The Advisory Committee on flow of credit to agriculture and related activities, in June 2004 under the Chairmanship of VS Vyas (Vyas Committee-II), recommended restructuring of Regional Rural Banks (RRBs). In February 2005, the internal working group on RRBs was set up by the Reserve Bank of India under the Chairmanship of AV Sardesai. The group was constituted to examine the working of RRBs, to suggest measures required for strengthening and reposition RRBs in the credit delivery mechanism so as to make them viable rural financial institutions. The group submitted its report in June 2005.

The route of merger/amalgamation of RRBs was suggested by the group, taking into account the views of the stakeholders. The group opined that the merged banks would have a larger area of operation and thus can enjoy economies of scale. Moreover, the merger process would help in strengthening and improving the operational viability of these banks. The group has observed large variations in the number of districts covered by RRBs as well as the branch network of each RRB. The restructuring process suggested by the group consists of two phases - in the first phase, merger of RRBs sponsored by the same bank within the same state and in the second, merger of RRBs sponsored by different banks in the same state.

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