Finance ministry plans 'One State, One RRB' policy to boost efficiency

The Union Ministry of Finance is planning to consolidate the Regional Rural Banks (RRBs) under a policy of “One State, One RRB” to improve their efficiency and avoid undue competition among sponsoring public sector banks.

“The ‘One State, One RRB’ policy is on the table, and work is underway. We aim to reduce the total number of RRBs from 43 at present to around 30,” said a senior government official requesting anonymity.

The official further explained that this will result in the merger of RRBs within a state under one sponsor bank based on performance. Consequently, each State will have one sponsor bank that will absorb the assets of the other RRBs in that State.

“The quantity or number of RRBs is not important; the quality is very important. There is a need to enhance technology, including increasing the availability of mobile banking. The ‘One State, One RRB’ policy will help with this and also reduce competition among them,” the official added.

An email sent to the Finance Ministry requesting comment did not elicit any response till the time of going to the press.

RRBs were established regionally and are oriented towards rural areas, with capital contributed by the Government of India, State governments, and sponsor banks under the RRB Act, 1976.

The largest public sector lender, State Bank of India (SBI), sponsors the most number of RRBs (14), followed by Punjab National Bank (nine) and Canara Bank (four). Bank of Baroda, Bank of India, and Indian Bank sponsor three RRBs each, Central Bank of India sponsors two, UCO Bank, J&K Bank, Indian Overseas Bank, Union Bank of India, and Bank of Maharashtra sponsor one each.

Among the States, Andhra Pradesh, Uttar Pradesh, and West Bengal have three RRBs each while Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, and Telangana have two RRBs each.

RRBs reported their highest-ever consolidated net profit of Rs 7,571 crore for FY24, with a gross non-performing assets (GNPA) ratio of 6.1 per cent — lowest in 10 years.

 

Last month, Union Finance Minister Nirmala Sitharaman chaired a meeting of top officials of RRBs and instructed the sponsor banks to focus on improving business performance, upgrading digital technology services, and fostering growth in MSME clusters.

RRBs were told to maintain an up-to-date technology stack to stay relevant. The Finance Minister noted that digital banking services, such as mobile banking, would be particularly beneficial for regions with challenging physical connectivity, such as the North-eastern States and hilly areas.

“The sponsor banks play a crucial role in these efforts by providing technical assistance, sharing best practices, and ensuring that RRBs have access to the necessary resources for success,” said a Finance Ministry statement.