Context: The Department of Financial Services (DFS) has notified the amalgamation of 26 Regional Rural Banks (RRBs) under the “One State, One RRB” principle. This is the fourth phase of the RRB consolidation process. 

Meaninf of the context: 26 RRBs across 10 states and one Union Territory have been merged, focusing on enhancing scale, efficiency, and cost rationalisation. Currently, 43 RRBs operate across 26 states and two Union Territories. Post-amalgamation, there will be 28 RRBs covering 700 districts with more than 22,000 branches. Around 92 percent of these branches are located in rural and semi-urban areas.

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• RRBs were created on October 2, 1975, under the Regional Rural Banks Act, 1976, following recommendations of the Narasimham Working Group (1975) to address credit gaps in rural areas left by commercial banks and cooperatives.
• Objective: To provide affordable banking and credit facilities to small farmers, agricultural laborers, artisans, and rural entrepreneurs, fostering rural economic development.
• First RRB: Prathama Bank, established in Moradabad, Uttar Pradesh, sponsored by Syndicate Bank.
• RRBs are jointly owned by: Central Government: 50%,  Sponsor Bank (usually a public sector bank): 35%, State Government: 15%.
• Sponsorship: Each RRB is linked to a sponsor bank (e.g., State Bank of India, Punjab National Bank) for operational and managerial support. Post- the present consolidation, the largest RRB in a state becomes the transferee bank, with its sponsor bank overseeing the amalgamated entity.
• RRBs are mandated to follow Priority Sector Lending (PSL) targets. As of 2025, the PSL target for RRBs is 75% of ANBC, significantly higher than the 40% required for other commercial banks, reflecting their primary role in rural and agricultural credit.

Significance of “One State, One RRB” Amalgamation

• Scale Efficiency: Larger RRBs reduce operational overlap, streamline administration, and lower costs.
• Financial Stability: Mergers enhance capital base (deposits: ?6.6 lakh crore; advances: ?4.7 lakh crore as of March 2024), reducing reliance on government recapitalization.
• Technology Adoption: Consolidated entities can invest in modern banking tech (e.g., core banking systems), competing with private banks and small finance banks.
• Uniform Branding: New names reflecting state identity (e.g., Bihar Gramin Bank) strengthen trust and regional connect.

Source : Newsonair