‘One State, One RRB’- New Regulation adopted by the Union Government

With a transformative vision, the Ministry of Finance in India has announced the implementation of the ‘One State, One RRB ‘ policy to ensure the smooth running of the Regional Rural Banks in India by merging them into one. The policy implementation will start from 1st May 2025. The Ministry of Finance has assured that the consolidation of the Regional Rural Banks will surely improve the efficiency and governance of banks.

What is Regional Rural Bank? 

Regional Rural Banks or RRBs are government-owned banks operating at the rural level and established under the RRB Act of 1976. The main aim of establishing these banks is to provide financial support to small farmers, artisans, and rural entrepreneurs. These banks are often sponsored by public banks. The stakes of these banks are jointly held by the central government (50%), state government (15%), and sponsored banks (35%).

One State, One RRB Policy: Complete Discussion

The latest notification by the Ministry of Finance/Department of Financial Services under the Regional Rural Banks Act 1976 (Section 23A) initiates the amalgamation of 26 RRBs into 10 new consolidated banks across 10 states and 1 UT, this, in turn, aligns with the new policy of 1 RRB per state. To download the official notification, you can click the button below

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The new policy implemented by the Ministry of Finance is a fourth phase of reformation for RRBs. This implementation provides authority to the central government to merge RRBs after consulting stakeholders such as NABARD, sponsored banks, & state government.

Regions under Development: States Affected by New Policy

This fourth phase of RRB reforms will be implemented in 10 states and 1 union territory. The multiple smaller RRB op[erationg under different sponsor banks have now been merged into a single unified RRB in each state. The Finance Ministry also published a gazette incorporating details on the 10 states and the RRBs which will merge into one and their sponsor banks.

A few examples from the gazette will be discussed below:

• Andhra Pradesh: 4 RRBs merged into one: Andhra Pradesh Grameena Bank.
• Bihar: Dakshin Bihar and Uttar Bihar RRBs merged to form Bihar Gramin Bank.
• Gujarat: Baroda Gujarat and Saurashtra Gramin Banks merged to form Gujarat Gramin Bank.
• West Bengal: Three RRBs in West Bengal merged into West Bengal Gramin Bank under PNB sponsorship.

To Download the detailed Gazette, click on the download button Download Now

Key Goals of ‘One State, One RRB’

Now we will try to discuss the primary goals behind this ‘One State, One RRB’ policy in detail:

1. Improving Efficiency and Governance

The primary objective of this policy is to enhance the effective governance across rural banks within a single state. Earlier, many states had multiple Regional Rural Banks (RRBs), each operated by different sponsor banks with separate boards, policies, and management systems. This fragmentation often resulted in:

• Inconsistent customer service
• Procedural delays
• Operational inefficiencies.

The “One State One RRB” approach consolidates these banks under a unified governance structure, enabling uniform policy implementation, faster decision-making, and stronger regulatory compliance. It also enhances internal mechanisms such as audits, risk assessment, and customer grievance resolution, fostering a more reliable and accountable rural banking system.

2. Achieving Economies of Scale and Cost Rationalization

Another primary aim of this reform is to improve the cost-efficiency and scalability of RRB operations. When multiple RRBs operate separately within the same state, each incurs its own infrastructure, staffing, IT systems, and administrative costs. This duplication burdens the financial health of rural banks. The merger enables centralized operations and shared resources, reducing costs and increasing profitability. Additionally, the consolidated banks are now better positioned to adopt advanced technologies like unified core banking systems, mobile banking applications, and AI-based credit analysis. These improvements not only reduce costs but also amplify the quality and speed of banking services available to rural populations.

3. Strengthening Rural Financial Inclusion

A critical long-term goal of the policy is to expand and deepen financial access in rural India. Unified RRBs are better equipped to serve remote and underserved regions, because of an expanded network and consolidated resources. They can collaborate more effectively with self-help groups (SHGs), microfinance institutions, and government agencies to deliver savings accounts, loans, insurance, and pension schemes. The merger also simplifies the implementation of government schemes such as Jan Dhan Yojana, Direct Benefit Transfers (DBTs), and Kisan Credit Cards. Overall, the policy fosters a more inclusive banking environment that supports rural development and economic empowerment.

