The Union finance ministry has asked regional rural banks (RRBs) to focus on strengthening and expanding digital banking services as part of the Viability Plan 2.0, signalling a shift from balance-sheet repair to technology-led expansion, according to two people aware of the developments.
The department of financial services revised the Viability Plan, its three-year performance monitoring framework for RRBs, in May, extending it for another three years through FY28 after its first cycle from FY22 to FY25.
The government wants RRBs to improve operational efficiency, attract new customers, mobilize low-cost deposits and expand credit through digital channels while competing more effectively with commercial banks and fintech firms.
“The ministry has identified implementation of Viability Plan 2.0, expansion of digital banking services and adoption of EASE (Enhanced Access and Service Excellence) reforms as the three key priority areas for RRBs during FY27,” said one of the two persons cited above.
The next set of reforms is focused on making them digitally competitive while preserving their rural outreach. Better digital infrastructure is expected to improve customer acquisition, service delivery and financial inclusion, the first person added.
“Stronger digital capabilities will enable RRBs to deepen banking penetration in rural India by offering faster and paperless services while reducing operating costs,” said the second person.
The push is aligned with the broader DFS strategy of promoting end-to-end digital lending and paperless banking across the financial sector.
“The DFS had asked lenders to introduce fully digital, multilingual loan journeys supported by e-KYC, digital documentation, straight-through processing (STP), integration with government databases and accessible grievance-redressal systems,” the second person added.
The move follows the latest round of RRB consolidation, which took effect on 1 May 2025, reducing their number from 43 to 28 banks sponsored by 10 commercial banks under the Centre's One State, One RRB policy.
Mint's queries emailed to the finance ministry, DFS, and the Reserve Bank of India on Sunday evening remained unanswered.
Credit penetration
“RRBs, meant for rural and semi-urban banking, are closer to the last mile as compared to digital native fintechs whose right to win relies on speed and scale of delivery. To reduce the cost of customer acquisition, RRBs have no option but to pivot from branch-heavy models to a digital-first model and complement it with their local presence, said Sharat Chandra, founder of startup growth accelerator and advisory firm EmpowerEdge Ventures.
The fintechs should also align with the One State, One RRB policy and help RRBs transition to the digital age, he added.
Rural adoption of fintech credit remains negligible despite India emerging as the world's third-largest fintech ecosystem and rapidly expanding its digital public infrastructure.
Less than 2% of rural households reported borrowing from fintech entities, according to Nabard's Rural Credit Market Conditions in India (A Study Based on an All-India Survey of Rural Households), released in June 2026.
Meanwhile, Nabard, in response to Mint's queries, said all RRBs have been onboarded onto the JanSethu platform. Through JanSethu, all the RRBs have also been integrated with the Reserve Bank Innovation Hub's Unified Lending Interface (RBIH's ULI).
JanSethu is a centralized digital credit infrastructure (CDCI) platform that brings together all RRBs on a single digital lending platform. Conceived by the government and facilitated by Nabard, it is designed to automate and streamline loan processing across RRBs.
It added that EASE, which has successfully driven transformation in public sector banks (PSBs), is also being extended to RRBs. The DFS has constituted a committee, chaired by the chief executive of the Indian Banks' Association (IBA), with Nabard as a member, to develop an EASE framework for RRBs.
RRBs have reported their strongest financial performance in recent years. According to official data reviewed by Mint, the country's 28 regional rural banks, operating through 22,280 branches and employing 96,161 as of 31 March 2026, reported total business of ₹12.32 trillion in FY26. Deposits rose to ₹7.69 trillion, while gross advances increased to ₹5.85 trillion. Net profit climbed to ₹10,273 crore, with the sector maintaining a healthy credit-deposit ratio of 76.1% and a capital adequacy ratio (CRAR) of 14.9%.
RRBs have also strengthened their balance sheet. Gross non-performing assets (GNPAs) declined to 4.9% in FY26 from 5.35% a year ago, while provision coverage improved significantly to 86.3% from 64.7%. Return on assets rose to 1.11%, reflecting improved profitability despite a marginal increase in net NPA to 2.1%.