The Finance Ministry may have subtly initiated an exercise to merge the 82 Regional Rural Banks with their sponsor banks.
A recent communication to the chiefs of sponsor banks and RRBs to the effect that RRB officers (Scale I: officer to Scale IV: chief manager) should be deputed to their respective sponsor banks and vice-versa suggests that an integration exercise is being worked out.
The Ministry has directed that 20 per cent of the RRB officers should be deputed to their respective sponsor banks (mainly public sector banks). The RRBs officers who go on deputation have to be replaced with sponsor bank officers. Given that the government is staring at a huge fiscal deficit, disinvestment of its stake in RRBs in favour of sponsor banks would fetch it cash. This would help bring down the deficit, said a senior public sector bank official.
Opposition to cross-mergers
With various stakeholders in sponsor banks and RRBs expressing their opposition to the Ministry's proposal for cross-mergers of RRBs, the Ministry may have found a via-media — merger of RRBs with their sponsor banks — to pacify them, say RRB insiders.
In November 2011, the Ministry had come up with a proposal for cross merger of RRBs cutting across sponsor banks in a particular State. The move was aimed at reducing the number of RRBs from 82 to 46. RRBs were established in the mid-1970s to ensure sufficient institutional credit for agriculture and other rural sectors. They are jointly owned by the Government of India (50 per cent stake), the State Government concerned (15 per cent), and sponsor banks (35 per cent).
Policy confusion
“When it comes to drawing up policies for RRBs, the Ministry seems to be confused. First it wanted sponsor banks to take necessary action regarding operational integration and human resources development. Then it came up with the cross-merger proposal. Now it has come up with this new policy on human resources,” Mr S.K. Bhattacharjee, General Secretary, All India RRB Officers Federation.
He observed that such instructions are creating a lot of uncertainty. Sponsor banks are quite hesitant to take any action on the Ministry's instructions as they are unaware of the unfolding situation.
Pointing to a flaw in the new HR policy prescribed by the Ministry, Mr Dilip Kumar Mukherjee, Secretary General, All India RRB Employees Association, said by the time RRB officers gain professional and technological expertise in sponsor banks through the 3-5 years deputation they will hardly be left with any tenure once they go back to their respective RRBs. “As pay and allowances of the sponsor bank will be applicable, RRBs will end up incurring huge expenditure on salary as sponsor bank officers will work with them,” he said.
RRBs: Responsibility of sponsor banks
Underscoring the fact that that the Government has made the sponsor banks responsible for the functioning of RRBs and that sponsor banks have incurred huge cost in putting RRBs under core banking solution platform, Mr Bhattacharjee said they should be merged with their sponsor banks. The number of RRBs has shrunk from 196 in the early 2000s to 82 now on account of restructuring and amalgamation of RRBs to improve their financial soundness. According to RBI figures, as of March-end 2011, the 82 RRBs collectively had deposits of Rs 1,66,232 crore (Rs 1,45,035 crore as of March-end 2010) and advances of Rs 94,715 crore (Rs 79,157 crore).