Bank Employees Federation of India Urges NRBI Formation Amid RRB Merger Debate

The Bank Employees Federation of India (BEFI) has issued a call for the creation of a National Rural Bank of India (NRBI) by consolidating all Regional Rural Banks (RRBs). This demand highlights the ongoing issues faced by RRBs and underscores the need for a unified approach to rural banking.

Recent Developments and BEFI's Stance

There has been abuzz with discussions about the identity and future of RRBs, including suggestions to merge them with sponsor banks. BEFI, however, has strongly come out in support of the consolidation of RRBs into a single entity, the National Rural Bank of India. They argue that this move would streamline operations, enhance technological capabilities, and ensure adequate staffing and capital infusion.

In a circular dated July 16, BEFI mentioned, “The RRBs have made financial inclusion in a big way. The employees and officers of RRBs have opened 9.81 crores of Jan Dhan accounts, as on 3 July 2024, for the poor and marginalised people across the country. Since the government adopted the policies of financial liberalisation three decades back, there has been an immediate, direct and adverse effect on rural credit. There had been sharp contraction in rural banking in general and in priority sector lending including preferential lending to the poor in particular. These negative impacts of the bank finance in the rural sector of the country can be effectively addressed by robust RRB functioning.”

Image: BEFI’s Circular on Formation of NRBI

Reacting to the development, AIRRBEA Secretary General S Venkateswar Reddy has welcomed the decision. He told Kanal, “Amid ongoing efforts to dilute the significance of RRBs, a commercial bank union like BEFI unconditionally supporting NRBI formation is a big boost to the workforce of the RRBs. We welcome the step.”

BEFI’s support for NRBI against the backdrop of the demand for merger of RRBs being placed by All India Bank Officers Confederation (AIBOC) and All India Bank Employees Association (AIBEA). However, the formation of NRBI by consolidating the Regional Rural Banks with One RRB for One state has been the long-standing demand of the All India Regional Rural Bank Employees Association (AIRRBEA).

Achievements and Challenges

RRBs currently serve around 40 crore people through a network of 22,000 branches, primarily in rural and semi-urban areas. They manage a business volume of Rs. 11 lakh crores, with priority sector lending exceeding 90%, compared to 40% in public sector banks. Despite these achievements, RRBs face numerous challenges, including competition from microfinance institutions and money lenders offering exorbitant interest rates.

Another significant concern highlighted by BEFI is the implementation of the 12th Bipartite Settlement (BPS), which aims to ensure uniform benefits for all RRB employees, independent of sponsor banks' influence.

RRBs were established under the RRB Act of 1975 to promote banking habits among rural populations and provide institutional credit to small and marginal farmers, artisans, and small entrepreneurs. These banks are owned by the central government (50%), sponsoring banks (35%), and state governments (15%).

BEFI’s call for forming the NRBI reflects the pressing need to address the operational challenges faced by RRBs and to enable them to evolve as a vital constituent of India’s banking system.