RRBs: A Journey of Amalgamation, Mitra Committee, and Their Transformative Evolution

Regional Rural Banks (RRBs) have played a crucial role in strengthening the rural financial landscape in India. RRBs were designed to provide credit and other essential banking services to small and marginal farmers, agricultural labourers, and rural artisans.

Formative Years of RRBs

RRBs were established in the year 1975 with the Ordinance on 26 September 1975 by the Narasimham Working Group (NWG) and the legislation of the Regional Rural Banks Act, 1976. A total of 5 RRBs were formed on the recommendation of the NWG. Prathama Grameen Bank, the first Regional Rural Bank was established on October 2, 1975 headquartered in Moradabad, Uttar Pradesh and was sponsored by Syndicate Bank with an authorised capital of Rs.5 crores.

The other 4 RRBs formed were Gaur Gramin Bank (sponsored by UCO Bank),  Gorakhpur Kshetriya Gramin Bank (sponsored by State Bank of India),  Haryana Kshetriya Gramin Bank (sponsored by Punjab National Bank), and  Jaipur-Nagpur Anchalik Gramin Bank (sponsored by UCO Bank). In first 15 years of formation, the count of RRBs spiked to 196 from 5

Origin and Amalgamation of RRBs Since 1975

The idea of amalgamating RRBs emerged in response to widespread losses within these banks. The small, risk-prone loans, coupled with restrictive interest rate policies, limited business flexibility, and constrained opportunities for diversification or expansion, led to increasing losses and mounting Non-Performing Assets (NPAs).

In September 2005, the Government of India initiated the first phase of RRB amalgamation following recommendations by Dr. V.S. Vyas Committee. By March 2010, the number of RRBs had reduced from 196 to 82. The second phase, starting in October 2012, focused on merging geographically contiguous RRBs under different sponsor banks within a state. By March 2021, this process had further reduced the number of RRBs to 43, significantly enhancing their role in developing agriculture and the rural economy. The amalgamation, however resulted in expansion of the operations.

Challenges and Committees for RRBs 

After the formation of the RRBs, acknowledging the challenges like merger, restructuring and liquidation, GoI formed various committees for assessment. The committees formed were Kelkar committee, Khusro committee, Bhandari committee, Basu committee, Thingalaya committee, V. S Vyas committee and Internal Working Group of the Reserve Bank of India (RBI).

Image: Various Committees formed on RRBs

Kelkar and Khusro committee suggested merger of RRBs, Basu and Thingalaya committee suggested liquidation whereas V. S Vyas committee vouched for the autonomy for the RRBs by the sponsor bank in credit and portfolio management system.

Image: Amalgamation of RRBs since 1975

Source: Various NABRAD Reports

Expansion of RRBs in the Post Amalgamation Period 

The post-amalgamation period saw significant expansion of RRBs in terms of reach, branch count, total deposits, and advances. Despite the reduction in the number of RRBs from 133 in 2006 to 43 in 2023, the coverage expanded to 696 districts, and the number of branches grew substantially from 14,494 in 2006 to 21,856 in 2023.

Image: Post Amalgamation expansion of RRBs.

Source: NABARD Reports

Organisational Structure of RRBs

The journey of RRBs has been marked by significant changes in their structure and organisation. The organisational structure varies from branch to branch, depending on the nature and size of business conducted. Typically, an RRB’s head office houses three to nine departments, with the following decision-making hierarchy:

• Board of Directors
• Chairman & Managing Director
• General Manager
• Assistant General Manager
• Regional Manager/Chief Manager
• Senior Manager
• Manager
• Officer
• Office Assistant
• Office Attendant

S.K. Mitra Committee

In August 2012, the Government of India formed a committee under the chairmanship of Mr. S.K. Mitra, Executive Director of NABARD, to reassess manpower planning and staffing patterns in RRBs.

The S.K Mitra Committee was pivotal in shaping the staffing patterns and operational efficiency of RRBs. Established to address the challenges faced by RRBs, the committee recommended a new categorisation of RRB branches to optimise their functioning. This categorisation was based on factors like business volume, geographical location, and the socio-economic conditions of the areas served by these branches. 

Significance of RRBs

RRBs have been instrumental in bringing formal banking services to rural areas, as reflected in their financial performance for FY 2023-24, where they achieved a business milestone of Rs. 11 trillion. Additionally, RRBs have played a key role in implementing government schemes aimed at rural development, such as the Pradhan Mantri Jan Dhan Yojana (PMJDY) and the Kisan Credit Card (KCC) scheme.

The evolution of RRBs from numerous small, fragmented entities into a more consolidated and efficient network of banks is a testament to the dynamic nature of India's rural banking system. Amidst amalgamations and the formation of the Mitra Committee, RRBs have continued to pursue their goals of financial inclusion and rural development, making them a pillar of support for rural India.