DOI: https://doi.org/10.36347/sjebm.2026.v13i01.001

Pages: 1-7

Regional Rural Banks (RRBs) were established to advance financial inclusion in India by extending formal banking services to underserved rural and semi-urban populations. Despite their developmental mandate, RRBs have historically faced persistent challenges related to weak profitability, escalating non-performing assets (NPAs), governance constraints and limited operational scale, raising concerns about their long-term sustainability. In response, Indian policymakers implemented a comprehensive reform agenda encompassing structural amalgamation, capital strengthening, governance reforms and large-scale digital transformation. This study empirically examines whether these reforms have shifted RRBs from mandate-driven institutions towards greater market discipline. Using balanced panel data for 43 RRBs covering FY2020–FY2025 and employing fixed-effects econometric models, the paper evaluates the impact of digitalisation and governance reforms on profitability and asset quality. The results indicate that digital transformation and governance strengthening are significantly associated with higher returns on assets and lower gross NPA ratios, while capital adequacy plays a stabilising role. Overall, the findings suggest that reform-led modernisation has enhanced both the financial resilience and institutional discipline of RRBs, offering important lessons for rural banking reforms in developing economies.