FinMin Launches 4th Phase Of RRB Consolidation, Likely To Reduce Number Of Banks

In Telangana, consolidation will depend on the bifurcation of assets and liabilities between Andhra Pradesh Grameena Vikas Bank (APGVB) and Telangana Grameena Bank

In an effort to streamline operations and achieve cost rationalisation, the Finance Ministry has launched the fourth round of consolidation for Regional Rural Banks (RRBs). As a result, the number of RRBs is expected to be reduced from the current 43 to 28. 

According to the roadmap developed by the Finance Ministry, 15 RRBs across various states will be merged. States affected by the consolidation include Andhra Pradesh, which has the highest number of RRBs (4), followed by Uttar Pradesh and West Bengal (3 each). Other states such as Bihar, Gujarat, Jammu and Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha, and Rajasthan will each see the merger of two RRBs. 

In Telangana, consolidation will depend on the bifurcation of assets and liabilities between Andhra Pradesh Grameena Vikas Bank (APGVB) and Telangana Grameena Bank.

"Given the rural expansion of RRBs and agro-climatic or geographical ethos and 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' to derive the benefit of scale efficiency and cost rationalisation," Department of Financial Services said in a communication to head of state-owned banks, reported PTI.

A roadmap for further consolidation has been developed in consultation with NABARD, aiming to reduce the number of RRBs from 43 to 28, it said.

The Department of Financial Services has requested feedback from the heads of sponsor banks of RRBs by November 20. The centre began the structural consolidation of RRBs in 2004-05, reducing the number of such institutions from 196 to 43 by 2020-21 through three phases of amalgamation.

These banks were established under the RRB Act of 1976 to provide credit and other financial services to small farmers, agricultural labourers, and artisans in rural areas. In 2015, the Act was amended to allow RRBs to raise capital from sources other than the centre, state governments, and sponsor banks.

Currently, the centre holds a 50 per cent stake in RRBs, while the remaining 50 per cent is split between the sponsor banks (35 per cent) and state governments (15 per cent). However, even after the dilution of stakes, the combined shareholding of the Centre and the sponsor public sector banks must remain above 51 per cent, as per the amended Act.

Earlier in June, two major bank unions—the All India Bank Officers' Confederation (AIBOC) and the All India Bank Employees Association (AIBEA)—called for the merger of RRBs with their respective sponsor banks to enhance the overall efficiency and viability of the banking sector. The unions argued that such a merger would ensure a smooth technological transition, a view expressed in a letter sent to Finance Minister Nirmala Sitharaman.