Would AIBOC & AIBEA Leadership Introspect Their Stand on Merging RRBs with Sponsor Banks?

Two organizations in the banking industry namely AIBOC and AIBEA demand for merger of Regional Rural Banks (RRBs) with their respective Sponsor Banks (11 Public Sector Banks and 1 Private Sector Bank) for ensuring overall efficiency and viability of the banking sector.  A press statement has been released on 27th June 2024 enclosing the contents of the letter to the Finance Minister, Union Government.

The logic behind the demand and the arguments put forth by these two organizations need some debate. 

Their first argument is that the RRBs follow BASEL I norms while the banking industry has started adopting BASEL III norms globally. Even with BASEL I norms, the CRAR is inadequate for 16 RRBs and their viability is at stake. Therefore, they suggest merging RRBs with their sponsor Public Sector Banks (PSBs). Further they suggest that “the merged entity will be able to access the capital market …” (Emphasis added).

These two Organizations – AIBOC and AIBEA – and their signatory leaders have vast experience with the banking industry.  They have, on their own and with the support of the progressive economists, brought out several documents and materials exposing the stand of the Union Governments to weaken the PSBs through merger and privatisation.  Both the organisations independently and also as part of United Forum of Bank Unions, have participated in several struggles against disinvestment, merger and privatisation of PSBs for the past several years.

It is within the knowledge of the two signatory Unions that “insistence of BASEL norms for PSBs” is the agenda of the ruling class. The ruling class wants to create an artificial need for the higher capital by thrusting BASEL norms for PSBs and forcing them to go to market to muster the same.  For this, the PSBs have to disinvest their shares which will eventually lead to partial privatisation of the PSBs. Thus, the ruling class wants to weaken the PSBs in this way.  Now the they (AIBOC & AIBEA) also want to follow the same path. They demand merger of RRBs with PSBs and suggest that in turn the merged entity (i.e. PSBs) will access the capital market.  It is deeply disappointing that the two Unions which have opposed disinvestment, merger and privatisation now take a U turn and want PSBs to access capital market. The question here is whose voice are they echoing? Voice of the working class or that of the ruling class?

Their letter to the FM states that the total capital infusion by all stake holders to RRBs was Rs. 8393 crores over a period of 45 years whereas Rs.10890 crores capital has been infused in one financial year 2021-22. This has seriously disturbed them.  Therefore, they suggest merging RRBs with the sponsor PSB and that PSB will in turn access the capital market reducing its dependence on the budgetary support which will be beneficial for fiscal management of the govt. Just because there was an infusion of capital to the extent of Rs.10890 crores to RRBs in one financial year, they are putting forth the above argument. Are they not aware that the Government has infused capital of Rs.3,10,000 crores (Rupees Three Lakhs Ten Thousand Crores) to the PSBs during the five years from 2016-17 to 2020-21? When the Union Government could infuse so huge capital to PSBs what is the harm in infusing capital of a few thousand crores to RRBs? Why do they cite this as the reason to merge RRBs with PSBs and push PSBs to access the capital market? Is this not a serious departure from their avowed policy?

The two unions have correctly identified the problem faced by RRBs by stating that “the major challenge for improving operational efficiency of RRBs stems from the fact that the RRBs are under dual control of NABARD and sponsor banks”. Further they rightly state that “it is imperative that for ensuring desired level of operational efficiency, duality of control over the RRBs should end”. But the remedy suggested by them is contradictory and counter-productive. It is true that dual control is the major challenge faced by RRBs but the solution is not the merger of RRBs with the PSBs but the RRBs should be delinked from the sponsor PSBs. 

Further these two unions have rightly said that “the RRBs and the Commercial Banks are competitive amongst each other in the same market place wooing same targeted group of customers and offering identical banking services in many areas”.  It is ironical that the sponsor PSBs themselves turn out to be competitors to the RRBs sponsored by them. That is why the need of the hour is to completely delink the RRBs from the PSBs and form National Rural Bank of India (NRBI).  As a first step, for each State one RRB has to be formed by merging more RRBs than one in a particular State. Then an apex level entity – NRBI – has to be formed with one negotiating forum and one controlling authority.

Further the two unions which demand merger of RRBs with PSBs are aware that merger of PSBs among them, reducing the number of PSBs from 27 to 12, has led to closure of thousands of branches. They know pretty well that the merger of RRBs with around 22000 branches with the PSBs would again lead to closure of thousands of branches (a lot of the branches of PSBs and RRBs are located in the same village/town), given the attitude of the rulers at the Centre. This will defeat the very purpose of the formation of the RRBs. Still why do they advocate merger of RRBs with PSBs?

The two unions in their letter to the finance minister have rightly stated as: “Regional Rural Banks were set up as regional based and rural oriented institutions with capital contributed by Govt. of India, State Govts. and sponsored banks under the RRB Act, 1976. The basic objective of RRBs was to function as professionally managed alternative channel for credit dispensation to small and marginal farmers, agricultural labourers, socio-economically weaker section of population, for development of agriculture, trade, commerce, small scale industries and other productive activities in rural areas”. How will this basic objective be fulfilled with the merger of RRBs with the PSBs which act will see the end of RRBs as a separate structure?

While 50% of the branches of the PSBs are located in the rural and semi-urban area, 92% of the branches of the RRBs are located in the rural and semi-urban area. While the priority sector lending of the PSBs is 40% of which 18% for agriculture, the same is more than 90% of which 70% for agriculture out of which 48% for small and marginal farmers in the case of RRBs. Therefore, merger of RRBs with PSBs would lead to contraction of the credit dispensation to small and marginal farmers, agricultural labourers and socio-economically weaker section of the population and would go totally against the objective of creation of RRBs.  

Presently 43 RRBs are serving around 40 crores people with around 22000 branches spread over around 700 districts in 26 States and 3 Union Territories with around Rs. 11 lakhs crores business mix. If we imagine the 40 crores clients of RRBs to constitute a separate country, then it would be the world’s 3rd largest country. Such is the wide spread service of the RRBs. They have opened 9.81 crores Jan Dhan accounts for the poor and marginalized people. Even with so much spread of service of the RRBs and the PSBs in rural and semi urban area, a huge rural and semi urban population are pushed towards Micro Finance Institutions, Small Finance Banks, Usurious money lenders and landlords for small loans. If we have to save them from the clutches of these fleecing institutions and individuals and if the basic objective of formation of RRBs needs to be fulfilled, the only solution can be formation of NRBI which would not lead to closure of branches as there are no overlapping branches among the RRBs.

It is imperative on the part of the Union Government to form NRBI and strengthen the same by expanding it through opening a large number of branches, by capitalizing it adequately, by upgrading it technically and by recruiting adequate manpower in all the cadres. This is the real solution. Would the two Unions introspect their stand?

[The views are personal. This article has been originally published in bankworkersunity]