Government of India has consolidated Regional Rural Banks (RRBs) under the One State–One RRB (OS-OR) Policy, reducing their number from 196 (2005) to just 28 (2025). Objective is to improve financial strength, operational efficiency, service quality, and reduce administrative costs. Effective: May 1, 2025, across 26 States & 2 UTs.
Details of Reform
Massive Consolidation
- Started in FY 2005–06, now in Phase 4 (2025 onwards).
- Each restructured RRB: Authorized Capital – ₹2,000 crore.
Financial Impact
- Supported by RBI & NABARD studies.
- Outcomes: Improved profitability, asset quality, leverage, capital reserves; weaker banks stabilized via capital infusion.
- FY 2023–24: RRBs recorded highest-ever net profit – ₹7,571 crore.
Technology & Customer Experience
- Larger banks → higher investment in digitisation, mobile/SMS banking, call centres.
- Improved rural customer reach.
Oversight & Employee Protection
- National Level Project Monitoring Unit (NLPMU) & State Level Monitoring Committees (SLMCs) set up.
- NABARD issued SOPs on employee seniority, remuneration retention.
One State–One RRB (OS-OR) Policy – Background
- Initiated by Department of Financial Services (DFS), MoF.
- Based on Dr. Vyas Committee Report (2001) → Recommended rationalisation of RRBs.
- Legal basis: Section 23A(1), RRB Act 1976 (allows amalgamation in public interest).
Phases of Consolidation:
- Phase 1 (2006–2010): RRBs of same sponsor bank in a state merged → Reduced from 196 → 82.
- Phase 2 (2013–2015): RRBs across different sponsor banks merged → Reduced to 56.
- Phase 3 (2019–2021): Focused on OS-OR principle → Reduced to 43.
- Phase 4 (2025): Full OS-OR consolidation → Reduced to 28.
Regional Rural Banks (RRBs)
- Origin: Recommended by Narasimham Committee on Rural Credit (1975).
- Established: 1975, under Regional Rural Banks Act, 1976.
- First RRB: Prathama Bank (sponsored by Syndicate Bank) – HQ: Moradabad, Uttar Pradesh.
- Ownership Pattern:
- Govt. of India – 50%
- State Govt. – 15%
- Sponsor Bank – 35%
- Regulation:
- RBI – under Banking Regulation Act, 1949.
- Supervision – NABARD.
- Taxation: Treated as cooperative societies under Income Tax Act, 1961.
- Priority Sector Lending (PSL):
- Target: 75% of ANBC / CEOBE (higher than 40% for commercial banks).
- RRBs can trade PSL obligations via Priority Sector Lending Certificates (PSLCs).
Significance of OS-OR Policy
- Stronger capital base (₹2,000 cr per RRB).
- Ensures better credit delivery in rural areas.
- Boosts financial inclusion & rural economy.
- Enables scaling up digital rural banking infrastructure.
- Improves employee security & customer experience.