RRBs may be merged to form 6 zonal banks

Consolidation could be on the cards for the beleaguered regional rural banks (RRBs) if the government accepts an Indian Banks' Association (IBA) panel report, which suggests that the 196 RRBs in the country be merged to create six big zonal banks.

The six zonal banks thus created could, in turn, be sponsored by six public sector banks having the widest branch network in the respective zones. Under the present norms, each RRB has to have a public sector sponsor.

M Narasimham, the architect of India's financial sector reforms, had envisaged this kind of consolidation in public sector banking in his second of two landmark reports.

The finance ministry had a meeting Saturday to consider the recommendations of the panel.

The meeting was attended by N S Sisodia, secretary (financial sector), finance ministry; K J Udeshi, deputy governor, Reserve Bank of India; Ranjana Kumar, chairperson, National Bank for Agriculture and Rural Development; Y S P Thorat, managing director, Nabard, and chief executives of sponsor banks.

The IBA panel, headed by the State Bank of India (SBI) chairman A K Purwar, has proposed that six major public sector entities "" the Central Bank of India, SBI, Bank of Baroda, Syndicate Bank, Bank of India and the Punjab National Bank "" may sponsor such zonal units.

Though the central government has made its intention known about divesting its 50 per cent stake in each RRB, the committee wants the existing equity pattern to continue.

Under the present structure, the Centre has 50 per cent stake in an RRB, the sponsor public sector bank holds 35 per cent and the concerned state government 15 per cent.

The 196 RRBs, which span 511 districts, were established in 1975 with the objective of providing banking services in the rural areas. Their main customers are peasants, artisans and landless labourers.