One State One RRB: Amalgamation of Regional Rural Banks (RRBs)

Syllabus: GS3/Indian Economy; Banking

Context

Recently, the Department of Financial Services (DFS) has notified amalgamation of 26 Regional Rural Banks (RRBs) on the principles of ‘One State One RRB’.
- It is the fourth phase of amalgamation of RRBs.

Background: These were established in 1975, following the recommendations of the Narasimham Working Group and the enactment of the Regional Rural Banks Act in 1976.
- It was aimed to provide financial services to rural areas, particularly to small and marginal farmers.
However, over the decades, fragmentation, overlapping operations, and high operational costs limited their effectiveness.
To address these challenges, the government introduced the amalgamation strategy, with the vision of ‘One State, One RRB’:
- Avoids duplication of services.
- Enhances governance and accountability.
- Increases access to technology and modern banking.
Ownership Structure: Jointly owned by:
- Central Government: 50%
- State Government: 15%
- Sponsoring Bank: 35%
Supervision and Regulation: Regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949.
- Supervised by the National Bank for Agriculture and Rural Development (NABARD).
Treated as cooperative societies for tax purposes under the Income Tax Act, 1961.

It is a strategic initiative led by the Department of Financial Services (DFS) under the Ministry of Finance.
It aims to restructure and consolidate Regional Rural Banks (RRBs) in India, and to boost rural banking efficiency, enhance financial inclusion, and optimize operational costs through the amalgamation of RRBs within the same state.

Operational Efficiency: Larger banks benefit from economies of scale, uniform technology platforms, and shared human resources.
Cost Rationalization: Reduces administrative overhead and duplication.
Enhanced Credit Flow: Streamlined operations mean better credit availability to farmers and small businesses.
Improved Governance: Single RRB per state improves state-wise planning, accountability, and monitoring.
Technological Advancement: Unified Core Banking Systems (CBS) and digital banking capabilities.
Enhanced Financial Inclusion: The unified RRBs will focus on providing credit and financial services to small and marginal farmers, artisans, and rural entrepreneurs.

Phases of Amalgamation of RRBs in India (Initiated in 2004-05 based on the recommendations of the Vyas Committee)
Phases	Objectives	Outcomes
Phase I (2006–2010)	To address the operational inefficiencies and financial weaknesses of RRBs.	196 RRBs to 82
Phase II (2013–2015)	To further streamline the RRB structure and enhance their operational scale.	82 RRBs to 56
Phase III (2019–2021)	To align RRBs with modern banking requirements and enhance their financial sustainability.	56 RRBs to 43
Phase IV (2025)	To implement the ‘One State, One RRB’ policy, ensuring uniformity and efficiency across states.	43 RRBs to 28

At present, 43 RRBs are functioning in 26 States and 2 union territories. Post amalgamation, there will be 28 RRBs in 26 states and 2 UTs with more than 22,000 branches covering 700 districts.
- Their predominant area of operation is in rural areas with approximately 92% of branches in rural or semi urban areas.

Despite the advantages, the amalgamation process brings some transitional issues:
- Staff realignment and training in the unified systems.
- Regional disparities in infrastructure and local banking needs.
- Customer awareness and onboarding in rural areas.
The government, however, is addressing these through capacity building and increased financial literacy campaigns.

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