Kolkata: Regional rural banks are a special category of banks that by definition are focused on the development of the rural economy. These banks are one of the mainstays of the rural scene in India. If the rural economy in the country is improving, the RRBs will certainly get some credit for it. RRBs are set up by the cooperation of three parties — the Centre, the respective state government and a PSU bank which is known as the sponsoring bank. They help in supporting the credit needs of the grassroots sections such as small and marginal farmers, agricultural labourers and other weaker sections. The origin of RRBs is the Narasimham Committee report on rural credit in 1975 which recommended the establishment of this category of banks.
The government has indicated that a few RRBs will be listed in the capital market in the next two years. This would be a leap by the RRBs. These banks now appear to have a strong capital base and stable profits like the scheduled commercial banks. Though in FY they suffered a slight dip in profits mainly due to pension and salary-linked liabilities. The combined profit of RRBs declined to Rs 6,825 crore in FY25, compared to Rs 7,571 crore in FY24.
Listing criterion
SEBI’s 2002 guidelines stipulate that a RRB must have a strong financial base to be listed on the stock market. The floor is a net worth of Rs 300 crore for three consecutive years, a pre-tax operating profit of Rs 15 crore in at least three of the past five years and an ROE (return on equity) of 10% in three of the past five years. According to reports, two RRBs are under consideration for listing in the first half of FY27. One of these banks could be Uttar Pradesh Grameen Bank.
Uttar Pradesh Gramin Bank
Uttar Pradesh Gramin Bank has been formed after merging three regional rural banks in Uttar Pradesh — Aryavart Bank, Prathama Bank and Baroda UP Bank. Lucknow will be the new headquarters formed bank will be established in Lucknow and it will be operated under the sponsorship of Bank of Baroda. Uttar Pradesh Gramin Bank was formed on May 1 this year. It will have jurisdiction over 26 districts of Uttar Pradesh and operations will be conducted through 22 regional offices.
Shareholding structure
As things stand now, the Centre has a 50% stake in RRBs while respective state governments have 15%. The rest 35% is owned by the sponsor bank. This makes it clear that the government and banks continue to have a direct role in their decision-making and capital structure. The Union finance ministry has indicated several times that the merger of these banks will strengthen their capital base and increase institutional stability.
On December 1, Minister of State Pankaj Chaudhary informed the Lok Sabha that this decline was primarily due to the payment of liabilities related to the retrospectively implemented pension scheme (effective from November 1, 1993) and computer increment payments.
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