Quest Journals

Journal of Research in Humanities and Social Science

Volume 12 ~ Issue 2 (2024) pp: 67-73
ISSN(Online):2321-9467
www.questjournals.org

Research Paper

Regional Rural Banks in India – Post-Amalgamation

Dr. A. Sudharsana Reddy* Dr.S.Siva Prasad@
Academic Consultants, Dept. of Economics,
Sri Venkateswara University, Tirupati – 517502.AP.

ABSTRACT
Rural economy progress with efforts of rural farmers in any country. Many studies were proven that the rural
economy depends on the rural agriculture and artisan activities. So, the rural economy progress through the
agriculture. Agriculture is the main stay contributing to the rural economy of India. As an agriculture and rural
economy-based country, the farmers required the investment for farming activities. The Government of India
has established the Regional Rural Banks (RRB’s) as state-sponsored, regionally based and rural oriented
institutions under the Regional Rural Banks Act, 1976 with any one commercial bank as sponsor bank. Within
two decades, the RRBs plagued with financial difficulties and Government of India (GoI) started
recapitalisation of the RRBs along with several other policy reforms to have operational freedom for increasing
their business and profitability. In September, 2005, GoI initiated the first phase amalgamation of RRBs,
sponsor bank-wise, at state level. By March, 2010, RRBs of the same sponsor banks within a State were
amalgamated bringing down their number from 196 to 82. In the second and on-going phase, starting from
October, 2012, geographically contiguous RRBs within a State under different sponsor banks are being
amalgamated to have just one RRB in medium-sized and two/three RRBs in large states. During the year 2013-
14, 13 RRBs have been amalgamated into 6 new RRBs in 5 States (Chhattisgarh, Uttar Pradesh, Kerala,
Karnataka and Haryana). With this, the effective number of RRBs as on 31st March, 2021 stands at 43 playing
a significant role in developing agriculture and rural economy. This paper tries to review the performance due
to the amalgamation of Regional Rural Banks in India through advances and deposits and non-performing
assets.
Keywords: Regional Rural banks, restructuring, amalgamation.
*
and @ Academic Consultants, Department of Economics, S.V. University, Tirupati - 517 502.

Received 09 Feb., 2024; Revised 22 Feb., 2024; Accepted 24 Feb., 2024 © The author(s) 2024.
Published with open access at www.questjournals.org

I. INTRODUCTION
Rural Economy changes with maximum efforts of rural Farmers in any Country. So, the rural economy
changes through the changes in agriculture. Agriculture sector is the foremost important economy in India.
Agriculture is the main sector for the contribution of rural economy of India. Natural resources and human
resources in rural areas have great potential to be developed in the agricultural sector. Land and water are the
main natural resources in rural areas and are used for farm management by rural residents who mostly work in
the agricultural sector. India is agricultural and rural economy-based country, and the formers required the
investment for farming activities. So, the Government of India has facilitated the establishment of RRB’s by
appointing various committees for this purpose. Regional Rural Banks (RRB’s) were set up as state-sponsored,
regionally based and rural oriented institutions under the Regional Rural Banks Act, 1976. RRB’s meant to
provide the credit needs of the small and marginal farmers, agricultural labourers, socio-economically weaker
section of population for development of agriculture, trade, commerce, industry and other productive activities.

II. REGIONAL RURAL BANK

The Regional Rural Banks (RRBs) were established in the year 1975 with the Ordinance on 26
September 1975 by the Narasimham Working Group and the legislation of the Regional Rural Banks Act, 1976.
Prathama Grameen Bank, the first Regional Rural Bank was established on 2nd October 1975. Prathama Bank is
headquartered in Moradabad, Uttar Pradesh and it was sponsored by Syndicate Bank and had an authorized
capital of Rs.5 crores. A total of 5 RRBs were set up on the recommendation of the Narasimhan Committee.
The other 4 RRBs were,
*Corresponding Author: Dr. A. Sudharsana Reddy 67 | Page
 Regional Rural Banks In India – Post-Amalgamation

 Gaur Gramin Bank (sponsored by UCO Bank),

 Gorakhpur Kshetriya Gramin Bank (sponsored by State Bank of India),
 Haryana Kshetriya Gramin Bank (sponsored by Punjab National Bank), and
 Jaipur-Nagpur Anchalik Gramin Bank (sponsored by UCO Bank).
RRBs are intended to provide adequate credit and other banking facilities for agriculture and other rural
sectors. Each RRB has jurisdiction as notified by the Government. RRBs has the nature of a cooperative by
solving rural problems and a commercial bank by organizing financial resources. After reforms in 1990, the
government started the consolidation of Regional Rural Banks which has declined from 196 in 2005 to 43 in the
year 2021, while 30 of the total 43 RRBs reported their net profits.