Why Was the “One State One RRB” Policy Needed Now?

The implementation of the “One State One RRB” policy in 2025 is the result of evolving economic realities, lessons from past reforms, and the urgent need to modernize rural banking in a rapidly changing digital landscape. Let’s find out why this policy became both timely and necessary.

1. Proven Success of Previous Amalgamation Phases

India has already witnessed three phases of RRB amalgamations, starting in 2006:

• Phase I (2006–2010): Number of RRBs was reduced from 196 to 82
• Phase II (2012–2015): RRBs further consolidated to 56
• Phase III (2019–2021): Number reduced to 43

Each phase aimed at improving the financial importance, governance structure, and technology adoption of RRBs. The reforms led to better profitability, standardized operations, and increased credit flow in many regions. Encouraged by these outcomes, the government launched Phase IV in 2025, which brings the number down to 26 RRBs across India, each covering a single state or UT.

2. Operational Challenges of Multiple RRBs in One State

Before this policy, many states had 2 to 4 RRBs, each sponsored by a different nationalized bank. These banks operated independently—leading to:

• Inefficient use of capital and manpower
• Inconsistent credit norms and lending rates
• Duplication in software systems, branches, and HR efforts
• Fragmented customer service and grievance mechanisms

Such inefficiencies became a significant bottleneck as RRBs were expected to implement large-scale government schemes, facilitate direct benefit transfers (DBTs), and offer digital services to rural populations.

3. Growing Importance of Digital Rural Banking

India’s rural economy is transforming rapidly, fueled by government initiatives like:

• PM Jan Dhan Yojana (financial inclusion)
• DBT schemes (direct subsidies)
• eNAM (electronic agricultural marketing)
• Digital India (for online access and governance)

With smartphones and the digitized monetary exchange increasing even in remote villages, the demand for mobile banking, UPI services, online loan applications, and paperless account management has surged. Smaller RRBs, operating with limited IT infrastructure and staff, were unable to keep pace with this digital shift.

The new consolidated RRBs, with larger capital bases and unified IT systems, are better positioned to provide digitally empowered rural banking services—bringing RRBs on par with mainstream commercial banks.

4. Strengthening Financial Resilience

Many RRBs, especially the smaller ones, were under-capitalized and struggling to meet priority sector lending (PSL) targets. Amalgamating RRBs allows for:

• Better fund management
• Pooling of risk
• Improved access to capital
• Unified credit monitoring mechanisms

5. Alignment with National Goals

This policy also aligns with India’s vision for $5 trillion economy, where inclusive growth, agriculture modernization, and rural credit access play vital roles. By creating stronger, streamlined, and scalable RRBs, the government is laying the foundation for a robust rural banking infrastructure that supports national development objectives.

Conclusion

The “One State One RRB” policy, set to take effect from May 1, 2025, marks a historic milestone in India’s rural banking reform journey. By merging 26 Regional Rural Banks into 10 larger, state-wide entities, the government aims to foster a more efficient, financially resilient, and digitally capable rural banking ecosystem. This consolidation is not merely an administrative shift; it is a strategic transformation designed to enhance service delivery, reduce redundancy, and extend the reach of financial services to the country’s most underserved areas.

Through this reform, Regional Rural Banks are expected to operate with greater operational strength, uniformity in credit policies, and stronger governance—all essential for supporting rural development, agriculture, and small-scale industries. The policy also prepares RRBs to embrace digital transformation and align with India’s broader financial inclusion and economic growth goals.

For students, aspirants, and stakeholders in the banking and governance ecosystem, understanding the scope and implications of this reform is crucial. As India moves forward with a consolidated rural banking structure, the One State One RRB model stands as a blueprint for integrated and inclusive development in rural India.