AllBank to merge its six rural banks in UP

Allahabad Bank has decided to merge its six regional rural banks (RRBs) in Uttar Pradesh into one entity where it will hold 35 per cent, the state government 15 per cent and the central government 50 per cent.

The merger was likely to be effected in the next couple of months.

The board of directors of the bank recently passed the merger proposal which has been referred to its stakeholders "" the central and the state government "" for approval.

"The idea was to merge all RRBs in one state into one larger rural bank that will provide economies of scale for its business. There are however no proposal to merge this merged entity with the bank," explained O N Singh, chairman of the bank.

All-Bank also has a seventh RRB in Madhya Pradesh-Sarda Gramin Bank which will, as of now remain this way.

"It would be a cumbersome process to get nods of multiple state governments for merging banks located in different states so the board decided to merge its RRBs in one single state into a single entity," explained highly placed executive officials of the bank.

"As of now commercial banks hold 35 per cent in RRBs while state governments hold another 15 per cent, rest of the stake at 50 per cent is held by the Centre. According to the model arrived at, the present holding pattern would be retained in the merged entity," explained Singh.

"Regional banks being a state subject it would be worthwhile to retain state government's stake. Earlier, the Reserve Bank of India had mooted the idea of divesting states stake in these banks which did not find favour with the bankers," sources close to the development said.

The proposal would be cleared by the finance ministry in consultation with the RBI, while the National Bank for Agriculture and Rural Development would study the economics of the proposal.

The six RRBs are Baghirath Gramin Bank at Sitapur, Sariyu Gramin Bank at Lakhimpur, Sravasthi Gramin Bank at Bahraich, Chhatrasal Gramin Bank at Urai, Tulsi Gramin Bank at Banda and Vrindhyavasini at Mirzapur all in the state of UttarPradesh.

The cumulative business volume for all these banks would be close to Rs 3,000 crore, while the merged entity would have around 450 branches spread all across the state.

The accumulated profits of these six banks was close to Rs 300 crore and its gross non performing asset (NPA) would be around 12 per cent.

"It is not a regular practice among RRBs to make provisions and write-off NPAs, hence the figure has remained on the higher side. Provisioning followed by commercial banks if practiced by RRBs would being them down to moderate levels," said an official from the bank.