The equity shares of Regional Rural Banks are distributed among the Central Government with 50.0
per cent, the Sponsor Bank 35.0 per cent and the State Government in with 15 per cent. As such RRBs are
owned by the Government of India as the maximum share capital is owned by the Central Government.

a. AIMS OF REGIONAL RURAL BANKS

The objectives with which Regional Rural Banks came into existence are;
 to provide credit and banking facilities to the small farmers (1 or 2 hectares of land) and marginal farmers
(less than 1 hectare of land), agricultural laborers, small artisans, and entrepreneurs in the rural areas.
 The Regional Rural Banks (RRBs) were conceptualized to combine the local feel and familiarity of rural
problems characteristic of cooperatives with the professionalism and large resource base of commercial
banks.
 developing the banking systems in rural parts of India for the credit needs of agriculture, commerce,
industries and other purpose.
 to serve scattered population that demands smaller loans and operate under strict operational and lending
norms of sponsored commercial banks.

b. WORKING OF REGIONAL RURAL BANKS

The Regional Rural Bank in India is a scheduled commercial bank whose primary function is to accept
deposits and provide loans. The other important functions of RRBs in India are as follows,
 RRBs provide various banking facilities to rural and semi-urban areas.
 Another function of RRBs is to disburse wages of Mahatma Gandhi National Rural Employment Guarantee
Act (MGNREGA) and Pradhan Mantri Gram Sadak Yojana (PMGSY) workers and distribute pensions.
 RRBs provide para-banking facilities such as locker facilities, debit and credit cards, mobile banking,
internet banking, and UPI services.
 They provide basic banking needs for the development of Agriculture, Trade and Commerce, Industry and
other productive activities in rural areas by providing credit and other facilities, particularly to the small and
marginal farmers, agricultural labourers, artisans and small entrepreneurs.

c. OPERATIONAL SETUP OF REGIONAL RURAL BANK

Each Regional Rural Bank has a chairman. Under the provision of Section 11 of the RRB Act, 1976, the
chairman of the RRBs is appointed by the Sponsor Banks of the respective RRBs with the consultation with
NABARD. But there are no guidelines for the selection of a chairman.

TABLE 1: LIST OF REGIONAL RURAL BANKS IN INDIA TILL 2024

S.No State Bank Name Head Office Sponsor Bank
1 Andhra Pradesh Andhra Pragathi Grameena Bank Kadapa Canara Bank
Chaitanya Godavari Grameena Bank Guntur Union Bank of India
Saptagiri Grameena Bank Chittoor Indian Bank
2 Telangana Andhra Pradesh Grameena Vikas Bank Warangal State Bank of India
Telangana Grameena Bank Hyderabad State Bank of India
3 Assam Assam Gramin Vikash Bank Guwahati Punjab National Bank
4 Arunachal Pradesh Arunachal Pradesh Rural Bank Naharlagun State Bank of India
5 Bihar Uttar Bihar Gramin Bank Muzaffarpur Central Bank of India
Dakshin Bihar Gramin Bank Patna Punjab National Bank
6 Chhattisgarh Chhattisgarh Rajya Gramin Bank Raipur State Bank of India
7 Gujarat Saurashtra Gramin Bank Rajkot State Bank of India
Baroda Gujarat Gramin Bank Vadodara Bank of Baroda
8 Haryana Sarva Haryana Gramin Bank Rohtak Punjab National Bank

