Mumbai, July 4: The Union government has set the ball rolling for regional rural banks (RRBs) to be merged into a single entity of their sponsor banks by reportedly approving eight such proposals received recently.

Eight nationalised banks, including the State Bank of India and Punjab National Bank, had sought the government’s nod for merging the rural banks they sponsor to form a single bank.

It was in February the rural bank merger proposal was first considered in a joint meeting of the Reserve Bank of India, National Bank for Agriculture and Rural Development (Nabard) and the Union ministry of finance.

Sources said the Nabard is holding a meeting on July 13 where the organisational issues arising from the consolidation process will be discussed.

The move will result in each public sector banks sponsoring only one rural bank in a particular state by consolidating all its existing rural banks in that state.

The banking industry circles indicated that finance minister P. Chidambaram has approved the proposals recently.

Sources pointed out the other banks which are on course to merge the rural banks they sponsor in select regions include Bank of Baroda, Dena Bank, Syndicate Bank, Canara Bank, Central Bank of India and Indian Bank.

They added that Dena Bank is planning to merge close to its three rural banks in Gujarat to form one Gujarat Dena Gramin Bank. Bank of Baroda has also submitted a proposal to unify close to its four rural banks in the same state. The combined entity will now be called as Baroda Gujarat Gramin Bank.

Similarly, the Central Bank of India is also contemplating to consolidate its three rural banks in Maharashtra. The State Bank of India, the country’s largest commercial bank, is also on course of integrating its rural banks in Uttar Pradesh.

At present, the sponsor commercial bank holds close to 35 per cent in a regional rural bank, while the state government in question holds 15 per cent and the remaining 50 per cent by the central government.

The unification will be beneficial for regional rural banks as they will now have a relatively bigger size and economies of scale, which would equip them in competing more effectively.

Sources said the eight proposals that received the government go-ahead was only a lead of a much larger merger process in the sector.

However, rural bank officers who are circumspect about the whole exercise say that while the mergers should be proceeded with only if it is backed by a proper approach, the government should also consider the merger of RRBs with the sponsor banks over a period of time.

“Consolidation should not create problems for the rural bank employees. Moreover, the government should not adopt transitional means to rescue RRBs. First, RRBs should be merged among themselves and then they should be amalgamated with the sponsor banks,” an official from the All India RRB Officers’ Federation said.