FinMin launches 4th stage of RRB consolidation, which will likely lead to a reduction in the number of banks

In a bid to streamline operations and achieve cost rationalization, the Ministry of Finance has launched the fourth round of consolidation of Regional Rural Banks (RRBs). As a result, the number of RRBs is expected to reduce from the current 43 to 28.

According to the roadmap developed by the Finance Ministry, 15 RRBs in different states will be merged. States affected by consolidation include Andhra Pradesh, which has the highest number of RRBs (4), followed by Uttar Pradesh and West Bengal (3 each). Other states like Bihar, Gujarat, Jammu and Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Rajasthan will see the merger of the two RRBs.

In Telangana, consolidation will depend on sharing of assets and liabilities between Andhra Pradesh Grameena Vikas Bank (APGVB) and Telangana Grameena Bank.

“Given the rural expansion of RRBs and agro-climatic or geographical ideals and the continued USP of RRBs, namely proximity to communities, the need is felt to embark on further consolidation of RRBs to achieve the goal of ‘One State One RRB’. to benefit from scale efficiencies and cost rationalization,” the Department of Financial Services said in a communication to heads of public sector banks, reported PTI.

A roadmap for further consolidation has been developed in consultation with NABARD to reduce the number of RRBs from 43 to 28, it said.

The Department of Financial Services has requested feedback from the heads of RRB sponsor banks by November 20. The Center began structural consolidation of RRBs in 2004-05, reducing the number of such institutions from 196 to 43 by 2020-21 in three phases. mergers.

These banks were established under the RRB Act, 1976 to provide credit and other financial services to small farmers, agricultural laborers and artisans in rural areas. The law was amended in 2015 to allow RRBs to raise capital from sources other than the Centre, state governments and sponsor banks.

The Center currently holds 50 per cent stake in RRB, with the remaining 50 per cent divided between sponsor banks (35 per cent) and state governments (15 per cent). However, even after dilution of shares, the combined shareholding of the Center and the sponsoring public sector banks must remain above 51 per cent, as per the amended Act.

Earlier in June, two major banking unions – the All India Bank Officers Confederation (AIBOC) and the All India Bank Employees Association (AIBEA) – called for the merger of RRBs with their respective sponsor banks to improve the overall efficiency and viability of bank employees. banking sector. The unions had argued that such a merger would ensure a smooth technological transition, a view expressed in a letter sent to Finance Minister Nirmala Sitharaman.