*Corresponding Author: Dr. A. Sudharsana Reddy 68 | Page

 Regional Rural Banks In India – Post-Amalgamation

9 Himachal Pradesh Himachal Pradesh Gramin Bank Mandi Punjab National Bank
10 Jharkhand Jharkhand Rajya Gramin Bank Ranchi State Bank of India
11 Jammu & Kashmir J&K Grameen Bank Jammu J&K Bank Ltd.
Ellaquai Dehati Bank Srinagar State Bank of India
12 Karnataka Karnataka Gramin Bank Ballari Canara Bank
Karnataka Vikas Grameena Bank Dharwad Canara Bank
13 Kerala Kerala Gramin Bank Malappuram Canara Bank
14 Maharashtra Maharashtra Gramin Bank New Aurangabad Bank of Maharashtra
Vidharbha Konkan Gramin Bank Nagpur Bank of India
15 Madhya Pradesh Madhya Pradesh Gramin Bank Indore Bank of India
Madhyanchal Gramin Bank Sagar State Bank of India
16 Manipur Manipur Rural Bank Imphal West Punjab National Bank
17 Meghalaya Meghalaya Rural Bank Shillong State Bank of India
18 Mizoram Mizoram Rural Bank Aizawl State Bank of India
19 Nagaland Nagaland Rural Bank Kohima State Bank of India
20 Orissa Utkal Grameen Bank Bolangir State Bank of India
Odisha Gramya Bank Bhubaneshwar Indian Overseas Bank
21 Punjab Punjab Gramin Bank Kapurthala Punjab National Bank
22 Puducherry Puduvai Bharathiar Grama Bank Muthialpet Indian Bank
23 Rajasthan Baroda Rajasthan Kshetriya Gramin
Ajmer Bank of Baroda
Bank
Rajasthan Marudhara Gramin Bank Jodhpur State Bank of India
24 Tamilnadu Tamil Nadu Grama Bank Salem Indian Bank
25 Tripura Tripura Gramin Bank Agartala Punjab National Bank
26 Uttar Pradesh Aryavart Bank Lucknow Bank of India
Baroda UP Bank Rae Bareli Bank of Baroda
Prathama UP Gramin Bank Moradabad Punjab National Bank
27 Uttarakhand Uttarakhand Gramin Bank Dehradun State Bank of India
28 West Bengal Bangiya Gramin Vikash Bank Berhampore Punjab National Bank
Paschim Banga Gramin Bank Howrah UCO Bank
Uttar Banga Kshetriya Gramin Bank Cooch Behar Central Bank of India
Source: Various issues of NABARD, Mumbai.

At present, there are 43 Regional Rural Banks (RRBs) in India with 21,856 branches across 28 States
and 3 UTs. They are sponsored by 12 Scheduled Commercial Banks (SCBs). RRBs in India have 28.3 crore
depositors and 2.6 crore borrowers.

d. FEATURES OF REGIONAL RURAL BANK

The following are the important features of Regional Rural Banks in India,
 RRBs are a new form of scheduled commercial banks which is backed by a strong commercial bank.
 Each RRB is operated within a certain limit only.
 RRBs provide banking facilities to small, marginal farmers, artisans, etc. in rural areas.
 RRBs reduce regional imbalances by checking the outflow of rural deposits to urban areas. This will
increase the employment generation in rural areas.
 RRBs provide 75% of their total credit as Priority Sector Lending to fulfil the criterion applicable to
commercial banks.

3. AMALGAMATION OF REGIONAL RURAL BANKS

Regional Rural Banks played an important role in financing rural areas since establishment in 1976.
When financial reforms in the country introduced in 1991-92, the financial viability of RRBs became the most
crucial factor in deciding the role it can perform. As the quantum of its loans were small as well was risk prone,
restrictive interest rate policy with limited business flexibility and limited scope of diversification or expansion,
the RRBs were incurring losses and their Non-Performing Assets (NPAs) were mounting. Following it, the
Government of India and the Reserve Bank of India took many reforms to strengthen RRBs and improve their
performance. In 1994-95 re-capitalization of RRBs was initiated as part of the restructuring programme. 187
RRBs were covered under this program till 1999-2000 with aggregate financial support of Rs. 2188.44 crore
*Corresponding Author: Dr. A. Sudharsana Reddy 69 | Page
 Regional Rural Banks In India – Post-Amalgamation

from the shareholders, viz. Government of India, State governments and Sponsor banks in the ratio 50:15:35
respectively. The branch licensing policy was liberalised. The RRB's applications to open new branches were
sanctioned by the empowered committees at the regional offices of RBI. The RRBs were given relaxation in
branch expansion even beyond their designated districts. The branches of RRBs, with the prior approval of RBI
and the concerned government authority, were allowed to undertake government business including the foreign
exchange business.

a. COMMITTEES ON RRBS
Many committees had constituted at various times to give suggestions to tackle the financial non-viability of
RRBs.

