Rural bank mergers likely after Parliament session

The pilot-basis merger of regional rural banks (RRB) may kickstart once the Budget session of Parliament concludes.

The proposals of the State Bank of India, Punjab National Bank, Bank of Baroda, Union Bank of India, Indian Overseas Bank and the Central Bank of India to merge about 17 RRBs have been pending for a while.

"The central government is expected to give a nod soon. The permission will be given only on a pilot basis since the RRB Act has not been amended in this Parliament session," said sources.

The RRB Act, 1976 will have to be amended in order to facilitate amalgamation in the sector.

At present, the Act does not allow an RRB to have more than Rs 1 crore as paid-up capital. Most RRBs already have a paid-up capital of Rs 1 crore and the ceiling will be breached if the RRBs merge with each other.

The commercial banks have submitted proposals to merge their various sponsored RRBs in a state into a single RRB.

The State Bank of India has plans to merge its RRBs in Gorakhpur and Basti, both of which are located in Uttar Pradesh.

Having got the permission of the state government, the Union finance ministry and the State Bank of India itself it is all set to merge the entities once the Central government gives its go-ahead.

Bank of Baroda has plans to merge three RRBs in Gujarat, while the Central Bank of India and Punjab National Bank have plans to merge three RRBs each.

The merger between RRBs should ideally wipe out the accumulated losses of Rs 2,726 crore and a net profit of Rs 768 crore as on March 2004. The state wise, sponsor bank wise mergers will bring down the number of RRBs from 196 to 80.

The RRB Act does not allow an RRB to merge with a commercial bank; RRBs can only merge among themselves.

RRBs have total deposits of Rs 56,350 crore and total advances of Rs 26,114 crore. RRBs have a network of 14,446 branches across 518 districts.