Cabinet approves recapitalisation of RRBs to improve CRAR

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  Cabinet approves recapitalisation of RRBs to improve CRAR

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1. The Cabinet Committee on Economic Affairs (CCEA) on March 25, 2020 gave its approval for continuing the process of recapitalisation of Regional Rural Banks (RRBs) by providing minimum regulatory capital for those RRBs, which are unable to maintain minimum Capital to Risk (Weighted) Assets Ratio (CRAR) of nine per cent, as per the norms prescribed by the Reserve Bank of India (RBI).
2. The minimum regulatory capital to these RRBs has been approved for another year beyond 2019-20, up to 2020-21.
3. The CCEA also approved the utilisation of Rs 670 crore as central government share for the scheme of recapitalisation of RRBs 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.
4. An official release said the financially stronger Regional Rural Banks with improved CRAR will be in a position to meet the credit requirement in the rural areas.
5. As per RBI guidelines, RRBs have to provide 75 per cent of their total credit under PSL (Priority Sector Lending). They cater to credit and banking requirements of the agriculture sector and rural areas with a focus on small and marginal farmers, micro and small enterprises, rural artisans and weaker sections of the society.
6. In addition, RRBs also provide lending to micro and small enterprises and small entrepreneurs in rural areas.
7. With the recapitalization support to augment CRAR, RRBs would be able to continue their lending to these categories.
8. A committee was set up under the chairmanship of KC Chakrabarty following RBI’s decision to introduce disclosure norms for CRAR of RRBs with effect from March 2008.
9. Based on the committee’s recommendations, a scheme for the recapitalisation of RRBs was approved by the cabinet in its meeting held in February 2011 to provide recapitalization support of Rs. 2,200 crores to 40 RRBs with an additional amount of Rs700 crore as a contingency fund to meet the requirement of the weak RRBs particularly in the northeastern and eastern regions.
10. Based on CRAR position of RRBs, as on March 31 every year, National Bank for Agriculture and Rural Development (NABARD) identifies those RRBs, which require recapitalisation assistance to maintain the mandatory CRAR of nine per cent.
11. According to the release, the government has initiated structural consolidation of RRBs in three phases reducing their number from 196 in 2005 to 45 at present with a view to enable RRBs to minimize their overhead expenses, optimize the use of technology, enhance the capital base and area of operation and increase their exposure.

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