LS passes bill to raise authorised cap of RRBs to Rs 2,000 cr

A bill to raise the authorised capital of Regional Rural Banks (RRBs) to Rs 2,000 crore and enable them to mop up funds from the capital market was passed by the Lok Sabha today.
"We are providing flexibility to RRBs to raise capital. It could be private capital, it could be from the state government," Minister of State for Finance Jayant Sinha said while piloting the bill.
The Regional Rural Banks (Amendment) Bill, 2014, was passed by a voice vote after the House rejected an amendment moved by BJD member Bhartruhari Mahtab.
Sinha said at present there are 56 RRBs and they are doing well. The amendment to raise the authorised capital of the RRBs from Rs 5 crore to Rs 2,000 crore will strengthen these institutions and further deepen financial inclusion.

Responding to the allegation of Mahtab that this bill will pave way for privatisation of the RRBs, Sinha said the combined capital of the Centre, state government and sponsor banks will not come down below 51 per cent.
Moreover, he said, the state governments would be free to raise their contribution in the RRBs to over 15 per cent, which is allowed under the existing provisions.

As per the provisions of the bill, the share capital of the RRBs could be split into 200 crore equity shares of Rs 10 each. As per the existing Act, the Rs 5 crore share capital of RRBs is split into 5 lakh shares of Rs 100 each.

The changes in the RRB Act, are aimed at "strengthening the capital base and improve their overall capabilities".
The amendment envisages that the capital of government entities will not come down below 51 per cent in the RRBs.
As per the statement of Objects and Reasons, the amendment seeks to "make provision for raising capital by RRBs from sources other than Central government, state government and the sponsor bank subject to the condition that in no event the combined capital ... Shall not be less than 51 per cent."
The changes in the Act will also provide for election of directors from sources other than Central government, state government and the sponsor bank.

RRBs were set up in pursuance of the Regional Rural Banks Act, 1976, to meet the credit needs of the rural sector.
Earlier this month, the government had allowed public sector banks to raise up funds from markets by diluting government holding to 52 per cent in phases so as to meet Basel-III capital adequacy norms.