Regional rural banks (RRBs) are emerging from a prolonged period of financial stress with stronger capital buffers, lower bad loans and improved profitability. While RRBs’ aggregate capital to risk-weighted assets ratio (CRAR) stood at 15% in FY2025-26, their gross non-performing assets (GNPA) fell to an all-time low of 5.3%. RRBs also reported a record net profit of ₹10,176 crore, with total business crossing ₹13.5 trillion.
The improvement comes after years of consolidation and balance-sheet repair, with the government now seeking to use the stronger financial position of RRBs to expand rural credit, deepen financial inclusion and improve operational efficiency. Mint explains:
What do the CRAR and GNPA numbers tell us?
RRBs’ aggregate CRAR has steadily improved, rising from 14.2% in FY2023-24 to 14.4% in FY2024-25 and 15% in FY2025-26. CRAR is a key measure of a bank’s ability to absorb losses and support future lending.
Asset quality has also improved. RRBs’ GNPA declined from 6.1% in FY2023-24 to 5.4% in FY2024-25 and further to 5.3% in FY2025-26, the lowest level recorded by the sector. Net NPA stood at 2.1% during FY2025-26.
The numbers point to a significant strengthening of RRB balance sheets, with banks building capital while reducing stressed assets. However, asset quality remains weaker than that of public sector banks (PSBs), whose GNPA stood at 1.93% and net NPA at 0.39% in FY2025-26.
How large are RRBs today?
RRBs have expanded their deposit and lending base. Deposits increased from ₹6.60 trillion in FY2023-24 to ₹7.69 trillion in FY2025-26, while loans outstanding rose from ₹4.71 trillion to ₹5.78 trillion.
Their credit-deposit ratio reached 75.2% in FY2025-26, the highest level during the period. The total business of the 28 RRBs crossed ₹13.5 trillion during the year.
The growth indicates that the improvement in balance sheets is accompanied by a greater ability to mobilise deposits and deploy credit. The next challenge will be to sustain this growth while ensuring that expansion does not lead to a renewed build-up of bad loans.
Why were RRBs created, and how have they evolved?
RRBs were established to expand institutional credit in rural areas, particularly for small and marginal farmers, agricultural labourers, artisans and small entrepreneurs.
The first five RRBs were established on 2 October 1975, followed by the Regional Rural Banks Act, 1976. The sector subsequently expanded rapidly, reaching 196 RRBs.
Over time, however, the large number of relatively small institutions created concerns around viability, scale and operational efficiency. The government, therefore, began consolidating RRBs.
In the first phase of consolidation, between 2005 and 2010, the number of RRBs declined from 196 to 82. The second phase reduced the number from 82 to 56, while the third phase brought it down from 56 to 43.
The fourth phase followed the “One State-One RRB” approach. From 1 May 2025, the total number of RRBs came down from 43 to 28 across 26 states and two Union territories.
The government’s stated objectives included improving scale efficiency, rationalising costs, strengthening capital and enabling greater investment in technology.
How are RRBs performing on financial inclusion?
RRBs continue to be an important channel for delivering government-backed financial inclusion and social-security schemes in rural areas.
Under the Pradhan Mantri Jan Dhan Yojana (PMJDY), RRBs opened 5.5 million new accounts in FY2025-26 against a target of 4 million, achieving 134% of the target.
Under the Atal Pension Yojana (APY), RRBs achieved 2.71 million enrolments against a target of 2.21 million, or 122%.
Their performance under insurance schemes was comparatively weaker. Under the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), RRBs recorded 7.67 million enrolments against a target of 9.2 million, achieving 83% of the target.
Under the Pradhan Mantri Suraksha Bima Yojana (PMSBY), enrolments stood at 10.89 million against a target of 11.3 million, or 96%.
RRBs also exceeded their target under the Pradhan Mantri MUDRA Yojana, disbursing ₹43,829 crore against a target of ₹42,100 crore, achieving 104%.
The performance suggests that RRBs remain effective in several financial inclusion programmes, particularly PMJDY, APY, and MUDRA. At the same time, the shortfall in PMJJBY and PMSBY points to scope for improving the penetration of insurance and social-security products.
What is the next phase of the RRB reform story?
The government’s focus is now shifting from balance-sheet repair to building stronger and more efficient institutions capable of supporting the next phase of rural economic growth.
The consolidation of RRBs into 28 larger entities is intended to provide greater scale, improve operational efficiency and facilitate investment in technology. The government has also moved towards a more structured viability framework that looks at financial performance, asset quality, growth and operational efficiency.
This shift is important because stronger capital and lower bad loans provide RRBs with greater room to expand lending. But the challenge is to ensure that credit growth remains sustainable and does not compromise asset quality.
RRBs will also need to deepen their role in financial inclusion, improve the distribution of insurance and pension products and use technology to reduce operating costs and improve customer service.
What does this mean for RRBs going ahead?
For RRBs, the transformation is no longer simply about survival or financial viability. Their balance sheets are stronger, bad loans have declined, and profitability has improved.
The bigger test now is whether these gains can translate into more productive rural credit, wider financial inclusion and more efficient banking operations.
The government’s consolidation strategy has created fewer but larger RRBs. The next phase will determine whether these institutions can combine the benefits of greater scale and technology with the local knowledge and rural focus that were central to their creation.
In other words, the RRB reform story is moving from repairing balance sheets to building sustainable rural financial institutions.