Govt in talks with RBI to let RRBs tap credit depository to help prune NPAs

The Centre is in talks with the Reserve Bank of India (RBI) to let regional rural banks (RRBs) tap its Central Repository of Information of Large Credit (CRILC), a move that’s seen helping such lenders reduce their non-performing assets by accessing details on borrowers.

At present, banks and financial institutions give credit information about their borrowers with an aggregate fund-based and non-fund based exposure of Rs 5 crore and above to CRILC, but RRBs do not come under the fold of CRILC. Discussions regarding allowing RRBs to access the credit repository before sanctioning loans are at an advanced stage, an official said.

In previous discussions between the Centre and the banking regulator, the RBI had stated allowing RRBs to refer to CRILC would require notifying such lenders as “banking companies” under Section 45 (A) (a) of the RBI Act.

Section 45 (A) of the RBI Act notifies banks and financial institutions to collect and furnish credit information on borrowers.

This comes as the Centre is looking to restructure RRBs and exploring ways to improve their health. RRBs are supervised by the National Bank for Agriculture and Rural Development (Nabard), and their annual plans and financials are monitored by both the RBI and Nabard.

Gross non-performing assets of the 43 RRBs in the country have improved from 10.4 per cent in FY20 to 9.4 per cent in FY21. After two consecutive years of losses in FY19 and FY20, RRBs reported a consolidated net profit of Rs 1,682 crore in FY21. Of the 43 RRBs, 30 posted a net profit in FY21. However, 17 RRBs carried accumulated losses of Rs 8,264 crore as on March 31, 2021.

The Centre is thinking of allowing RRBs to invest in perpetual debt instruments issued by other banks, including RRBs. The rationale behind this is that perpetual bonds of banks yield a higher rate of return than many other investment instruments. The Department of Financial Services (DFS) is examining the proposal and will take it up with the banking regulator, the official said.

In 2019, the RBI had allowed RRBs to issue perpetual debt instruments to shore up tier-I capital, but regional lenders were not allowed to invest in such securities of other banks.The banking regulator had allowed RRBs to issue perpetual bonds to provide an avenue to augment regulatory capital funds to maintain a healthy capital to risk-weighted asset ratio (CRAR). In FY21, the CRAR of RRBs marginally declined to 10.2 per cent from 10.3 per cent in FY20. As on March 31, 2021, 16 RRBs had a CRAR of less than 9 per cent and eight had a negative CRAR.