CCEA approves Rs 1,340-cr recapitalisation for weak regional rural banks

The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a Rs 1,340-crore recapitalisation plan for the weak regional rural banks (RRBs) to help improve their capital to risk weighted assets ratio (CRAR) during 2020-21. RRBs are mandated to maintain a minimum CRAR of 9 per cent by the regulator.

Of this, Rs 670 crore each would be provided by the Centre and sponsor banks, Information and Broadcasting Minister Prakash Javdekar told reporters after the Cabinet meeting. This is, in a way, an extension of the recapitalisation plan that was to end this financial year (April 2019 to March 2020, of FY20).

The release of the government’s share of funds would be contingent upon the release of the proportionate share by the sponsor banks, an official statement said.

After the Reserve Bank of India’s decision to introduce disclosure norms for CRAR of RRBs with effect from March 2008, a committee was set up under the chairmanship of former central bank deputy governor K C Chakrabarty.

Based on the Committee’s recommendations, a scheme for recapitalisation of RRBs was approved by the Cabinet in 2011 to provide capital support of Rs 2,200 crore to 40 RRBs with an additional amount of Rs 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly in the north eastern and eastern region.

By March 31 every year, National Bank for Agriculture and Rural Development (Nabard) identifies RRBs that require recapitalisation assistance to maintain the mandatory CRAR of 9 per cent.

After 2011, the recapitalisation scheme was extended till 2019-20 in a phased manner with a financial support of Rs 2,900 crore a year. Of this, 50 per cent is provided by the government.

The government has released Rs 1,395.64 crore out of its share of Rs 1,450 crore to RRBs in 2019-20 so far.

Meanwhile, the government has initiated structural consolidation of RRBs in three phase, reducing their number from 196 in 2005 to the present 45.