The government on Wednesday approved a Rs 670 crore recapitalization plan for regional rural banks (RRBs) for the next financial year to help them meet regulatory capital requirements.
The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, has given its approval for the continuation of the recapitalization process of RRBs by providing minimum regulatory capital to RRBs for another year after 2019-20 – up to 2020- 21 — for those RRBs who are unable to maintain the minimum Capital to Risk Weighted Asset Ratio (CRAR) of 9 percent, as per the regulatory norms prescribed by the RBI.
“The CCEA has also approved the utilization of Rs 670 crore as part of the Central Government for RRBs Recapitalization scheme (i.e. 50 per cent of the total recapitalization support of Rs 1,340 crore), subject to provided that the release of the Central Government share will be contingent on the release of the proportionate share from the sponsor banks,” an official statement said.
According to the law, the Center holds 50 per cent stake in RRBs, while 35 per cent and 15 per cent are with the concerned sponsor banks and state governments respectively.
These banks were formed under the RRB Act, 1976 with the objective of providing credit and other facilities to small farmers, agricultural laborers and artisans in rural areas.
The statement also said that a financially stronger and robust RRB with an improved CRAR will enable them to meet the credit requirement in rural areas.
According to the guidelines mentioned by the Reserve Bank of India (RBI), RRBs have to provide 75 percent of their total credit in Priority Sector Loan. The RRBs are mainly to meet the credit and banking needs of the agricultural sector and rural areas with a focus on small and marginal farmers, micro and small enterprises, rural artisans and weaker sections of the society.
In addition, RRBs also provide loans to micro/small businesses and small entrepreneurs in rural areas. With the recapitalization support to increase the CRAR, the RRBs will be able to continue their lending to these loan categories under their PSL target, and thus, continue to support rural existence.
Consequent to the RBI’s decision to introduce disclosure norms for the Capital to Risk Weighted Assets Ratio (CRAR) of RRBs with effect from March 2008, a committee was set up under the Chairmanship of KC Chakrabarty.
Based on the recommendations of the committee, a scheme for recapitalization of RRBs was approved by the Cabinet in its meeting held on 10 February 2011 to provide recapitalization 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, especially in the North Eastern and Eastern Region.
Therefore, based on the CRAR position of RRBs, as on 31st March every year, the National Bank for Agriculture and Rural Development (NABARD) identifies those RRBs, which require recapitalization assistance to maintain the CRAR mandatory of 9 percent.
After 2011, the scheme for recapitalization of RRBs was extended till 2019-20 in a phased manner with a financial support of Rs 2,900 crore with the Centre’s 50 per cent share of Rs 1,450 crore.
Out of Rs 1,450 crore approved as the Government’s share for recapitalization, an amount of Rs 1,395.64 crore has been released to RRBs, till 2019-20.
During this period, the statement said, the government also took various initiatives to make RRBs economically viable and sustainable institutions.
With a view to enable the RRBs to minimize their overheads, optimize the use of technology, strengthen the capital base and area of operation and increase their exposure, he said the government has initiated structural consolidation of RRBs in three phase, thereby reducing the number of RRBs. RRBs from 196 in 2005 to 45 today.