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Finance Ministry proposes 4th phase of consolidation of Regional Rural Banks (RRBs) as per reports | Current Affairs | Vision IAS
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Finance Ministry proposes 4th phase of consolidation of Regional Rural Banks (RRBs) as per reports

Posted 06 Nov 2024

2 min read

The proposed merger reduces the number of RRBs from 43 to 28 to make them more efficient.  

  • Consolidation is also derived from vision of One State-One RRB. 

Consolidation of RRBs

  • RRBs have been consolidated in a phased manner based on recommendations of Dr. Vyas Committee (2001).
    • Consolidation began in 2004-05 which resulted in reduction of such institutions from 196 to 43 till 2020-21 through 3 phases of amalgamation.
  • Significance of consolidation: Minimised overhead expenses, technology adoption, enhanced capital base and area of operation, and increased exposure.

About Regional Rural Banks (RRBs)

  • Genesis: Established in 1975 on the recommendations of the Narsimhan Working Group (1975), after promulgation of an ordinance, which was later replaced by the Regional Rural Banks Act, 1976.
  • Objectives: To develop the rural economy by providing credit and other facilities particularly to small and marginal farmers, agricultural labourers, small entrepreneurs etc.
  • Shareholding: Government of India (50%), State Government (15%), and Sponsor Bank (35%)
  • They are Scheduled Commercial Banks (Government Banks) regulated by RBI and supervised by National Bank for Agriculture and Rural Development (NABARD). 
  • Created primarily for rural areas, however, may also set up branches in urban areas.

Other Initiatives Taken to Boost Functioning of RRB

  • Recapitalization of RRBs: During FY 2021-22, GoI decided to infuse ₹10,890 crore of capital in RRBs during FY 2021-22 and FY 2022-23.
  • Sustainable Viability Plan:  Aimed at credit expansion, business diversification, NPA reduction, cost rationalization, improvement in corporate governance etc.
  • Supervisory Action Framework for Prompt Corrective Action (PCA): Aimed at financial stability and strengthening the capital structure. 
  • Tags :
  • Regional Rural Banks
  • One State-One RRB
  • Regional Rural Banks Act, 1976
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