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Future of RRB: Amalgamation Or Merger? Data Shows the Way Forward
The amalgamation and merger of banks needs clear and critical analysis, focusing on the ongoing debate surrounding Regional Rural Banks (RRBs). RRBs have expanded through phased amalgamations while retaining their identity and workforce. In contrast, mergers, common in Public Sector Banks (PSBs), result in the loss of identity and a reduction in branches.
Author: Saurav Kumar
Published: September 24, 2024
The Regional Rural Banks (RRBs) are at a pivotal point, as the Ministry of Finance and the Department of Financial Services (DFS) prepare to determine their future course. The upcoming decisions are expected to focus on the amalgamation of RRBs and the potential implementation of the “One State - One RRB” policy, amidst ongoing rumours of a merger.
The confusion stems from the concepts of amalgamation versus merger within the context of RRBs. While much of the debate surrounding the future of RRBs emphasises mergers, the actual process at hand is more about amalgamation. The key differences between these two terms are outlined in the following sections.
Key Differences Between Amalgamation and Merger
Amalgamation, in simple terms, is the coordinated blending of banks in a way that retains their individual identities, workforce, and branch networks. It ensures seamless integration without any reduction in staff or services. Since 2005, RRBs have undergone phased amalgamations, leading to an expansion in coverage, an increase in branches, and growth in business volume. For instance, Prathama UP Gramin Bank was formed through the amalgamation of Sarva UP Gramin Bank (Meerut) and Prathama Gramin Bank (Moradabad).
In contrast, a merger involves the overlapping of banks, resulting in the loss of individual identity, along with a reduction in branches and staff. This has been a common occurrence among commercial banks. For example, banks like State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, and Bharatiya Mahila Bank were merged into the State Bank of India.
In essence, while RRBs have experienced amalgamations, maintaining their distinctiveness and regional footprint expansion while mergers have primarily taken place within Public Sector Banks, resulting in a consolidation of operations.
Here’s the differentiation table on Amalgamation and Merger of banks:
| Aspect | Amalgamation (RRBs) | Merger (PSBs/Commercial Banks) |
| Identity | Preserves the original identity of the banks. | Results in the loss of the original identity. Example: State Bank of Travancore, Bharatiya Mahila Bank. |
| Workforce and Branches | Increases workforce and branch networks without reduction. | Leads to reduction in branches and staff. |
| Integration Process | Ensures seamless integration with no loss of services. No instance of VRS, abrupt transfer, etc | Involves overlapping of two or more banks, often disrupting operations. It has led to thousands of transfers and VRS. |
| Branch Impact (2014-2019) | Led to the opening of 2,960 branches of RRBs. | Resulted in the closure of 3,400 branches of Public Sector Banks. |
| Impact on Districts | Expanded coverage from 523 districts in 2006 to 696 in 2023. | Has led to closure of branches and uneven regional operations. |
Source: Mint News, Money Life and NABARD Report on RRBs
According to the NABARD report on amalgamation, the total number of RRB branches increased significantly from 14,494 in 2006 to 22,000 in 2024. During the same period, the coverage area expanded from 523 districts in 2006 to 696 districts in 2024, reflecting the growth and regional outreach of RRBs through amalgamation.
RRB Act Supports Amalgamation
Amid the ongoing debate surrounding the merger of RRBs, it has been noted that the term “merger” is not included in the Regional Rural Banks Act of 1976, which only refers to “amalgamation.”
Section 23A in Chapter V of the RRB Act specifically mentions that, “Notwithstanding anything contained in this Act, if the Central Government, after consultation with the National Bank, the concerned State Government and the Sponsor Bank, is of the opinion that it is necessary in the public interest or in the interest of the development of the area served by any Regional Rural Bank or in the interest of the Regional Rural Banks themselves, that two or more Regional Rural Banks should be amalgamated, that Government may, by notification in the Official Gazette, provide for the amalgamation of such Regional Rural Banks (hereafter in this Chapter referred to as the transferor Regional Rural Banks) into a single Regional Rural Bank (hereafter in this Chapter referred to as the transferee Regional Rural Bank) with such constitution, property, powers, rights, interests, authorities and privileges; and with such liabilities, duties and obligations, as may be specified in the notification.”
The process of merger and amalgamation has been a key strategic approach in India’s public sector, applied to both PSBs and RRBs. However, the future of RRBs remains uncertain and awaits clarification from the Ministry of Finance. It is crucial that the ongoing debate surrounding the merger and amalgamation of RRBs is made transparent to the public.