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Former RBI Governor C. Rangarajan has called the consolidation of Regional Rural Banks 'a step in the wrong direction', speaking at an event in Chennai marking ten years of Equitas Small Finance Bank.
His argument is that RRBs were created for their local character, and merging them into one state-level entity - and possibly into universal banks later - defeats that purpose.
RRB numbers have fallen from 196 in 2005 to 82 by 2010, and from 43 to 28 under the 'One State-One RRB' phase effective 1 May 2025.
He also urged the RBI to incentivise small finance banks, noting that only 11 exist and that they must meet the same conditions as universal banks with little commercial reward.
RRBs were set up under the Regional Rural Banks Act, 1976 on the Narasimham Working Group's recommendation, with the first, Prathama Bank, established on 2 October 1975.
Scheduled commercial banks delivering credit and banking services to rural India, especially small and marginal farmers, agricultural labourers, artisans and small entrepreneurs; each is sponsored by a public sector commercial bank that supplies managerial and financial support
Apex development finance institution for agriculture and rural development; supervises RRBs and cooperative banks and refinances rural credit
Regulates RRBs and licenses small finance banks; Rangarajan's appeal for incentives to promote more SFBs is addressed to it
The statute under which RRBs were incorporated, fixing their tripartite ownership between the Centre, the sponsor bank and the State Government and defining their rural mandate
The latest amalgamation round, which cut the number of RRBs from 43 to 28 so that most states have a single RRB, on the stated grounds of operational viability and economies of scale
The general statute under which the RBI regulates banking companies in India, including RRBs and small finance banks
Prathama Bank, the first RRB, is established at Moradabad, sponsored by Syndicate Bank, following the Narasimham Working Group's recommendation
The Regional Rural Banks Act gives RRBs their statutory basis and the 50:35:15 ownership pattern
NABARD is established and becomes the supervisor of RRBs
First phase of consolidation cuts the number of RRBs from 196 to 82
'One State-One RRB' phase takes effect, reducing RRBs from 43 to 28
C. Rangarajan calls the consolidation 'a step in the wrong direction' at the Equitas Small Finance Bank tenth-anniversary event in Chennai
General Awareness > Banking Structure in India: RRBs, SFBs and Rural Credit
GS Paper 3 > Indian Economy: Inclusive Growth, Banking Sector Reforms
What is the purpose of setting up of Small Finance Banks (SFBs) in India? 1. To supply credit to small business units 2. To supply credit to small and marginal farmers 3. To encourage young entrepreneurs to set up business particularly in rural areas. Select the correct answer using the code given below:
Answer: 1 and 2 only
The Service Area Approach was implemented under the purview of
Answer: Lead Bank Scheme
Consider the following statements: 1. The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived. 2. In an SHG, all members of a group take responsibility for a loan that an individual member takes. 3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs. How many of the above statements are correct?
Answer: Only two
The public sector commercial bank that holds 35% of an RRB and supplies it with managerial and financial support
The amalgamation policy effective 1 May 2025 that reduced RRBs from 43 to 28, leaving most states with a single RRB
A differentiated bank licensed by the RBI to serve small borrowers and unserved segments; 11 are currently operating