The recent budget had proposed that the Regional Rural Banks be allowed to raise capital from the market to overcome capital constraints. This will enable them to increase their credit to the rural economy.
There are 56 RRBs in the country. These are jointly owned by the government of India, the concerned State Government and sponsor (usually public sector) bank with the issued capital shared in the proportion of 50 percent, 15 per cent and 35 per cent, respectively.
The Budget has allocated only Rs.13 crore as recapitalisation for RRBs for FY19 against Rs.280 crore in FY18.
Harsh Kumar Bhanwala, Chairman, National Bank for Agriculture and Rural Development, said: “We have already given a policy, which has been made available as a draft policy to the government. Now that policy will be accepted by RRBs, which in turn will make a proposal (to tap the capital markets) and send to us.
“Under the policy, only those banks capable of accessing funds should tap the capital market. So, the banks should have robust health… Initial issuances should be successful otherwise the entire category will get a bad name.”
According to the RBI, the number of RRBs operating in the country has come down to 56 as at end-March 2017 from 196 in 2005 through amalgamation and consolidation to improve their financial performance and soundness.
Many RRBs have been recapitalised by the government intermittently to meet the minimum 9 per cent capital-to-risk-weighted assets ratio in a sustainable manner and also enable them to extend more credit to the productive sectors. Given their mandate to focus on rural areas, about 90 per cent of their loan portfolios consisted of priority sector lending, with agriculture constituting 74.6 per cent of their total priority sector loans in March 2017, according to RBI’s annual report.
Usha Ananathasubramanian, Chairman, Indian Banks’ Association, said: “Permitting strong RRBs to access the market for capital is a positive for the banking sector and will give adequate impetus to such RRBs.”