The current hot news on Regional Rural Banks is their consolidation. The Government has begun the process of consolidation of Regional Rural Banks along with the Public Sector lenders. Here are the proposals?
- The total number of RRBs are to be brought down to 36 which are numbered 56 at present.
- Consulatations are already on with the States since States are one of the sponsors of RRBs.
- Along with this, sponsor banks are also preparing road map for amalgamation of RRBs within a state.
Effects:
- The consolidation is considered as a fitting step in strengthening the banking sector, in line with the recent merger announcement of Bank of Baroda, Vijaya Bank and Dena Bank.
- This is expected to bring up better scale-efficiency, higher productivity, robust financial health of the RRBS, let apart it should pave way for improved financial inclusion and greater credit flow to rural areas.
- The other advantages would be
- The overhead expenses of RRBs is expected to be minimised
- Technology utilisation will be optimized
- RRBs Capital base will be enhanced and
- Improved area of operation
General
- The RRB Act was amended in 2015 whereby they were permitted to raise capital from sources other than the Centre, States and Sponsor Banks.
- At present the shareholding pattern in RRBs is like this:
- Centre holds 50%
- Concerned sponsor bank holds 35% and
- State Governments hold 15%
- The amended act also reads that even after a dilution in the stake, the shareholding of the Centre and the sponsor bank together cannot fall below 51%.
- This makes it clear that the ownership and control will remain with the Government
- Government had initiated the process of consolidation of RRBs in a phased manner since 2005. The number came down to 133 in 2006 from 196 at the end of 2005. It further came down to 105 and then on to 82 at the end of 2012. Further consolidation brought it down to 56 which is the figure shown at present.
Let us wait and see the development.
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