TABLE 2: COMMITTEES CONSTITUTED FOR RESTRUCTURING OF RRBS

S.No Name of the Committee Year Recommendations
1 Kelkar Committee 1984 Small and uneconomic RRBs should be merged
2 Agriculture Review Committee 1989 The RRBs should be merged with the sponsor Banks as the weaknesses of
(Khusro Committee) RRBs were endemic to the system and thus becomes non-viable entities.
A self-sustaining credit institution can only serve the weaker sections
effectively
3 Bhandari Committee 1994 Identified 49 RRBs for comprehensive restructuring. It recommended that
in the matters of business development and staff, greater devolution of
decision-making powers should be given to the boards of RRBs
4 Basu Committee 1996 The option of liquidation was suggested by the Committee on Revamping
of RRBs
5 Thingalaya Committee 1997 Suggested very weak RRBs should be viewed separately and possibility of
their liquidation be recognized. Also they might be merged with
neighbouring RRBs.
6 V.S.Vyas Committee 2001 Suggested autonomy for the RRBs by the Sponsor Bank in their credit and
other portfolio management system
7 Internal Working Group of the 2004 Merger and amalgamation of RRBs may help in improving their viability
Reserve Bank of India. and suggested bringing of new banks both public and private as Sponsor
Banks of the merged RRBs

b. AMALGAMATION OF RRBS
The Reserve Bank of India in 2001 constituted a Committee with Dr. V S Vyas on “Flow of Credit to
Agriculture and Related Activities from the Banking System” to examine the relevance of RRBs in the rural
credit system and the alternatives for making it operational. As on 31st March 2004, 33 RRBs were having
operational losses. To overcome the problems of reduction of expenditure and enhancing efficiency, in August
2004 Reserve Bank of India decided to merge all the RRBs sponsored by one bank and operating in a state into
one single RRB. This decision was more important and relevant in the context of better financial products in the
market, encouraging the RRBs to grow bigger.
In the year 2005, the consolidation process was initiated as recommended by Dr. V.S. Vyas
Committee. In 2005, the first phase of amalgamation was initiated by the Sponsor Bank-wise within a State. The
amalgamation process brought down the number of RRBs from 196 to 82. The process of amalgamation started
in early 2005. 145 RRBs were merged on 31st march 2007, reducing the total number of RRBs to 96 from 196
and to 88 at the end of June 2008. This consisted of 45 amalgamated banks, 42 standalone banks and one new
bank called the Puduvai Bharathiar Gramin Bank in the Union Territory of Puducherry. The amalgamation was
carried out in the year 2011 with a view to providing better customer service by having better infrastructure,
computerization, an experienced workforce, common publicity and marketing efforts.
The strategy of which was to amalgamate RRBs functioning in contiguous geographies even if
different public sector banks sponsored them. A major Bank operating in the region then sponsored the newly
amalgamated RRB. In a medium or small sized state, geographically extensive RRBs under different sponsor
Banks, within a state amalgamated to form just one RRB. In a large state, the RRBs were amalgamated to form
two or three RRBs. This amalgamation finally led to the reduction of number of RRBs to 56 by 2016. The
finance Ministry had put on hold further amalgamation of RRBs in 2014, as these Banks face challenges in
meeting capital adequacy norms according to the existing standards.
The amalgamated RRBs also benefit from large areas of operation and enhanced credit exposure limits
for high-value and diverse banking activities. As a result of the second phase of amalgamation during 2011-
2014, the number of RRBs was brought down to 56 from 82. In the year 2018-2019, the amalgamation of RRBs
was done based on the roadmap provided by NABARD and consultation with respective Sponsor Banks and
State Governments. As of April 2019, the number of RRBs has been brought down to 43 from 56. The
*Corresponding Author: Dr. A. Sudharsana Reddy 70 | Page
 Regional Rural Banks In India – Post-Amalgamation

amalgamation has been made with the expectation of bringing better efficiency of scale, higher productivity,
improved financial health of the RRBs, and greater credit flow to rural areas.
Nearly 70 per cent of the people reside in rural areas in India, which has a larger impact on the
country’s economic situation. Consequently, there is a need for strong and efficient banking system in rural
areas, to offer timely credit at affordable rates, as traditional moneylenders who provide loans at exorbitant
interest rates. In developing countries like India, RRBs play a vital role in the growth and development of rural
and backward areas.

