Preserving RRBs: AIRRBEA Defends Rural Banking Against AIBOC-AIBEA Merger Proposals

The ongoing debate about the future of Regional Rural Banks (RRBs) in India has taken a new turn with conflicting viewpoints from major banking unions. While the All India Bank Officers’ Confederation (AIBOC) and the All India Bank Employees' Association (AIBEA) have proposed merging RRBs with their sponsor banks, the All India Regional Rural Bank Employees Association (AIRRBEA), the largest union of employees in 43 RRBs, has strongly opposed this move. The AIRRBEA argues for the formation of a National Rural Bank of India (NRBI) under a "One State, One RRB" model, emphasising the betrayal of AIBOC and AIBEA who previously opposed mergers in commercial banks.

AIRRBEA’s Argument: Protecting Rural Banking Integrity

The AIRRBEA has been a vocal advocate for the establishment of a National Rural Bank of India (NRBI) with state-level entities. This model aims to enhance the coverage of rural populations and improve financial inclusion. The AIRRBEA’s press statement underscores the importance of maintaining the identity of RRBs to serve the unique needs of rural communities. They argue that merging RRBs with sponsor banks would undermine their ability to cater to small and marginal farmers, artisans, and rural entrepreneurs, who form the backbone of India’s rural economy.

Moreover, the AIRRBEA highlights the paradox in the stance of AIBOC and AIBEA. These unions, which once opposed mergers in commercial banks citing adverse impacts on employees and customers, now advocate for the amalgamation of RRBs. The AIRRBEA sees this as a betrayal, suggesting that the real motive behind the proposed merger is to eliminate competition and consolidate power within larger banking entities. 

AIRRBEA also points out to an intriguing instance of the past wherein AIBOC led an independent commission  on “Banking and Financial Policy” including RRBs under the Chairmanship of Sri S P Shukla, Former Finance Secretary of the Government of India. The commission’s report in 2006 suggested continuation and separate identity of RRBs with a consolidated All India structure while appreciating the performance of RRBs in the direction of fulfilling the objectives of setting up of RBBs.       

Image: Press Statement of AIRRBEA on the proposal of merger of RRBs

Interestingly, amidst discussions of potential mergers, Gramin banks achieved a substantial business volume of Rs. 11 trillion in FY24. The previous fiscal year (FY23) saw these banks record their highest-ever consolidated net profit of Rs. 4,974 crore, accompanied by an all-time high Capital to Risk Weighted Assets Ratio (CRAR) of 13.43%.

The Counterargument: AIBOC and AIBEA's Perspective

On the other hand, AIBOC and AIBEA argue that merging RRBs with their sponsor banks is necessary to address issues of non-performance and low Capital to Risk (Weighted) Assets Ratio (CRAR). They believe that larger banks can provide the necessary financial and managerial support to struggling RRBs, thereby improving their overall efficiency and stability.

Image: AIBOC-AIBEA joint statement endorsing Merger of RRBs.

The two organisations asserted that merging RRBs would be advantageous for capital infusion, technological upgrades, providing a uniform product range, and addressing staff shortages. However, RRBs have raised concerns about disparities in areas such as capital infusion, which has been minimal compared to sponsor banks. Additionally, the slow pace of digital onboarding by sponsor banks and their control over RRB allowances have also been highlighted as significant issues.

 The AIRRBEA points out that the performance of RRBs should not be measured solely by financial parameters but also by their contribution to rural development and financial inclusion by serving nearly 40 core people.

The Impact of Mergers on Rural Banking

The experience of past mergers in the banking sector has shown mixed results. While some mergers have led to stronger financial institutions, others have resulted in branch closures, job losses, and reduced customer service quality The AIRRBEA argues that adverse effects like discrimination among employees could occur if RRBs are merged with sponsor banks. The potential shrinkage of branches and reduction in staff could severely impact rural banking services, leaving many rural communities underserved.

The debate on the future of RRBs involves AIRRBEA advocating for autonomy and a National Rural Bank of India, supported by evidence. In contrast, AIBOC and AIBEA propose mergers without substantial evidence, focusing on financial concerns.