Recapitalisation to be combined with new monitoring structure, with performance time lines
Almost half of the 82 regional rural banks (RRBs) in the country would be recapitalised, with the infusion of Rs 2,200 crore in two stages by the end of 2011-12, and the authorised capital of all 82 banks would be increased to Rs 500 crore from the present level of Rs 5 crore.
Besides, the performance of RRBs would be monitored by state level committees headed by finance secretaries of state governments with officers from the National Bank for Agriculture & Rural Development (Nabard), sponsor banks and the Reserve Bank of India. This is to be done half-yearly, instead of the yearly one by the Union finance ministry.
This follows acceptance by the central government of a slew of recommendations from a committee headed by K C Chakrabarty, Deputy Governor of the RBI, for RRBs to achieve a capital to risk-weighted assets ratio (CRAR) for RRBs of at least nine per cent by March 31, 2012. The report was given a year before.
A Nabard official, who did not want to be named, told Business Standard: “Chairmen of all RRBs have been asked to initiate necessary action in respect of action points pertaining to their bank. The committee had assessed the capital requirement for all the 82 RRBs to enable these to have a CRAR of at least seven per cent as on March 31, 2011, and at least nine per cent from March 31, 2012, onwards.”
Adding: “The committee had included provisions required for arrears of wages due to revision of pay scales, gratuity and leave encashment, and had recommended that depreciation on SLR (statutory liquidity ratio) investments by marking to market (writing down assets to reflect current value) as applicable to commercial banks may be made effective by RBI from April 1, 2013, onwards. Accordingly, the recapitalisation requirement would be Rs 2,200 crore for 40 of the 82 RRBs. This amount will be released in two installments, comprising Rs 1,337.50 crore in 2010-11 and Rs 862.50 crore in 2011-12.”
Further, a memorandum of understanding would be signed with Nabard by each RRB, as also with the state government concerned and the sponsor bank, on the roles of various stakeholders and the performance benchmarks to be achieved, with schedule.
On an increase in the authorised capital to Rs 500 crore, the committee had observed that the accumulated losses of RRBs as on March 31, 2009, were about Rs 2,300 crore. The RRBs carry, at the same time, share capital deposits aggregating Rs 3,900 crore.
As a one-time measure, therefore, the committee had recommended that RRBs be permitted to write off the accumulated losses as on March 31, 2010, against the share capital deposits.
Any balance left as share capital deposit may then be appropriated as paid-up share capital. “However, as the RRBs would continue to need higher capital in view of their expanding business, the committee had recommended that their authorised share capital be increased to at least Rs 500 crore. Necessary amendments will be made to the RRBs Act to facilitate it,” the official informed.