Cabinet Approves Rs 670 Crore Recapitalisation Of Regional Rural Banks
An employee serves customers inside a branch of Gramin Bank of Aryavart, sponsored by Bank of India, in the village of Khurana, Uttar Pradesh, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Cabinet Approves Rs 670 Crore Recapitalisation Of Regional Rural Banks

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The government on Wednesday approved Rs 670 crore recapitalisation plan for regional rural banks for the next financial year to help them meet regulatory capital requirements.

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Narendra Modi, has given its approval for continuation of the process of recapitalisation of RRBs by providing minimum regulatory capital to RRBs for another year beyond 2019-20 -- up to 2020-21 -- for those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio of 9 percent, as per the regulatory norms prescribed by the RBI.

"The CCEA also approved utilisation of Rs 670 crore as central government share for the scheme of Recapitalisation of RRBs (i.e. 50 percent of the total recapitalisation support of Rs 1,340 crore), subject to the condition that the release of Central Government's share will be contingent upon the release of the proportionate share by the sponsor banks," an official statement said.

As per the law, the Centre holds a 50 percent stake in RRBs, while 35 percent and 15 percent are with the concerned sponsor banks and state governments, respectively. These banks were formed under the RRB Act, 1976 with an objective to provide credit and other facilities to small farmers, agricultural labourers, and artisans in rural areas.

The statement further said a financially stronger and robust RRBs with improved CRAR will enable them to meet the credit requirement in rural areas. As per RBI guidelines, the RRBs have to provide 75 percent of their total credit under Priority Sector Lending. RRBs are primarily catering to the credit and banking requirements of agriculture sector and rural areas with a focus on small and marginal farmers, micro & small enterprises, rural artisans and weaker sections of the society.

In addition, RRBs also provide lending to micro/small enterprises and small entrepreneurs in rural areas. With the recapitalisation support to augment CRAR, RRBs will be able to continue their lending to these categories of borrowers under their PSL target, and thus, continue to support rural livelihoods. Consequent to the RBI's decision to introduce disclosure norms for Capital to Risk-Weighted Assets Ratio of RRBs with effect from March 2008, a committee was set up under the Chairmanship of KC Chakrabarty.

Based on the committee's recommendations, a scheme for the recapitalisation of RRBs was approved by the Cabinet in its meeting held on Feb. 10, 2011, to provide recapitalisation support of Rs 2,200 crore to 40 RRBs with an additional amount of Rs 700 crore as a contingency fund to meet the requirement of the weak RRBs, particularly in the North-Eastern and Eastern Region.

Therefore, based on the CRAR position of RRBs, as on March 31 of every year, National Bank for Agriculture and Rural Development identifies those RRBs, which require recapitalisation assistance to maintain the mandatory CRAR of 9 percent. Post-2011, the scheme for the recapitalisation of RRBs was extended up to 2019-20 in a phased manner with the financial support of Rs 2,900 crore with the Centre's 50 percent share of Rs 1,450 crore.

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Out of Rs 1,450 crore approved as the government's share for recapitalisation, an amount of Rs 1,395.64 crore has been released to RRBs, up to 2019-20. During this period, the statement said, the government has also taken various initiatives for making the RRBs economically viable and sustainable institutions.

With a view to enable RRBs to minimise their overhead expenses, optimise the use of technology, enhance the capital base and area of operation and increase their exposure, it said the government has initiated structural consolidation of RRBs in three phase, thereby reducing the number of RRBs from 196 in 2005 to 45 at present.

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