Banks Allowed To Value Rrb Investment At Carrying Cost

The Reserve Bank of India has allowed commercial banks to value investments in regional rural banks (RRBs) at carrying cost.

This comes as a huge relief to the banks, which, as sponsors of RRBs, have invested heavily in them. At present, the capital of most of the RRBs stands eroded. Until now, the commercial banks were required to write off such investment and make full provisions in their balance sheets.

Had the Reserve Bank insisted on actual provisions, the listed banks would have been hit the hardest. For instance, State Bank of India has sponsored a whopping 30 RRBs and their borrowings from the sponsor stood at Rs 57 crore. Bank of Baroda has sponsored 19 RRBs and Bank of India 16.

 

Loss-making banks such as Syndicate Bank and Uco Bank have sponsored 10 and 11 RRBs, respectively. With the two banks already running up huge losses, a further provision is something they would not want, says a banker.

In fact, the RBI inspectors had earlier insisted that banks make full provision for their investments in those RRBs whose equity capital was wiped out.

Commercial banks have, however, quoted a circular issued by the department of supervision (DoS) allowing banks to value the RRB investments at carrying cost.

The RBI inspectors have since relented and allowed us to value these investment at carrying cost, a source in a nationalised bank said.

The total overdues of RRBs were Rs 2120.15 crore (as on March 31, 1995) out of 71.81 lakh accounts. Of this, the RRBs sponsored by Uco Bank have overdues worth Rs 109.04 crore, State Bank Rs 239.40 crore, Syndicate Bank Rs 383.90 crore, Punjab National Bank Rs 187.25 crore, Central Bank Rs 248.97 crore, BoB Rs 147.28 crore and BoI Rs 52.12 crore.

The share capital of all the RRBs amounts to Rs 151.61 crore and reserves and surplus is Rs 101.46 crore.