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Centre eyes RRB mergers to increase profitability
October, 30th 2009

The finance ministry, it is learnt, is working on a plan to ask sponsor banks with small regional rural banks (RRBs) in their fold to exit their respective equity holdings in those RRBs. The equity in the respective RRBs would, in turn, be placed with other sponsor banks, depending on their proximity to RRBs in question.

While there was no official confirmation to this development from finmin officials as yet, a source close to the ministry said the move appears to be a prelude to the second-phase of RRB amalgamation.

Finance minister Pranab Mukherjee has recently indicated that he is considering such a move. He said sponsor banks with an insignificant presence in RRB sphere may be asked to exit their equity holdings, All India Regional Rural Bank Employees Association general secretary Dilip Kumar Mukherjee told ET.

Lets take an example. In Karnataka, Vijaya Bank has sponsored Visveshwarya Grameena Bank, which has just about 25 branches. In the same state, State Bank of Mysore has Cauvery Kalpatharu Grameena Bank with 203-strong branch network.

Both RRBs operate within the same service area. Now, the finmin may direct Vijaya Bank to exit its 35% equity in Visveshwarya Gramin Bank and place the equity with Cauvery Kalpatharu. Subsequently, both the RRBs may be amalgamated to create a bigger entity with more prominent economies of scale.

A sponsor bank holds 35% in a RRB, while 50% is held by the Centre and the balance 15% by respective state government.
Similarly in Assam, United Bank of India (UBI) sponsored Assam Gramin Vikash Bank covers the entire state barring two districts.

State Bank of Indias Langpi Dehangi Rural Bank with 43 branches caters to the two districts not covered by the first one. Here, SBI may place its 35% holding in Assam Gramin Vikash Bank with UBI to make the ground for next phase of consolidation among RRBs.

While contacted, National Bank for Agriculture & Rural Development (Nabard) chief general manager in charge of RRBs, GS Menon said: I cant comment on the finmins internal discussions.

I can only say that in the long-run,
there is scope for the second phase of amalgamations between RRBs. After the initial round of amalgamation, there are 84 RRBs in the country with their 15,200 branches spreading across 593 districts.

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