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Rs 3,050 cr capital infusion into RRBs mooted

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Our Banking Bureau Mumbai
Last Updated : Feb 06 2013 | 8:52 AM IST
The draft report of the Reserve Bank of India's (RBI) internal working group on regional rural banks (RRB) has recommended a capital infusion of around Rs 3,050 crore in order to wipe out accumulated losses, provide for non-performing assets, and maintain 5 per cent capital to risk weighted asset ratio (CRAR).
 
The capital to be infused is to be shared by the stakeholders (i.e., the central government, state governments and public sector banks) as per the respective proportions.
 
RRBs could be advised to maintain a level of capital adequacy of 5 per cent. About 100 RRBs fall short of 5 per cent CRAR. Over time, they may be expected to align themselves with the Basel I norms.
 
RRBs having CRAR more than 5 per cent and making profits in the last 3 years and having no accumulated loss may be allowed to raise funds by way of instruments in the nature of tier II capital also, suggested the report.
 
The group has suggested that RRBs be regulated and supervised by the RBI and not the National Bank for Agriculture and Rural Development (Nabard).
 
"There could be situations where potential conflicts of interest may arise between the supervisory and developmental functions of Nabard", said the report.
 
The report recommended a change in sponsor banks in some cases which will help in improving the performance of RRBs.
 
For this, new banks-both public and private sector banks- could be considered to become sponsor banks of RRBs. But the RRBs Act, 1976 does not specifically provide for the transfer of sponsorship from one sponsor bank to another.
 
According to the report a change in sponsorship may inter alia improve the competitiveness, work culture, management and efficiency of the concerned RRBs.
 
For those RRBs which do not turn around within a specified time limit, say 3 years, an exit route may be considered subject to extant legal provisions. The fact that there could be an exit route may be made explicit, said the report.
 
Chairmen of RRBs could be appointed from the open market through a transparent process, said the report. Currently chairmen are appointed from the sponsor bank leading to several potential areas of conflicts of interest.
 
The boards of RRBs could be broad-based through inducting professionals such as agricultural experts, bankers, management experts, etc.
 
RRBs may be encouraged to use new instruments like certificates of deposit / Inter-bank participation certificates etc. and increase their non-interest income, by distributing mutual fund/insurance policies. The branch network could be rationalised.

 
 

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First Published: May 18 2005 | 12:00 AM IST

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