FinMin asks sponsor banks to draft 5-year growth plan for RRBs

After state-wise amalgamation of regional rural banks (RRBs) under the “One State One RRB” policy, the finance ministry has directed the sponsor banks to complete the information technology (IT) integration of all the 28 RRBs by September 30, according to a senior government official.

 

The finance ministry has also asked the sponsor banks of RRBs to submit action plans for expansion of branches and business of RRBs in the next five years, the government official said on the condition of anonymity.

 

The finance ministry has also advised the sponsor banks to handhold their respective RRBs to derive the benefits of the amalgamation.

 

“Simultaneously, the government has advised sponsor banks to draft a road map for their loss making RRBs to make them profitable. Human Resource, being a sensitive issue, has to be handled with empathy. Staff grievances shall be looked into with due sensitivity,” added the government official.

 

After the latest amalgamation that came into effect on May 1, there are 28 RRBs in 26 states and two Union Territories (UTs), with more than 22,000 branches covering 700 districts.

 

“RRBs have made their efforts in various segments of their loan portfolio along with growth in financial inclusion schemes. It was advised that sponsor banks may handhold their respective RRBs to derive the benefits of amalgamation,” added the official.

 

The senior government official further said RRBs must reactivate inoperative Jan Dhan accounts and complete e-KYC for such accounts. “RRBs and their sponsor banks were advised to differentiate their products and ensure geographic separation of branches to expand their customer base and reduce competition,” said the source. 

 

The source further said that the Small Industries Development Bank of India (SIDBI) will support RRBs in mapping branches to local MSME clusters to boost growth, while the Department of Financial Services (DFS) would review RRBs’ branch opening policies post-amalgamation.

 

Oriented towards rural areas, RRBs were established regionally, with capital contributed by the Centre, state governments, and sponsor banks under the RRB Act, 1976.

 

RRBs are also advised to conduct studies on the PM Suryaghar and PM Vishwakarma schemes. However, the government has told some six RRBs to provide monthly data on fisheries loans. These include Kerala Gramin Bank, Maharashtra Gramin Bank, Tamil Nadu Grama Bank, Odisha Gramya Bank, Andhra Pradesh Grameena Vikas Bank, and West Bengal Gramin Bank.

 

“Furthermore, suitable RRBs are to be identified for potential Initial Public Offering (IPO) issuance, with the Department of Financial Services (DFS), sponsor banks, and the National Bank for Agriculture and Rural Development (NABARD) ensuring pre-IPO readiness. Lastly, NABARD will conduct a study on the amalgamation of RRBs and formulate future road maps,” the source said.

 

According to the finance ministry’s draft guidelines of 2022, RRBs with a minimum net worth of ₹300 crore must also have a capital adequacy ratio above the regulatory minimum level of 9 per cent in each of the preceding three years. Additionally, these regional lenders must have reported an operating profit before tax of ₹15 crore in three out of preceding five years. The identified RRBs must also have a return on equity (RoE) of 10 per cent and a return on assets (RoA) of 0.5 per cent in three out of five preceding years. Furthermore, any lender must not be under the RBI’s prompt corrective action (PCA) framework.