After strengthening capital, RRBs to focus on product diversification

After consolidating capital adequacy, improving profitability and asset quality, regional rural banks (RRBs) will now focus on diversification of lending products to small and medium enterprises (SMEs) for value addition in agriculture chain and allied sectors.

The top priority will be upgrading the technology platform for digital banking for retaining existing customers and attracting new ones in rural areas.

Goverdhan S. Rawat, deputy managing director, National Bank for Agriculture and Rural Development (Nabard) told Business Standard that with fund infusion and profitability, the capital adequacy has improved substantially and asset quality is robust.

Now, they will intensify efforts on sustaining efficiency and productivity for which boards of banks will prepare a five-year road map for standing on their own feet.

The consolidated capital adequacy of RRBs was 10.16 per cent as on March 31, 2021, before beginning of the recapitalisation process in FY22. It steadily increased to 12.7 per cent in FY22, 13.4 per cent in FY23 and finally to 14.2 per cent in FY24, Nabard data showed.

The stakeholders, including the government, have infused about Rs 10,000 crore as capital in the three-year period ended FY24. All the stakeholders had infused Rs 8,393 crore as capital into RRBs from 1975 till FY21.

Loan portfolio of RRBs expanded by 14.5 per cent year-on-year (Y-o-Y) to Rs 4.7 trillion and deposits by 8.4 per cent to Rs 6.59 trillion in FY24. The credit deposit ratio rose to 71.2 per cent.

Given the rural credit under-penetration, there is scope to increase book and expect advances to maintain 14-15 per cent Y-o-Y growth in FY25 also.

The lending diversification would involve a shift from predominantly crop loans, which are short term in nature, to lending to micro small medium enterprises (MSMEs) and post-harvesting activities to help in investment and capital formation, Rawat said.

As for profitability of RRBs, their net profit rose by 52.2 per cent Y-o-Y to Rs 7,571 crore in FY24. However, net interest margins showed moderation at 3.6 per cent for FY24 against 3.8 per cent for FY23, according to the Nabard data.

Asset quality profile improved with gross non-performing assets (gross NPAs) declining from 7.3 per cent in FY23 to 6.1 per cent. Net NPAs also declined from 3.2 per cent to 2.4 per cent.

Overall provision coverage ratio (PCA) moved up to 62.6 per cent in FY24 from 59.2 per cent in FY23.

Subrat Kumar Nanda, chief general manager, Nabard, said besides loan diversification, RRBs would scale up digital banking with emphasis on 14 customer-centric digital services like mobile banking, KYC, UPI and Bharat Bill Payment Service.

There are also eight bank-centric digital upgradations like core banking solution (CBS) upgradation, loan origination system and NPA management module, among others.

RRBs have already invested about Rs 1,000 crore in upgrading technology backbone for digital banking in the last three years.

Expenditure for digital banking over the next three years is pegged at Rs 1,000 crore, Nanda added.