Government Identifies Three-Four Regional Rural Banks For IPOs, Listing Likely In 2019-20

The government is planning initial public offerings of three-four financially strong regional rural banks on stock exchanges in 2019-20 after the conclusion of merger exercise, said people familiar with the plan.

The government is merging regional rural banks to bring down their count to 38 from the current 45. A few of the mergers will take place soon as state governments have given their go-ahead, said the people cited above.

Rural bank mergers are aimed at minimising their overhead expenses, optimising use of technology, enhancing their capital base and increasing their exposure. Twenty-one rural banks have over the past few months been amalgamated so that they can enjoy the benefits of economies of scale.

Rural banks were formed under the The Regional Rural Banks Act, 1976, with an objective to provide credit and other facilities to small farmers, agricultural labourers and artisans in India’s hinterland.

The act was amended in 2015 whereby such banks were permitted to raise capital from sources other than the central and state governments, and sponsor banks.

The Centre, at present, holds 50 percent stake in regional rural banks, while 35 percent and 15 percent are with sponsor banks and state governments, respectively.

But even after an IPO, the shareholding of the Centre and sponsor banks cannot fall below a combined 51 percent, according to the amended Regional Rural Banks Act.

Union Budget 2019-20, meanwhile, has provided Rs 235 crore towards recapitalisation of regional rural banks to improve their financial health as well as augment their capital to meet regulatory norms.

According to the rural banks recapitalisation scheme, funding is provided to them by the centre, states and sponsor banks in the ratio of 50:35:15 so that they have a Capital to Risk-Weighted Assets Ratio, or CRAR, of 9 percent.