Call for National Rural Bank of India Grows Amidst Conflict Between RRBs and Sponsor Banks

In response to longstanding concerns over conflicts of interest between sponsor banks and Regional Rural Banks (RRBs), the All India Regional Rural Bank Employees' Association (AIRRBEA) has been advocating for the establishment of the National Rural Bank of India (NRBI), the proposed apex body of all rural banks nationwide. This demand has gained momentum as RRB staff across the country grapple with challenges arising from the ownership structure and operational dynamics.

The ownership of RRBs is divided among the Government of India (50%), sponsor banks (35%), and state governments (15%). While the government's share is clear-cut, the relationship between sponsor banks, often nationalised banks, and RRBs has become a focal point of contention.

Demand Arising from Conflict of Interest
Sponsor banks, holding a significant 35% stake in RRBs, play a dual role as facilitators and competitors in the business expansion of these regional entities. This inherent conflict of interest has prompted the call for the formation of NRBI by merging the 43 RRBs scattered across the country.

One such example highlighting this issue is the Tamil Nadu Grama Bank (TNGB), a product of the merger between Pandya and Pallava Banks, sponsored by Indian Bank. While Indian Bank owns 35% of TNGB shares, it also operates within the same business domain as TNGB, leading to a clash of interests.

The AIRRBEA, representing the concerns of RRB employees, has consistently raised this issue, culminating in a recent protest in New Delhi. The union leaders have emphasised the need for a more streamlined and conflict-free structure that ensures the efficient functioning of RRBs without hindering their potential for growth.

Speaking to Kanal on the occasion of the state conference of Tamil Nadu Grama Bank employees’ and officers’ unions, C Rajeevan, the all India president of AIRRBEA explained the root cause of the conflict of interest. “The sponsor banks, that are also competitors to the respective RRBs in terms of business operations and potential customers, get to influence the business strategy and managerial decisions of the RRBs through their representative in the board of directors. This leads to conflict of interest, and thus limits the scope of rural banking from achieving its foundational goals", he said.  

The recent protest action organised by AIRRBEA at Jantar Mantar, in New Delhi, also echoed the demand for the formation of NRBI with state level RRBs, totally delinked from the Sponsor Banks.  

S Venkateshwara Reddy, General Secretary of AIRRBEA, also emphasised the demand to unbind RRBs from sponsor banks. “The conflict between sponsor banks and RRBs has been a persistent issue affecting the fair operations of regional banks. The formation of NRBI is imperative to address this conflict and create a more conducive environment for rural banking. Our demand for NRBI is not against anyone; it is for the benefit of rural India. We believe a unified national rural bank will enhance efficiency and eliminate the conflicts that hinder our progress”, he told Kanal. 

Sponsor Bank Deputing Their Officers to RRBs
To add to this existing conflict, an interesting tendency has emerged in the recent past. According to Venkateshwara Reddy, the sponsor banks have lately been deputing more of their own officers to the RRBs in different posts, in order to secure their say in the operations of RRBs. “Earlier, only a chairman and a general manager used to be there from the sponsor banks to the RRBs. But now, every sponsor bank is dumping their officers to the RRBs. Bank of Baroda which sponsors the Baroda U.P. Bank(Uttar Pradesh Grameen Bank), has deputed 30 officers of their own to the grameen bank. Similarly, SBI which sponsors 14 RRBs across the country, has also started deputing 5 or 6 of their officers to the corresponding RRBs”, he pointed out.  

“This tendency is demotivating to RRB officers in general, as it prevents their deserved promotions and other benefits. This deputation system is also an added financial burden on RRBs. Thirdly and most importantly, the deputed officers are serving the interests of their parent banks over the interests of RRBs. They prioritise diverting the business to their parent banks, or cross selling of their products etc. All these are against the foundational goal of the RRBs”, Venkateswara Reddy added.

The demand for the formation of NRBI by merging existing RRBs grows as the conflict of interest between sponsor banks and RRBs, persists as a hurdle as highlighted by the RRB employees. The unions seek to ensure a more equitable and efficient system that prioritises the interests of both rural beneficiaries and RRB employees, including the pressing need to fill 30,000 vacant positions across various RRBs.