The consolidation process started in FY 2004-05, reducing the number of RRBs from 196 to 43 by 2020-21. Credit: Natee Meepian/Shutterstock.

The Indian government has proposed a consolidation plan for regional rural banks (RRBs), aiming to reduce their number from 43 to 28.

This move is expected to help these banks cut costs and strengthen their capital base, as per a government document, reported Reuters.

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The proposal is part of a strategy to have one regional rural bank per state, which could result in operational efficiencies.

The government, in collaboration with the National Bank for Rural & Agricultural Development (Nabard), has outlined a roadmap for the ‘One State-One RRB’ initiative.

The federal finance ministry has not provided a comment on the proposal.

Government-owned banks currently dominate more than half of India’s banking sector by assets.

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The administration under India Prime Minister Narendra Modi has been working to consolidate these banks to improve their efficiency and decrease their dependence on government capital injections.

Ownership of regional rural banks is shared among the federal government (50%), sponsor banks (35%), and state governments (15%).

The consolidation process began in the fiscal year (FY) 2004-05, reducing the number of RRBs from 196 to 43 by 2020-21.

The document revealed that two regional banks in Maharashtra and four in Andhra Pradesh are expected to merge.

RRBs, which provide essential credit services to small farmers and rural businesses, have struggled with limited access to capital and technology.

As of 31 March 2024, these banks held deposits worth Rs6.6tn ($78.46bn).