The government may infuse Rs 4,000 crore into the regional rural banks (RRBs) over the next two years. A committee, headed by Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty, has estimated RRBs would need Rs 4,000 crore to expand their capital base and open new branches.
In his Budget speech on February 26, Finance Minister Pranab Mukherjee had proposed to provide further capital to strengthen RRBs and make them profitable. The recapitalisation amount would be decided on the basis of the Chakrabarty panel report, likely to be submitted next month.
“We have estimated the requirement at Rs 4,000 crore for 49 RRBs. The finance ministry wants the amount should be released in at least two tranches. The first tranche may come in 2010-11 and the next in the following year,” a committee member told Business Standard on the condition of anonymity.
The government had asked RRBs to open 2,000 branches by March 2011 to cover unserved areas. Between April 2007 and March 2009, RRBs have opened 715 branches.
The panel member said most of the staff of RRBs would retire in the next two years and they would have to set aside a significant amount for paying arrears, gratuity and retirement benefits. Besides, RRBs would also be required to meet increased salary payments when mass revision takes place.
This will be the government’s third attempt in the last four years to recapitalise RRBs. In the first two rounds, the government had provided a support of Rs 3,959 crore to the banks. In the last round of recapitalisation in 2006-07, an amount of Rs 1,795 was released for 27 RRBs having negative net worth.
The committee was set up by the finance minister to examine the financials of RRBs with a capital adequacy ratio (CAR) of less than 7 per cent as on March 31, 2009, and to suggest measures to bring it to at least 7 per cent in a time-bound manner. Banks with CAR of 7 per cent or less may get the capital first, followed by those between 7 per cent and 9 per cent. About 30 RRBs have a CAR of less than 7 per cent and six have a negative CAR.
The report will analyse all 83 RRBs individually and suggest a capital infusion programme so that by March 2011 all these banks have a CAR of 9 per cent and sustain it.