National Bank for Agriculture and Rural Development (Nabard) has objected to Reserve Bank of India's proposal of regional rural banks (RRBs) being taken over by corporate houses. NABARD holds 82 RRBs.

"RRBs are playing a major role in rural finance. They have been recently recapitalized and are functioning well in their respective domains. To sustain this movement, retaining them in their current form will be desirable," Nabard chairman U.C. Sarangi said.

Even analysts do not fully agree to the proposal. If industrial houses are allowed to take over RRBs then credit flow to the farm sector may get affected. Moreover, these banks function in very small areas and thus their operations are limited, said Abhishek Kothari, a research analyst at Way2Wealth Brokers Pvt. Ltd.

"It is not at all feasible for business houses to acquire RRBs because of their nature of functioning and areas of operation," Kothari said. "Also, once they are acquired and converted into commercial banks, they will come under the conservative regulatory structure of the Reserve Bank. There is also a chance that their primary operational objective will be affected."

"The decision or otherwise to allow industrial and business houses to promote banks would be a much more measured and balanced one due to the experience gained," RBI said.

"I do not know to what extent RRBs will be able to lay the same importance in their primary operations as they do now once they are taken over by business houses," Sarangi said.

Presently, 82 RRBs are operating in the country under various sponsor banks; 79 of them are in profit.