TABLE 3
TOTAL AMALGAMATION OF RRBS IN INDIA
S.No. Year RRBs
1 1975 6
2 1980 85
3 1985 188
4 1990 196
5 1995 196
6 2000 196
7 2006 133
8 2011 82
9 2013 64
10 2014 56
11 2023 43
Source: Various Annual Reports of NABARD.

4. POST-AMALGAMATION PERIOD (2006-2016)

Amalgamation of RRBs was done in two phases in this period. The first phase started in 2005 when all
RRBs working under a sponsor Bank were amalgamated to form minimum numbers of RRBs possible. In the
2nd phase, inter sponsor Bank amalgamation of RRBs were done which started in 2013 and stopped after 2014.

Table 4: EXPANSION OF RRBS IN INDIA

No. of Districts No. of Total
S.No. Year No. of RRBs Total Deposits
Covered Branches Advances
1 2006 133 523 14494 64195 36050
2 2007 96 525 14520 81620 48420
3 2008 91 534 14761 94412 57417
4 2009 86 594 15181 113828 64011
5 2010 82 616 15480 135814 79016
6 2011 82 618 16001 156702 94545
7 2012 82 620 16909 173393 111082
8 2013 64 635 17861 196422 129936
9 2014 57 642 19082 220624 152051
10 2015 56 644 20024 254226 173972
11 2016 56 644 20904 293754 197111
12 2017 56 644 21251 345573 213247
13 2018 56 654 21805 390550 245375
14 2019 53 662 22042 425799 276345
15 2020 45 696 21847 467203 293575
16 2021 43 696 21856 510435 331277
17 2022 43 696 21892 548312 357076
18 2023 43 696 21856 607540 412925
Source: Various Annual Reports of NABARD.

In the post-amalgamation period the RRBs were merged even inter- sponsor bank wise. The table
above shows that the number of RRBs are falling and have reduced gradually from 133 in 2006 to 43 in 2023.
But still the number of districts covered by RRBs are showing a rise to 696 and branches have also expanded
significantly from 14,494 in 2006 to 21,856 in 2023.

5. PROBLEMS OF RRBS
The Regional Rural Banks were set up to meet the credit needs of small farmers, artisans, and rural
entrepreneurs. However, with the time, these banks are not been able to meet the desired objectives mainly
because of certain problems which have been discussed. The major problems faced by Regional Rural Banks are
as follows:
a) Lack of capital: The authorised capital of RRBs is very low as compared to that of commercial banks. This
limits their ability to expand their business and serve the rural people effectively.

*Corresponding Author: Dr. A. Sudharsana Reddy 71 | Page

 Regional Rural Banks In India – Post-Amalgamation

b) Lack of trained personnel: Most of the RRBs are located in remote and backward areas, where it is difficult
to attract and retain trained personnel. As a result, they have to depend heavily on their sponsor banks for
advice and guidance.
c) High cost of operations: The high cost of operations is another problem faced by RRBs. This is due to the
small size of their business and the lack of economies of scale.
d) Dependence on Sponsor Banks: RRBs are generally dependent on their sponsor banks for day-to-day
operations as well as for financial assistance. This dependence often leads to a conflict of interest between
the two institutions.
e) Political interference: Another major problem faced by RRBs is political interference. This is because they
are often used as a tool for political mileage.

