IPOs of Regional Rural Banks
The central government is planning to carry out the Initial Public Offerings (IPOs) for a few of the regional rural banks. These banks (RRBs) will only be listed on the stock exchanges in the current financial year after assessing their fiscal strength and consolidation of operations.
- To minimize overhead expenditure, increase adoption of technology, increase the capital base along with the area of operation, the government plans to consolidate the RRBs into larger, stringer entities.
- This bank consolidation exercise has been ongoing with the objective is to bring the number of RRBs to 38 from the current 45, they said, adding that some more consolidations will take place as state governments have given their go-ahead.
- As many as 21 banks were amalgamated in various states in the last few months to create a large entity so that they can enjoy the benefit of economies of scale.
The current state of the RRBs
The regional rural banks were formed under the RRB Act, 1976. They had an objective to provide credit and banking facilities to small farmers and artisans in rural areas where conventional banking facilities did not exist.
The RRB Act was amended in 2015 to allow the banks to raise funds from sources other than the Centre, states and sponsor banks.
Presently, the Centre holds 50% in RRBs, while 35% and 15% are with the concerned sponsor banks and state governments, respectively. Even after the IPO, the shareholding of the Centre and the sponsor public sector banks together cannot fall below 51%.