Cabinet approves Rs 1,100 cr fund infusion in RRBs

The government today approved capital infusion of Rs 1,100 crore for Regional Rural Banks for improving their capital adequacy ratio.

"Share of Central Government that is Rs 1,100 crore will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011-12," Information and Broadcasting Minister Ambika Soni told reporters after a Cabinet meeting here.

The issued capital of RRBs is subscribed by Central Government, State Government and sponsor banks in the proportion of 50 per cent, 15 per cent and 35 per cent, respectively.

However, release of Government of India share will be contingent on proportionate release of State Government and Sponsor Bank share, Soni said.

RRBs are jointly owned by Government of India, the State Government concerned and the Sponsor banks.

The fund infusion in RRBs will improve their Capital to Risk Weighted Assets Ratio CRAR) and enable the banks to enhance their lending towards farm sector.

Besides, the Cabinet approved additional amount of Rs 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly those in the North Eastern and Eastern Region.

The necessary provision will be made in the Budget as and when the need arises, she said.

Soni said a capacity building fund with a corpus of Rs 100 crore is to be set up by the Central Government with National Bank for Agriculture and Rural Development (NABARD) for training and capacity building of the RRB staff in the institution of NABARD and other reputed institutions.

The functioning of the Fund will be periodically reviewed by the Central Government.

An Action Plan will be prepared by NABARD in this regard and sent to Government for approval, she added.

Finance Minister Pranab Mukherjee after review of RRBs in 2009, constituted a committee under the Chairmanship of RBI Deputy Governor K C Chakrabarty.

This was to analyse the financials of the RRBs and suggest measures including re-capitalisation to bring the CRAR of RRBs to at least 9 per cent in a sustainable manner by 2012.

The Committee, which submitted its report in May, 2010, had recommended RRBs to have CRAR of at least 7 per cent as on March 31, 2011 and at least 9 per cent by the end of March 2012.

Recapitalisation requirement is of the order of Rs 2,200 crore for 40 of the 82 RRBs. This amount is to be released in two installments in 2010-11 and 2011-12, the panel had recommended.

The remaining 42 RRBs will not require any capital and will be able to maintain CRAR of at least 9 per cent as on March 31, 2012, it had suggested.