Govt starts work to make regional banks viable; DFS to organise workshop

The Centre has started working on making regional rural banks (RRBs) viable, and would undertake stakeholder consultation to discuss ways to turnaround such lenders on Saturday.

The Department of Financial Services (DFS) is organising a workshop, to be chaired by Secretary Sanjay Malhotra, which will be attended by chairman of all regional lenders and National Bank for Agriculture and Rural Development (Nabard); chief executive officer of Indian Banks Association (IBA), and sponsor banks.

Sponsor banks own 35 per cent in RRBs, while the Centre and state governments own 50 per cent, and 15 per cent, respectively.

The workshop will formulate a viability plan to implement operational and governance reforms that may be based on achievement of certain operational aspects such as credit expansion, business diversification, NPA reduction, cost rationalisation and improving corporate governance.

Restructuring of RRBs and making them viable is a priority for the Centre. The DFS had also formed an expert committee to make recommendations for making RRBs viable in the medium to long term. 

Even as RRBs collectively have reported profits in FY21 and FY22, some regional lenders are reporting losses. After posting two straight years of losses in FY19 and FY20, RRBs reported a consolidated net profit of Rs 1,682 crore in FY21. Net profit surged 91 per cent to Rs 3,219 crore during FY22.

About 13 RRBs reported a loss of Rs 1,867 crore in FY21. The number of RRBs reporting a loss dropped to nine bringing down their losses to Rs 897 crore. The government is also nudging operationally sound RRBs to explore listing on the stock exchanges, creating additional sources to meet their regulatory capital requirement.

For FY22 and FY23, the Centre had decided to infuse capital of Rs 10,890 crore into RRBs. The Centre’s share will be Rs 5,445 crore and the remaining will come from states and sponsor banks. This compares with the total capital infusion of Rs 8,393 crore by all the stakeholders from 1975 till FY21.