TO PROVIDE credit to rural consumers, the government is planning to leverage the 15,000-odd strong network of the 43 Regional Rural Banks (RRBs) in the country by asking them to expand their portfolio by adding new segments. The proposed mandate will require RRBs to go beyond their mainstay of agricultural loans to extending credit for education, housing and even small businesses in rural India. This push to the RRBs by the government comes at a time when the Department of Financial Services has flagged concerns about public-sector banks having slowed lending to education loans due to higher defaults and the continuing struggle of the Micro Small and Medium Enterprise sector which suffered the most in the wake of the Covid-19 pandemic and national and local lockdowns. Government sources said the initiatives and targets will be part of the Enhanced Access & Service Excellence (EASE) reforms being undertaken by the Centre. EASE reforms were launched in 2018 for the public sector banks and are currently in their fifth phase. “Rural banks, for instance, would be asked to look beyond crop loans and also provide loans for tractors, small businesses in rural areas and education and housing loans too in rural areas. Rural banks figure last in the list of banking options for people even in rural areas, who prefer a public-sector bank or even private banks and that needs to change. All these will be part of EASE reforms,” said a government source in the know. The Centre had in August-end asked PSBs to increase education loan disbursements amid complaints of delays in sanction and rejection of loan applications. The Centre is working on a proposal to raise the guarantee limit for education loans from Rs 7.5 lakh to Rs 10 lakh to ensure banks restart lending to the education sector, The Indian Express reported on October 13. Asking RRBs to lend towards education, housing and small businesses would also help ease credit availability to the sectors. Another source said that the government wants the Indian Banks’ Association (IBA) to guide rural banks. “The IBA currently does not have expertise to guide rural banks and the association may look at creating an RRB division at a later stage to guide them through the process,” said another official. RRBs came into being in 1975. In contrast, private banks, which were allowed after 1991 economic liberalisation, have a market share of 40 per cent of the total banking business. Under the EASE programme being discussed, RRBs will be guided towards becoming more competitive and business friendly – making them customer friendly is top on the agenda. PSBs, under the EASE programme, have a common reforms agenda to improve profitability, asset quality, customer service and digital capabilities. The programme has yielded results for PSBs and is in its fifth phase, where banks are working towards digitising operations. Each RRB in the country has a PSB as its sponsor bank that owns 40 per cent in it – another 25 per cent is owned by the state government, 20 per cent by the government of India and the rest is with the RRB. The EASE programme for RRBs would also entail focus on digitising operations and connecting RRBs with each other. Initially, the plan could be to integrate the backend systems of RRBs – financed by the same PSBs – in a particular region. A larger integration of all RRBs can happen at a later stage, said one of the officials quoted above. With the above initiative, the government's plan is to continue to improve the profitability of RRBs. After two consecutive years of losses during the Covid-19 pandemic period, RRBs reported a consolidated net profit of Rs 1,682 crore in FY21, with 30 out of 43 RRBs reporting net profits. These EASE reforms would not be the first time the government is working to reform RRBs. After a set of reforms in the 1990s, the government had, in 2005-06, initiated a consolidation programme that resulted in the number of RRBs declining from 196 in 2005 to 43 in FY21.
