AIRRBEA Warns Against Sponsor Bank Ownership Narrative for RRBs

The All India Regional Rural Bank Employees Association (AIRRBEA) has strongly reacted to an article published in The Economic Times on January 20, 2024, advocating sponsor banks should become the sole owners of Regional Rural Banks (RRBs). The author suggested that they integrate them as Strategic Business Units (SBUs).

Contending Sponsor Bank As RRB Owner

The Author Dr. M. Srikanth endorsed control of the sponsor banks over RRBs. He wrote,  “To enable smooth transition of this arrangement, the Government of India may not insist on declaration of dividend / distribution of profits by the sponsoring banks during the above mentioned period. Post-repayment, the sponsoring bank will become the sole owner of the respective RRB and convert it into its wholly owned subsidiary.”

The author further wrote, “Alternatively, sponsoring banks may think of converting the RRBs into their Strategic Business Units viz., RAM - Retail, Agricultural and MSME verticals - if their balance sheets accommodate, subject to regulatory approvals.”

AIRRBEA countered the proposal to consolidate RRBs under sponsor banks, transforming them into SBUs. The association pointed out that sponsor banks have long exploited RRBs, limiting their growth and operational freedom. 

Image: AIRRBEA Secretary General’s response to the article in Economic Times in RRBs suggesting sponsor banks as owners of RRBs.

Reacting to the write up in the Economic Times, AIRRBEA Secretary General Venkateshwar Reddy wrote, - “The RRBs should be more empowered and delinked altogether from the Sponsor Banks, who are acting as ‘Master cum Competitors’’. Today, Sponsor Banks are acting as the main hurdles in exploring the full potential of RRBs and are exploiting the system to block improvement of their business and to sell their (Sponsor Banks) co-branded products. This is the subject requiring a deep study for the better future of the RRBs and the vast masses being served by them (RRBs).”

AIRRBEA highlighted the significant role of RRBs, with 22,000 branches in rural and unbanked areas, over 90% of business in the priority sector, and collective profits exceeding ₹7,500 crores last fiscal year.

A Call for Structural Reforms

In the latter part of its response, AIRRBEA emphasised the importance of implementing structural reforms in RRBs. It said, “RRBs, if provided with a net worth of over Rs. 50000 crore, there will be no more need of any support from the Government, but further consolidation of all state level RRBs to form a National Rural Bank (NRB) will be the Game-changer in the rural economy. There are exclusive National level Banks for rural and agriculture sectors in China, England, France etc. India, still being a predominantly a rural based populace, needs an exclusive bank like NRBI, which was recommended twice by the Parliamentary Standing Committee on Finance.”

Meanwhile, India’s former Finance Secretary, S.P. Shukla has recently cautioned that merging RRBs could “erase the identity of rural banking,” raising concerns about the future of these crucial financial institutions.

The AIRRBEA statement highlights a pivotal policy discussion, challenging the notion of sponsor banks taking control of RRBs. While RRBs uphold their rural identity, AIRRBEA’s response to the Economic Times article brings the necessity of structural reforms to the forefront.