RRBs in Basel-I fold with new guidelines

In order to bring regional rural banks (RRBs) within the internationally accepted Basel-I framework, the Reserve Bank of India (RBI) has announced new norms on the capital to risk-weighted assets ratio (CRAR) for the banks.

The exercise will be conducted in a phased manner in consultation with the country’s apex development bank — National Bank for Agriculture and Rural Development (Nabard).

RRBs are a special category of banks that aim to combine the local feel and familiarity of the co-operatives with the business capabilities of commercial lenders.

The capital issued by an RRB is subscribed by the central and state governments and a sponsor bank, which is generally a public sector bank.

The central bank’s move is consistent with the recommendations of the Committee for Financial Sector Assessment (CFSA), chaired by RBI Deputy Governor Rakesh Mohan.

While acknowledging that RRBs do not present a systemic risk owing to their small size, the report raised concerns about their asset quality and poor loan recovery rate.

The CFSA report had also observed that there was a need to draw up a roadmap for ensuring that only licensed banks operate in the co-operative space and banks, which fail to obtain a licence by 2012, should not be allowed to operate. The central bank said it would work out a roadmap for achieving this objective in a non-disruptive manner in consultation with Nabard, the monitoring agency of RRBs.

To promote financial inclusion, RBI and Nabard will work out a policy to assist RRBs adopting Information and Communication Technologies (ICT) solutions to reach out to more customers.