Sustainability push: Govt asks RRBs to step up digitisation, lending to MSMEs

As a part of reforms to make Regional Rural Banks (RRBs) financially sustainable, the federal government has requested them to maneuver in the direction of digitisation, together with providing web banking companies to its prospects, and develop their credit score base additional by elevated lending to the Micro, Small and Medium Enterprises (MSME) sector.

“The cost of operations of RRBs were much lower as compared to scheduled commercial banks but that has increased now and the government wants them to work towards increasing their earnings,” mentioned an official supply within the know including that these are a part of the federal government’s plan to reform RRBs.

This was mentioned in a gathering that was convened by Finance Minister Nirmala Sitharaman in July and attended by heads of sponsor banks and RRBs.

One of the important thing causes for RRBs incurring losses is the truth that many of those branches should not have sufficient enterprise as they focus primarily on providing authorities’s schemes like direct profit switch within the rural areas of the nation.

The supply added that the majority these rural banks are below Core Banking Solutions (CBS) which means their branches are linked with one another. “Offering internet services to customers is the next step for these banks,” he mentioned.

According to a authorities launch submit the assembly final month, the Finance Minister urged the sponsor banks “to formulate a clear roadmap in a time-bound manner to further strengthen the RRBs and support the post-pandemic economic recovery and also suggested to conduct a workshop of RRBs and share the best practices with each other”.

This wouldn’t be the primary time that the federal government is working to reform RRBs. After a set of reforms within the ’90s, the federal government had, in 2005-06, initiated a consolidation programme that resulted within the variety of RRBs declining from 196 in 2005 to 43 in FY21. The goal was to enhance their operational viability and to reap the benefits of economies of scale.

After two consecutive years of losses in the course of the Covid interval, RRBs reported a consolidated web revenue of Rs 1,682 crore in FY21, and 30 of the 43 RRBs reported web income.

The supply, quoted above, added that the plan additionally included merging branches of those RRBs with sponsor banks as soon as these branches attain a sure degree of enterprise.

“The plan includes merging them with sponsor banks and that may happen once the sponsor bank sees advantage. Listing these RRBs on the bourses is a long-term plan that may or may not happen,” the supply additional mentioned.