Money & Banking

Can RRBs stand up to their new rivals?

K Ram Kumar Mumbai | Updated on January 22, 2018 Published on September 21, 2015

Rural emphasis: File photo of a Pragathi Gramin Bank branch in Yerragudivillage, Andhra Pradesh. There are currently 56 Regional Rural Banks inthe country. They will be in direct competition with the 23 new banks

To assess their efficacy, RBI sends the Regional Rural Banks a questionnaire

The Reserve Bank of India (RBI) is examining the efficacy of Regional Rural Banks (RRBs), which will be up against tough competition from 23 new banks — two new private sector banks, 11 payments banks and 10 small finance banks — in a year or two.

Expecting competition in the banking space to intensify further, the RBI has asked RRBs 18 questions. They centre on the positive aspects and drawbacks of the RRB scheme, whether the scheme should continue as it is, and how the banks propose to compete with small finance banks and the rural branch network of commercial banks. Further, the central bank has sought feedback on the benefits/drawbacks of a possible amalgamation of RRBs.

Currently, there are 56 RRBs in the country and these will be directly pitted against the 23 new banks. Once the new banks get going, they will make a play for the rural and semi-urban customers that the RRBs currently serve.

RRBs were established in 1975 under the provisions of an ordinance promulgated in September 1975, followed by the Regional Rural Banks Act, 1976.

The aim was to develop the rural economy and to create a supplementary channel to the “cooperative credit structure” with a view to enlarge institutional credit for the rural and agriculture sector.

The Government of India has 50 per cent shareholding in all RRBs. The government of the respective State where an RRB mainly operates, and its sponsor bank, hold 35 per cent and 15 per cent, respectively. As of March-end 2014, RRBs had a network of 19,082 branches.

SK Bhattacharjee, General Secretary, All India Regional Rural Bank Officers’ Federation, says a level playing field should be provided to RRBs vis-à-vis the new entrants in the banking space.

“The RRB boards typically do not have any autonomy. The sponsor bank directors, who are generally senior to the RRB chairmen, call the shots and enjoy the power of decision making,” said Bhattacharjee.

Government deposits

While emphasising that RRBs are best suited to serve the banking needs of rural and semi-urban areas, Bhattacharjee said all government deposits should be with RRBs instead of with SBI and other PSU banks.

Besides, all banking transactions of State Governments should be solely with RRBs, he added.

RRBs need to assume new avatars in the current banking landscape, he said.

The federation is of the view that all 56 RRBs should be transformed into mini public sector banks, with the Centre holding 51 per cent, sponsor banks 24 per cent and with the balance offloaded to the public.



In-principle approval

The Reserve Bank of India recently gave in-principle approval to 11 entities (including Aditya Birla Nuvo, Airtel M Commerce Services, Department of Posts and Reliance Industries) to launch payments banks.

It also gave approval to 10 entities (including Au Financiers, Capital Local Area Bank, Janalakshmi Financial Services and Suryoday Micro Finance) to start small finance banks.

Last month, Bandhan Bank, a wholly-owned subsidiary of Bandhan Financial Holdings (which in turn is owned by microfinance institution Bandhan Financial Services) commenced banking operations.

Infrastructure non-banking finance company IDFC is expected to start banking operations early next month.

Published on September 21, 2015

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
null
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.