Mumbai, May 17: An internal working group set up by the Reserve Bank of India (RBI) has recommended a change in sponsorship of poorly performing regional rural banks (RRBs). For this, both public and private sector banks could be considered as sponsors.

The group, headed by RBI executive director A. V. Sardesai, was constituted to examine options within the existing legal framework to strengthen the RRBs and make them viable rural financing institutions.

The group, while recommending mergers of such banks, said there has been variations in the performance of RRBs across states and sponsor banks.

As RRBs performed better under some sponsor banks, the group feels that a change in sponsors may in some cases help in improving the performance.

This could improve competitiveness, work culture, management and efficiency of the RRBs concerned.

The group pointed out that the RRB Act, 1976 does not specifically provide for the transfer of sponsorship from one bank to another. However, provisions have been made under section 23 A of the act for the Centre to effect amalgamation of RRBs.

“Accordingly, the Centre may, after consulting the National Bank, the state government concerned and the sponsor bank, amalgamate two or more RRBs into a single entity in the public interest or to develop an area,” it said.

The merged entities will operate in a larger area and the merger will help in strengthening some of the weak RRBs. The group suggested merger of RRBs under the same sponsor bank or under different banks in the same state.

The group also recommended capitalisation of merged entities and loss-making RRBs to satisfy the minimum capital requirement.

The additional capital will be subscribed in the same proportion as the issued capital by the different stakeholders as provided in the RRB Act, 1976.