Bank Unions Propose Merger of Regional Rural Banks with Sponsor Banks

Two bank unions, AIBOC and AIBEA, have called for the merger of Regional Rural Banks (RRBs) with their respective sponsor banks. They believe this will enhance the overall efficiency and viability of the banking sector. In a letter to Finance Minister Nirmala Sitharaman, they argued that ending the dual control over RRBs is essential for achieving the desired level of operational efficiency.

Representative image

The unions emphasised that RRBs should be brought under the same operational and regulatory framework as their sponsor banks. This can be achieved through a merger. They also highlighted that RRBs need to upgrade their technological platforms to match those of their sponsor banks. Currently, all 43 RRBs are undergoing technological upgrades.

Technological and HR Integration

The unions stated that merging RRBs with their sponsor banks would ensure a seamless technological transition. This integration would also update the skills of RRB employees to align with modern banking practices. Additionally, it would address staff shortages in both RRBs and sponsor banks.

The letter pointed out that HR integration would be smooth since the salary structures and other benefits for RRB officers and employees are broadly similar to those in sponsor banks. Over the past 45 years, RRB employees have been exposed to the work culture of their sponsor banks due to operational support.

Enhanced Supervision and Governance

According to the unions, merging RRBs with their sponsor banks would facilitate enhanced supervision, governance, and accountability. This proactive step would ensure greater sustainability in the banking sector. The letter stated that combining the financial strength of sponsor banks with the rural outreach of RRBs would transform the rural economy.

The unions also mentioned that such a merger would help mobilise CASA deposits and create a more efficient credit delivery system for the rural population. They believe these multifarious advantages make a strong case for merging all 43 RRBs with their respective sponsor banks.

Current Structure of RRBs

There are currently 43 RRBs sponsored by 12 scheduled commercial banks, covering 702 districts with around 22,000 branches. These branches hold about 30 crore deposit accounts and 3 crore loan accounts. Approximately 92 per cent of these branches are located in rural and semi-urban areas.

All Public Sector Banks, except Punjab & Sind Bank, sponsor one or more RRBs. Jammu & Kashmir Bank is the only private-sector bank sponsoring an RRB. The Centre holds a 50 per cent stake in RRBs, while sponsor banks and state governments own 35 per cent and 15 per cent, respectively.

The unions concluded that merging RRBs with their sponsor banks would bring numerous benefits, including improved technological capabilities, better HR integration, enhanced governance, and a stronger rural economy.