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The Indian government has proposed merging regional rural banks to reduce their number to 28 from 43, which could help these lenders cut costs and shore up their capital base, according to a government document dated Nov. 4 that was reviewed by Reuters.
Regional rural banks provide credit to small farmers, agricultural labourers and businesses in rural areas but have suffered from inadequate access to capital and technology.
Collectively, these banks had deposits of 6.6 trillion rupees ($78.46 billion) and advances of 4.7 trillion rupees as of March 31, 2024.
The planned mergers would result in one regional rural bank in each state, according to a banker.
The federal finance ministry did not immediately respond to an email request for comment.
Government-owned lenders still control more than half of India's banking sector in terms of assets.
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Prime Minister Narendra Modi-led government has tried to consolidate such lenders to improve efficiency and reduce their reliance on government capital infusions.
Regional rural banks are 50% owned by the federal government, 35% by sponsor or scheduled banks and 15% by state governments.
India started consolidating the sector in 2004-05, reducing the number of regional rural banks from 196 to 43 in 2020-21.
The latest proposal includes merging two regional banks in the poll-bound western state of Maharashtra and four lenders in southern Andhra Pradesh state, among others, the document showed. ($1 = 84.1160 Indian rupees)
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