will drop from 43 to 28.

Under the plan, Andhra Pradesh, Uttar Pradesh, West Bengal, Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Rajasthan, will have one merged RRB. This process, as outlined in a government notification, will take effect on May 1, 2026. These mergers aim to serve public interest, enhance local development, and benefit RRBs.

For example, Andhra Pradesh's four RRBs will merge into Andhra Pradesh Grameena Bank, headquartered in Amravati and sponsored by Union Bank of India. Similarly, Uttar Pradesh's three RRBs will merge into Uttar Pradesh Gramin Bank, headquartered in Lucknow, and West Bengal’s three RRBs will form West Bengal Gramin Bank, headquartered in the state capital.

In eight states, two RRBs will merge into one. For instance, Bihar Gramin Bank will be formed from Dakshin Bihar Gramin Bank and Uttar Bihar Gramin Bank, with its headquarters in Patna. Gujarat Gramin Bank will result from the merger of Baroda Gujarat Gramin Bank and Saurashtra Gramin Bank, headquartered in Vadodara. Jammu and Kashmir Grameen Bank will be created by merging J&K Grameen Bank and Ellaquai Dehati Bank, headquartered in Jammu.

Each merged RRB will have an authorised capital of Rs 2,000 crore, supported by prior government capital infusions. In 2021-22, the government allocated Rs 5,445 crore over two years to strengthen RRBs, leading to record-breaking performance in 2023-24. The RRBs achieved a net profit of Rs 7,571 crore, a high capital adequacy ratio of 14.2%, and their best asset quality in the past decade, with Gross Non-Performing Assets at 6.1%.

The RRBs, established under the RRB Act of 1976, aim to provide credit and support to small farmers, agricultural workers, and artisans in rural areas. Structural consolidation of RRBs began in 2004-05, reducing the number of RRBs from 196 to 43 through three merger phases before the current consolidation efforts.

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% stake in RRBs, while 35% and 15% 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%, according to the amended Act.

As of March 31, 2024, 43 RRBs are operating through a network of 22,069 branches in 26 states and three Union Territories (Puducherry, Jammu & Kashmir, Ladakh) covering 700 districts of the country. The pace of technology adoption has increased as more RRBs have started rolling out digital services to their customers.

(With PTI Inputs)