ONE STATE, ONE RRB

The Indian government is set to implement the “One State, One RRB” policy.

Policy Objectives

• Consolidate the existing 43 Regional Rural Banks (RRBs) into 28.
• Enhance Operational Efficiency: Reduce redundancies and improve service quality.
• Cost Rationalisation: Achieve better cost management through consolidation.
• Strengthen Credit Flow: Boost credit availability in rural areas by fortifying RRBs’ financial strength.

About Regional Rural Banks (RRBs)

• Formation: Established through collaboration of the Central Government, State Governments, and Sponsoring Commercial Banks.
• Mission: Provide credit to underserved rural populations—small/marginal farmers, agricultural laborers, and weaker sections.
• Functions:
  • Rural Credit: Mobilize financial resources and provide loans to rural areas.
  • Government Operations: Disburse MGNREGA wages, pensions, etc.
  • Para-Banking Services: Locker facilities, debit/credit cards, mobile/Internet banking, UPI, etc.
• Origin:
  • Recommended by Narasimham Committee on Rural Credit (1975).
  • Established under the RRB Act, 1976 (Ordinance passed on 26 Sept 1975).
  • First RRB: Rathama Grameen Bank (established on 2 Oct 1975).
• Structure:
  • Hybrid model combining cooperative and commercial bank
  • Area of Operation: Limited to specific districts notified by the Government of India.
• Ownership:
  • Central Government: 50%
  • Sponsoring Bank: 35%
  • State Government: 15%
• Regulation & Supervision:
  • Regulated by: RBI
  • Supervised by: NABARD
• Funding Sources:
  • Owned funds, deposits, borrowings from NABARD, Sponsor Banks, SIDBI, and the National Housing Bank.
• Management:
  • Board of Directors:
    • 1 Chairman, 3 Central Govt-nominated Directors,
    • 2 State Govt-nominated Directors, 3 Sponsor Bank-nominated Directors.
• Priority Sector Lending (PSL):
  • 75% of outstanding advances (higher than 40% for Scheduled Commercial Banks).

Capital Infusion for RRBs

• FY 2021-22: Government infused ₹5,445 crore over two years as growth capital.
• Purpose: Strengthen operational capabilities and promote development.

Recent Performance Highlights of RRBs

• Record Profit: ₹7,571 crore in FY 2023-24.
• Capital Adequacy Ratio: Reached 2% by March 31, 2024.
• GNPA (Gross Non-Performing Assets): At an all-time low of 1%, indicating improved asset quality.

Historical Context of RRB Consolidation

• RRBs Established: Under the RRB Act, 1976 to provide credit to small farmers, agricultural laborers, and rural artisans.
• Consolidation Timeline:
  • 2004-05: Process began.
  • 2020-21: Number reduced from 196 to 43 through three phases.

Amendments to the RRB Act (2015)

• Key Changes:
  • Allowed RRBs to raise capital from sources beyond the Centre, states, and sponsor banks.
  • Ownership Structure:
    • Government: 50% stake.
    • Sponsor Banks: 35% stake.
    • State Governments: 15% stake.

Current RRB Network

• Operational Status (as of March 31, 2024):
  • 43 RRBs across 22,069 branches in 26 states and 3 Union Territories.
  • Coverage across 700 districts.
• Digital Initiatives: Many RRBs offering digital banking services to improve rural accessibility.

Implications of the “One State, One RRB” Policy

• Enhanced Service Delivery: Improved efficiency in operations and customer service.
• Financial Stability: Stronger balance sheets and better risk management.
• Rural Credit Growth: Increased credit flow to rural areas, supporting agriculture and rural development.
• Global Benchmark: Sets an example for efficient rural banking models globally.