The Ministry of Finance is set to review the performance of Regional Rural Banks (RRBs) following the most recent round of amalgamations, as part of its ongoing efforts to evaluate the impact of consolidation on efficiency, stability, and credit delivery. Senior officials from public sector banks and RRBs will participate in the review discussions.
The assessment will focus on financial performance, lending priorities, and operational effectiveness as RRBs adjust to a leaner organisational structure introduced through the latest restructuring exercise.
Review Meeting Planned for 30 January
A high-level review meeting has been scheduled for 30 January under the leadership of the Secretary of the Department of Financial Services. The session is expected to see participation from senior officials of key institutions, including NABARD, SIDBI, and the Reserve Bank of India.
This will be the first comprehensive review since the fourth phase of RRB amalgamation took effect on 1 May, which reduced the number of Regional Rural Banks from 43 to 28.
Key Areas Under Review
The meeting will assess the post-amalgamation financial health of RRBs and evaluate progress in priority sector lending, a core mandate for these institutions. The implementation status of various government-sponsored financial inclusion and credit schemes will also be reviewed.
In addition, officials are expected to examine operational efficiencies achieved through consolidation, including cost management, administrative streamlining, and overall service delivery outcomes.
Evolution of the RRB Consolidation Programme
The consolidation of Regional Rural Banks has been carried out in multiple phases over the years. During the first phase between FY2006 and FY2010, the number of RRBs was brought down from 196 to 82. The second phase, spanning FY2013 to FY2015, further reduced the count to 56.
A third phase of restructuring lowered the number to 43, followed by the fourth and latest phase, which has reduced the total to 28 RRBs.
A key outcome of the recent exercise has been the formation of a single state-level RRB through the merger of 15 banks across 11 states, aimed at achieving greater scale, improved efficiency, and stronger operational capabilities.
Improving Financial Metrics and Asset Quality
Available data suggest a marked improvement in the financial health of RRBs over recent years. The gross non-performing asset (GNPA) ratio declined to 5.4% in March 2025 from 10.8% in March 2019, indicating better asset quality.
Provision coverage has strengthened significantly, rising to 65.1% from 40% over the same period. Capital adequacy has also improved, with the Capital to Risk-Weighted Assets Ratio (CRAR) reaching 14.4% as of March 2025, reflecting enhanced balance sheet resilience.
Ownership and Regulatory Framework
Regional Rural Banks were established under legislation enacted in 1976 to extend banking and credit services to rural and semi-urban communities, including small farmers, agricultural labourers, and artisans.
Regulatory amendments introduced in 2015 enabled RRBs to raise capital from sources beyond the central and state governments and sponsor banks. At present, the central government holds a 50% stake in RRBs, sponsor banks own 35%, and state governments hold the remaining 15%.
Regulations mandate that combined ownership of the central government and sponsor banks must remain above 51%, even if RRBs dilute their equity in the future.
Summary
The Finance Ministry will hold a review meeting on 30 January to assess the performance of Regional Rural Banks following the latest phase of amalgamation, which reduced their number to 28. The review will focus on financial health, priority sector lending, and operational efficiency. With improved asset quality, stronger capital adequacy, and a streamlined structure, the review aims to evaluate whether consolidation has strengthened the long-term stability and effectiveness of RRBs.
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