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:
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.
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.
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.
RRBs continue to be an important channel for delivering government-backed financial inclusion and social-security schemes in rural areas.
