The recapitalization will improve their capital to risk weighted assets ratio.
The Cabinet Committee on Economic Affairs (CCEA) on Wednesday has given its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20, that is, up to 2020-21 for those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9%, as per the regulatory norms prescribed by the Reserve Bank of India.
The CCEA also approved utilization of Rs 670 crore as central government share for the scheme of Recapitalization of RRBs (i.e. 50% of the total recapitalization support of Rs 1340 crore), subject to the condition that the release of Central Government's share will be contingent upon the release of the proportionate share by the sponsor banks.
A financially stronger and robust Regional Rural Banks with improved CRAR will enable them to meet the credit requirement in the rural areas.
As per RBI guidelines, the RRBs have to provide 75% of their total credit under PSL (Priority Sector Lending). RRBs are primarily catering to the credit and banking requirements of agriculture sector and rural areas with focus on small and marginal farmers, micro & small enterprises, rural artisans and weaker sections of the society.
In addition, RRBs also provide lending to micro/small enterprises and small entrepreneurs in rural areas. With the recapitalization support to augment CRAR, RRBs would be able to continue their lending to these categories of borrowers under their PSL target, and thus, continue to support rural livelihoods.
According to data from the Department of Financial Services, Ministry of Finance, State Bank of India (SBI) has sponsored maximum RRBs, followed by Punjab National Bank, Bank of India, United Bank of India, Bank of Baroda, Central Bank of India, Indian Bank, Syndicate Bank, Canara Bank, Indian Overseas Bank and UCO Bank.
Allahabad Bank, Andhra Bank, Bank of Maharashtra, Dena Bank, J&K Bank, Punjab and Sind Bank and Union Bank of India have sponsored 1 RRB each.
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