Union Cabinet approves Rs 632 crore capital infusion in RRBs

Government approved capital infusion of Rs 632 crore in some RRBs (Regional Rural Banks).

Objective: To improve CRAR [Capital to Risk (Weighted) Assets Ratio] for RRBs. Thus to improve their capital adequacy and lending capacity to the agriculture sector.

Adopting good word of RBI deputy governor K C Chakrabarty, the Govt had started recapitalization process in 2009-10 for 40 financially weak RRBs, which chiefly furnish credit to rural and agriculture sectors. Yet, till March 2012, capitalization was done only in 16 of the banks as various states didn’t furnish their share. To complete the process of recapitalization, the Cabinet has determined to stretch the scheme by 2 years. The Union Cabinet sanctioned the release of 50% share of the central government for recapitalization of the remaining RRBs.

The issue of central government’s share is subject to the release of state government’s and sponsor bank’s share.

  • The capital of RRBs is apportioned by Centre, states and the sponsor bank in the ratio of 50%, 15% and 35% respectively.

Thus, in principle, these 16 RRBs would receive Rs 1,264 crore of fresh capital if all stakeholders contribute in proportion to their shares for recapitalization.

  • There are around 82 RRBs in India and nearly all of them are outfitted with core banking solutions.

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