Regional Rural Banks were created to put institutional credit within reach of small and marginal farmers, agricultural labourers, artisans and small entrepreneurs - borrowers whom commercial banks found too small and cooperative societies too weak to serve properly. They were set up on the recommendation of the Narasimham Working Group of 1975, with the first, Prathama Grameen Bank, opening on 2 October 1975, and the Regional Rural Banks Act following in 1976. Each RRB is jointly owned by the Central Government, the concerned State Government and a sponsor commercial bank in the fixed ratio of 50:15:35, and its area of operation is confined to the districts notified for it. The design deliberately combines the local knowledge of a cooperative with the professional management and resource-raising ability of a commercial bank. RRBs are regulated by the Reserve Bank of India and supervised by NABARD.

For years the RRB story was one of thin capital, high bad loans and periodic recapitalisation from the Centre. The 2025-26 numbers describe a different institution: record profit, gross NPAs down to 5.4% from 6.1% two years earlier, net worth above Rs 74,000 crore, and priority sector lending running at 91.7% against a target of 75%. That last figure is the one to notice. RRBs are held to a 75% priority sector target against 40% for scheduled commercial banks precisely because rural credit is their reason for existing, and overshooting it while returning a record profit is the argument the government makes for the consolidation policy. The counter-argument, which examiners like as much, is that a single RRB per state is further from the villages it lends in than the many small banks it replaced.