NABARD’s Digital Push: RRBs Prepare to Compete with NBFCs and MFIs

The Regional Rural Banks (RRBs), long regarded as the backbone of rural financial inclusion, are poised for a significant digital transformation. The National Bank for Agriculture and Rural Development (NABARD) is establishing a centralised digital credit infrastructure (CDCI) to automate lending processes end-to-end. This move is designed to sharpen RRBs’ competitive edge against nimble non-banking finance companies (NBFCs) and microfinance institutions (MFIs), both of which have been steadily expanding their rural footprint; Business Line Reported.

Consolidation and Scale
The initiative follows the government’s One State–One RRB policy, effective from May 2025, which has reduced the number of RRBs from 43 to 28. The consolidation is intended to yield cost rationalisation and scale efficiencies, while also creating stronger entities capable of absorbing the digital transition. The amalgamated RRBs now operate through 22,158 branches across 26 states and 3 Union Territories, with an overwhelming 92 per cent presence in rural and semi-urban areas. This reach makes them uniquely placed to deliver financial inclusion at depth, provided they modernise their operations.

Digital Credit Infrastructure
NABARD’s latest annual report underscores the strategic importance of the CDCI, which is scheduled for rollout by September 2025. Unlike the fragmented loan origination systems currently deployed by some RRBs, the CDCI will digitise and automate the entire credit cycle—from application to disbursal and monitoring. By streamlining credit processing and enhancing transparency, the platform is expected to significantly cut turnaround times and improve customer experience.

Furthermore, NABARD plans to extend support in designing innovative loan products, such as housing loans backed by first-loss default guarantees and tailored solutions for the micro, small, and medium enterprise (MSME) sector. These interventions would not only diversify RRBs’ portfolios but also enable them to capture markets currently dominated by NBFCs and MFIs.

Financial Performance and Prospects
Despite structural challenges, RRBs have demonstrated steady financial growth. As at March 2025, their aggregate deposits stood at ₹7.14 lakh crore, reflecting an 8.2 per cent annual increase, while loans outstanding rose by 12.1 per cent to ₹5.27 lakh crore. This outperformance on the credit side signals a revival of demand, although it also underscores the urgency of adopting efficient lending systems to manage risk.

The trajectory of RRBs since their inception in 1975 has been marked by policy-driven repositioning. Initially envisaged as a supplementary channel to the cooperative credit system, RRBs’ shareholding structure—50 per cent Government of India, 15 per cent State Governments, and 35 per cent sponsor public sector banks—was designed to ensure accountability while anchoring rural development. Now, with digitalisation and consolidation, they are being repositioned as full-fledged competitors to other lenders in the rural economy.

Outlook
The coming year will be critical for RRBs. If the CDCI delivers as intended, it could bridge long-standing operational gaps and elevate the banks’ competitiveness. Yet success will depend on the ability of these institutions to integrate technology, upskill their workforce, and adapt to a marketplace where customer expectations are being reshaped by fintechs and private lenders.

In essence, NABARD’s intervention represents both a strategic lifeline and a growth opportunity. For RRBs, the challenge lies in seizing it.