The finance ministry of India has started the process to consolidate Regional Rural Banks. The committee has decided to reduce the units of regional banks to 38 from 56 at present. This process will restart after a gap of 6 years.
Earlier in 2004-05, there were 196 RRBs including some sponsor banks within a state. The first phrase of consolidation bring the number down to 82 RRBs. Thereafter in 2011-12, the number went further down to 56 RRBs after the merger of sponsor banks all across the specific states. This is the 3rd phrase of RRBs consolidation but the first attempt by the Modi government.
The Centre government has initiated the process to amalgamate the RRBs and given instructions to the CEOs of public sector banks to do the same within a state along with the list of RRBs which are meant to be merged.
The letter to the chiefs of RRBs states, “It is envisaged that the RRBs within a state could be amalgamated. Accordingly, GoI, in consultation with Nabard, has approved the road map for amalgamation of RRBs, which will bring down the number of RRBs to 38 from 56.”
This step has been taken with an expectation to reduce overhead costs, improve usage of hi-tech technology and get higher credit inflow.
“Further, this will bring about better scale efficiency, higher productivity, robust financial health of RRBs, improved financial inclusion and greater credit flow to rural areas. It is expected that amalgamation will bring about better functional entities,” it said.
Since 1980, all the Regional Rural Banks are vulnerable to financial viability and rural credits. Hence this consolidation process is the only possible solution Indian government can find in last four decades. Whereas improvement in the rural banking standards, implying advanced technology and spreading awareness among the illiterate could have permanently resolve this issue. It is sad that all governments in power applies temporary fixes. We definitely need better brains in the banking sector.
To add more to this chaos, the finance ministry of India has decided to merge drowning banks with commercial banks. Along with its 5 subsidiaries, the State Bank of India is already merged with Bharatiya Mahila Bank in 2017-18. Merger of the banks is a good step but it should be done more wisely and economically.