6. ADVANTAGES OF REGIONAL RURAL BANKS

Despite these problems, RRBs also have certain advantages. They are:
a. Provides banking facilities to the rural people who were hitherto not served by the commercial banks.
b. helps in the development of agriculture and small-scale industries in rural areas.
c. promotes thrift and entrepreneurship among the rural people.
d. create employment opportunities in rural areas.
e. help in checking migration from rural to urban areas.
f. They play an important role in the implementation of government schemes like the Integrated Rural
Development Programme (IRDP), Minimum Support Price (MSP) scheme, etc.
g. help in the development of social and economic infrastructure in rural areas.
h. checking the monopoly of moneylenders and traders in rural areas.
i. providing credit at reasonable rates to rural people.
j. Promote financial inclusion by providing banking facilities to the marginalised sections of society such as
women, SC/STs, and minorities.

7. SUGGESTIONS
As the areas of operation of a RRB branch never offer sufficient potential for business and thus to
attain viability, this branches may cover the neighbouring districts. But the chances of extending the area of
operation are very remote due to the introduction of the programme of Service Area Approach (SSA).
1. Within the service area, the RRBs must be allowed to finance the project of non-target groups after meeting
the credit needs of target groups. Although CRAFICARD and Kelkar Committee did not favour the idea of
RRBs financing non-target groups but recommended to lend to those public bodies established for the
benefit and welfare of weaker sections.
2. In order to increase the resource base, the RRBs may be permitted to open their branches in the semi-urban
and urban areas having larger business potential. Such branches will help the RRBs to mobilise the much-
needed resources required to meet rural obligations.
3. In order to diversify their deposit base, RRBs may be permitted to tap NRI deposits in those areas when
they have such potential.
4. District administration should help the RRBs to recover the overdue loan amounts as the present recovery
percentage remains as low as 23 per cent.

8. STRATEGIES FOR TURNAROUND OF RRBS

The following measures can be taken to improve the functioning of Regional Rural Banks:
a) to increase their authorised capital so that they can expand their business and serve the rural people
effectively.
b) to provide them with adequate financial assistance so that they can meet their day-to-day expenses.
c) to attract and retain trained personnel in RRBs by providing them with better working conditions and
salaries.
d) to reduce the cost of operations of RRBs by rationalising their branch network and using technology.
e) to make RRBs more autonomous so that they can make decisions without depending on their sponsor
banks.
f) to check political interference in the functioning of RRBs to serve the rural people without any bias.
g) to provide RRBs with adequate resources so that they can play their role effectively in the development of
rural areas.
h) to increase public awareness about the functioning of RRBs so that more people can avail themselves of
their services.
i) to make RRBs more customer-friendly so that they can attract more customers.
j) to use technology effectively to improve the efficiency and reach of Regional Rural Banks.

*Corresponding Author: Dr. A. Sudharsana Reddy 72 | Page

 Regional Rural Banks In India – Post-Amalgamation

k) need for consolidation in the banking sector which would help reduce the number of small banks and enable
them to serve the rural people more effectively.

III. CONCLUSION
Despite the problems faced by Regional Rural Banks, they have played an important role in the
development of rural areas. There is a need to take measures to improve their functioning so that they can serve
the rural people more effectively. The advances to priority sector have increased after amalgamation. The
deposit mobilisation also showed increase in from Rs.64,195 crores in 2006 to Rs.6,07,540 in 2023. With the
help of technology and consolidation, it is possible to make RRBs more efficient and reach a larger number of
people.

REFERENCES
[1]. Amarender Reddy (2006), Productivity Growth in Regional Rural Banks, Economic and Political Weekly, March 18, pp. 1079-
1086.
[2]. Biswa Swarup Misra, (2006). The performance of Regional Rural Banks in India: Has past anything to suggest for future? Reserve
Bank of India occasional papers, 27(1, 2), 89-118.
[3]. Ishwara. P., (2011), A Financial Performance Analysis of RRBs: Pre and Post Transformation, International Journal of
Economics and Research., Jan - Feb, 2(1), pp.142-151.
[4]. Prasad, T. S. (2003). Regional Rural Banks: Performance evaluation, Kurukshetra, 51(10), 20-24.
[5]. Syed Ibrahim, M (2012), Role of Indian Regional Rural Banks (RRBs) in the Priority Sector Lending-An Analysis, International
Management Journal, Vol. 1, No. 1-2, January-December, 2012.
[6]. The Regional Rural Bank Act,1976. Act No 21of 1976. https://www.nabard.org.

*Corresponding Author: Dr. A. Sudharsana Reddy 73 | Page