Discuss the rationale and outcomes of the 'One State–One RRB' amalgamation policy. How has it affected the financial health of Regional Rural Banks?

Regional Rural Banks, created under the RRB Act, 1976, were to blend the local feel of cooperative banks with the professionalism of commercial banks. The fourth amalgamation phase, effective 01.05.2025, merged 26 RRBs on the 'One State–One RRB' principle, reducing their number from 43 to 28 [1].

Rationale

• Scale efficiency and cost rationalisation — merging small, fragmented entities pools capital, technology and manpower; this was the stated focus of the Phase-IV notification [1].
• Viability concerns — RRBs historically carried thin capital and high stress, with Gross NPA peaking at 10.8% (March 2019), requiring repeated Government recapitalisation [2][5].
• Continuity of a two-decade arc — Phase-I (2005–10) cut RRBs from 196 to 82, Phase-II (2012–14) to 56, Phase-III (2019–21) to 43 [2].
• Simpler governance — one sponsor bank per state eases coordination under the 50:15:35 Centre–State–Sponsor Bank ownership and speeds technology upgradation.

Outcomes

• 28 RRBs now operate through 22,158 branches in 26 states and 3 UTs, with about 92% of branches rural or semi-urban, preserving outreach [1][4].
• A unified brand identity and continued achievement of all Priority Sector Lending targets [4].
• Concern: a single state-wide entity risks diluting the localised responsiveness that justified RRBs, and concentrates credit risk in one state's agrarian cycle.

Impact on financial health

• CRAR rose to an all-time high of 14.4% (March 2025), strengthening risk-absorption capacity [2].
• Gross NPA fell to 5.4% (March 2025) from the 2019 peak [2].
• Profitability improved from a then-record ₹7,571 crore (FY24) [3] and ₹6,820 crore (FY25) [4] to a record ₹10,176 crore in FY 2025-26, with total business crossing ₹13.5 lakh crore [6] — though the FY25 dip shows the trend is not linear.

Consolidation has thus converted a chronically weak segment into a profitable, better-capitalised rural credit channel. Going forward, gains must be locked in through diversification into agri-allied, MSME and retail lending, digital delivery and stronger local grievance redress, so that scale efficiency reinforces rather than replaces the inclusive mandate of 1976.