One State-One RRB

Reference

The Department of Financial Services, Ministry of Finance has notified the merger of 26 Regional Rural Banks (RRBs) on the principle of ‘One State-One RRB’.

About One State-One RRB Principle

Background

• Based on the recommendations of the Vyas Committee, the Central Government started consolidation of RRBs in the year 2004-05.
• The number of RRBs was reduced from 196 to 43 by the year 2020-21 through three phases.
• Currently, this is the fourth phase of merger of RRBs.

What is One State-One RRB Principles

• As per this principle, instead of multiple RRBs in each state, there will be only one RRB which will be sponsored by a major public sector bank.
  • Example: In Bihar, South Bihar Gramin Bank and North Bihar Gramin Bank will be merged to form Bihar Gramin Bank, which will be headquartered in Patna and sponsored by Punjab National Bank.

Current Status

• At present, there are 43 RRBs operating in 26 states and 2 Union Territories.
• After the merger, there will be 28 RRBs in 26 states and 2 Union Territories. They will have more than 22000 branches in 700 districts.
• The effective date of merger has been fixed as May 1, 2025.
• As per the gazette notification, RRBs in 11 states (Andhra Pradesh, Uttar Pradesh, West Bengal, Bihar, Gujarat, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Odisha and Rajasthan) are to be merged into a single entity gradually so that each of them can realize the objective of ‘One State-One RRB’.
• Their main area of ​​operation is rural environment with about 92% of the branches being in rural/semi-urban areas.

Legal Provisions:

• In consonance with the powers conferred under Section 23A(1) of the Regional Rural Banks Act, 1976, these RRBs will be merged into a single entity in public interest.
  • For example, Chaitanya Godavari Grameena Bank, Andhra Pragathi Grameena Bank, Saptagiri Grameena Bank and Andhra Pradesh Grameena Vikas Bank sponsored by Union Bank of India, Canara Bank, Indian Bank and State Bank of India have been merged into a single Regional Rural Bank by the name of Andhra Pradesh Grameena Bank.

 About RRBs

• Established: By an Ordinance on September 26, 1975 (subsequently established under the RRB Act, 1976).
• Objective: To provide credit and banking services to small farmers, labourers, artisans and rural entrepreneurs to promote agriculture, trade and small industries.
• Establishment: Established by the Central Government at the request of the sponsor bank.
• Joint ownership: Ownership of Central Government (50%), State Government (15%) and Sponsor Bank (35%)
• Supervision and Regulation
  • Regulated by Reserve Bank of India under the Banking Regulation Act, 1949.
  • Regional Rural Banks are supervised by NABARD.
  • For tax purposes they are treated as co-operative societies under the Income Tax Act, 1961.