FinMin asks Nabard to study impact of RRB amalgamation during FY28

Finance Ministry asks NABARD to study RRB mergers' impact as viability reforms, IPO plans and tech integration aim to boost sustainability, inclusion and rural credit growth

The finance ministry (FinMin) has told National Bank for Agriculture and Rural Development (Nabard) to conduct a comprehensive study on the impact of amalgamation of Regional Rural Banks (RRBs) during 2027-28 (FY28), a senior government official said on Friday.

 

The official spoke to Business Standard on the condition of anonymity soon after the ministry reviewed financial performance, financial inclusion initiatives, and priority sector lending of RRBs at a meeting in New Delhi chaired by Department of Financial Services (DFS) Secretary M Nagaraju.

 

“The study will assess the outcomes of successive rounds of consolidation of RRBs, focusing on operational efficiency, financial performance, governance standards, and their role in advancing financial inclusion, particularly in rural and semi-urban areas,” the official said.

 

He added: “Separately, the Viability Plan Framework 2.0 for RRBs is currently under consideration of the Standing Consultative Committee (SCC). The revised framework is aimed at strengthening long-term sustainability of RRBs by addressing issues related to capital adequacy, business diversification, cost optimisation, and technology adoption.”

 

The source further said that the proposed study and the updated viability framework are expected to guide future policy decisions on RRB consolidation and reform.

 

Three RRBs have been identified as eligible to initiate preparedness exercises for launching initial public offerings (IPOs), he said, adding that draft proposals from these banks have already been submitted to Nabard for comments.

 

Business Standard had reported last month that the finance ministry had approved the IPO plans of three RRBs — Haryana Gramin Bank, Kerala Gramin Bank, and Tamil Nadu Grama Bank.

 

The senior official, who was part of the meeting, said that as part of post-amalgamation reforms, core banking solution (CBS) information technology (IT) integration across RRBs was completed in October 2025, enabling uniform technology platforms and smoother inter-bank operations.

 

“RRBs have also introduced loan products different from those of their sponsor banks, aimed at better addressing local credit requirements,” the official said.

 

He further said that to strengthen MSME (micro, small, and medium enterprise) financing and enhance credit flow, 916 branches of 27 RRBs have been mapped with 460 MSME clusters identified by the Small Industries Development Bank of India (Sidbi). This initiative includes 242 clusters identified by the Ministry of MSME (MoMSME), with a focus on areas like textiles, handicrafts, wood furniture, leather, and food processing. Puducherry, however, does not have any identified natural or local MSME cluster to date.

 

“The Reserve Bank of India (RBI) will conduct a review of the branch opening policy for RRBs after completion of one year of amalgamation, with the review due from May 1, 2026,” the source said.

 

Under the latest phase of consolidation, the number of RRBs has been reduced to 28 from 43. The consolidated data showed that the branch network of RRBs marginally increased to 22,158 branches as on March 31, 2025, from 22,069 a year earlier.

 

Deposits grew 8.2 per cent year-on-year (Y-o-Y) to ₹7.14 trillion while gross advances rose 11 per cent to ₹5.22 trillion, resulting in total business expanding by 9.4 per cent to ₹12.36 trillion. The credit-deposit ratio improved to 73.1 per cent from 71.2 per cent, although the CASA (current account and savings account) ratio declined by 89 basis points (bps) to 53.5 per cent.

 

Twenty-five RRBs reported profits, unchanged from the previous year, while three RRBs continued to incur losses. The aggregate profit of profit-making RRBs stood at ₹7,679 crore, marginally lower than a year ago, while losses of loss-making RRBs rose sharply to ₹859 crore, resulting in a net profit of ₹6,820 crore, down 9.9 per cent Y-o-Y.

 

However, accumulated losses declined by 5.4 per cent to ₹8,435 crore, indicating balance sheet repair. Asset quality improved during FY25, with gross non-performing assets (NPAs) declining to 5.4 per cent from 6.1 per cent, and net NPAs reducing to 2 per cent from 2.4 per cent.