The Centre will downsize the number of regional rural banks (RRBs) in the country from 56 to 36. The development assumes significance in light of an earlier government move to amalgamate three public sector banks – Bank of Baroda, Dena Bank and Vijaya Bank. The exercise is part of an overarching government programme to bring in consolidation in the country’s banking space. RRBs, aka Gramin banks, had been created with the explicit aim of serving the rural poor, farm labourers and village artisans as they did not receive adequate focus from nationalised banks. These banks set up shop in small towns so that the beneficiaries, a bulk of who are rural folks, could easily access them. Even as the RRBs wore cooperative looks, in financial prowess they were no less than their public sector banks. They were seen as decentralised solutions for the skewed banking that was happening across the country. Their utility was more felt for central and eastern regions of the country than in the west and south India as the latter had a good coverage of nationalised banks.
This is not the first time RRBs have been restructured. The government in the past has carried out such exercise. Ever since they were created in mid 1970s, RRBs have gone through phases of consolidation. Their number dropped from 196 to 133 in 2006 then to 82 in 2012 before it settled at 56. Now, the plan is to further bring them down to 36. Unlike PSBs, RRBs are jointly owned by the Centre, state governments and sponsor banks. The ratio of ownership is 50, 15 and 35 per cent by the Centre, the state government and the sponsor bank respectively. At present, they have a network of around 21,000 branches with a combined portfolio of `3.5 lakh crore as on March 2017.
Odisha has two RRBs such as Odisha Gramya Bank and Utkal Gramina Bank. In 2013, the state government had amalgamated three RRBs such as Nilachala Gramya Bank, Baitarani Gramya Bank and Kalinga Gramya Bank to form Odisha Gramya Bank (OGB). The OGB has a network of 445 branches in 13 districts, mostly in coastal and northern districts. Similarly, Utkal Gramina Bank was formed by integrating the Rushikulya Gramya Bank and the Utkal Gramya Bank. The UGB operates in south and western regions and has a network of 442 branches. As of March 2017, the total number of RRB branches in the state stood at 980, going by the data put up in their websites.
The Centre by virtue of its majority share has the final say in the restructuring of these banks. It wants to make RRBs a leaner and thinner network to usher in better scale-efficiency and productivity. This will also minimise their overhead expenses and enhance their capital base. We have nothing to hold against this logic of the government. But the problem is the high-handedness with which the Centre has gone about the amalgamation exercise, ignoring every corporate governance norm. It has been purely a unilateral decision by the Centre. Other shareholders like the state government, though minor, have not been consulted for the same. The Centre sent a letter to the chairmen/managing directors, stating its decision. If the decision is carried out, most of the smaller states will have only one RRB, while the larger might have two. It is not yet known what will happen to the two RRBs of Odisha post the downsizing.
The amalgamation is very poorly planned. RRBs have been providing services proximate to rural customers. The jury is still out whether the downsizing will benefit the customers. The fear is that greater centralisation may rob the local and corporate character of these banks pushing the customers to the margin. The Centre must consult all stakeholders before thrusting its decision on them. The vital thing is the protection of the interest of customers. Denied of this the forced downsizing will be seen as tyranny. This does not augur well for the banking sector awaiting larger reforms.