The amalgamation of regional rural banks is poorly planned

Abstract

The high-handed way in which the Union government has gone about amalgamation of regional rural banks ignores all corporate governance norms. On 7 June, the Union ministry of finance despatched a letter to the chairmen/managing directors of sponsor banks. The letter indicated that the Union government, in consultation with the National Bank for Agriculture and Rural Development (Nabard), had decided to go ahead with phase III of the amalgamation of regional rural banks (RRBs). This will bring down the total number from 56 to 38 and ensure that most of the smaller states have only one RRB, while the larger might have two.

There is a lot to be said about the merits of this decision (as well as the previous decisions) of amalgamating RRBs cutting across sponsor banks. First, these banks, when they were set up, were seen as alternatives to cooperatives, adding a touch of professionalism to the local feel a cooperative society provided. They were seen as decentralized solutions for the skewed banking development that was happening across the country, with the south and west being well banked while the north-east, east, and central regions suffered. While we do have large nationalized banks for the purposes of banking services in general, RRBs provide services proximate to the rural customer. There are merits in the argument that size reduces overheads, makes regulation easier and optimizes the use of technology. But what is the additional benefit it creates for customers? Given that these banks are completely state owned, they possibly need to look at whether or not the mergers allow for providing better services to the customer at the margins. I believe that a greater centralization is in fact going to take RRBs away from the customer at the margins. Read more at: https://www.livemint.com/Opinion/JPjso6IINtEkjGrc1XWWSI/The-amalgamation-of-regional-rural-banks-is-poorly-planned.html