Cabinet approves extension of Scheme of Recapitalization of Regional Rural Banks

Union Cabinet has approved extension of scheme of recapitalization of Regional Rural Banks (RRBs) for next three years (upto 2019-20). This will enable RRBs to maintain minimum prescribed Capital to Risk Weighted Assets Ratio (CRAR) of 9%. It will ensure strong capital structure and minimum required level of CRAR. This will facilitate financial stability of RRBs and enable them to play greater role in financial inclusion and meeting credit requirements of rural areas.

Key Facts

The scheme of Recapitalization of RRBs was started in 2010-11 and was extended twice in the year 2012-13 and 2015-16. The last extension was upto March 2017. Total amount of Rs. 1107.20 crore, as Central Government share, out of Rs. 1450 crore, was released to RRBs upto March, 2017. The remaining amount of Rs.342.80 crore will be utilized to provide recapitalization support to RRBs whose CRAR is below 9%, during the extended three years period.
This will be in addition to announcement made in 2018-19 Budget for relating to allowing financially strong RRBs to raise capital from sources other than Central Government, State Government and Sponsor Bank. The identification of RRBs requiring recapitalization and amount of capital to be provided will be decided in consultation with NABARD.

Regional Rural Banks (RRBs)

RRBs were set up as government-sponsored, regional based rural lending institutions under Regional Rural Banks Act, 1976. They are scheduled commercial banks (Government banks) and are configured as hybrid micro banking institutions, combining local orientation and small scale lending culture of cooperatives and business culture of commercial banks.
Objective: They have been created with a view to serve primarily rural areas of India with basic banking and financial services. They fulfill credit needs of relatively unserved sections in rural areas-small and marginal farmers, agricultural labourers and socio-economically weaker sections and small entrepreneurs in rural areas for development of agriculture, trade, commerce, industry and other productive activities. RRBs can also set branches set up for urban operations and their area of operation may include semi urban or urban areas too.
Ownership: RRBs are jointly owned by Central Government, concerned State Government and Sponsor Banks with the issued capital shared in the proportion of 50%, 15% and 35% respectively.
Functions: provide banking facilities to rural and semi-urban areas, they carry out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc, they provide para-Banking facilities like locker facilities, debit and credit cards. They can also function as Small financial banks.

Month: Current Affairs - July, 2018