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The Karnataka Grameena Bank (KGB) was officially established on May 1, 2025, as a result of a major consolidation within India’s Regional Rural Bank (RRB) system. The bank was formed by the amalgamation of two existing rural institutions, the Karnataka Gramin Bank and the Karnataka Vikas Grameena Bank, under the "One State, One RRB" policy of the Government of India. This merger was a strategic move designed to improve operational efficiency and create a unified, large-scale rural banking presence across the state. The predecessor banks themselves were products of earlier amalgamations, reflecting a continuous national strategy to rationalize the RRB structure since their inception under the Regional Rural Banks' Act of 1976.

Karnataka Grameena Bank is a government-owned entity, specifically a Regional Rural Bank. Its equity structure is a tripartite arrangement mandated by law: 50% is held by the Central Government, 15% by the Government of Karnataka (the State Government), and the remaining 35% is held by its Sponsor Bank, Canara Bank. The bank holds significant stature in the Indian financial system as it became the second-largest regional rural bank in India upon its formation. With an extensive network of 1,750 branches across Karnataka, its primary significance lies in promoting financial inclusion and providing a full range of banking, finance, and insurance services to rural and semi-urban communities throughout the state.