Government sanctions Rs 700 crore to recapitalize regional rural banks

The government today sanctioned an additional Rs 700 crore for the recapitalization of weak regional rural banks (RRBs) and extended the validity period for the fund infusion to next fiscal.

"The validity period for recapitalization of RRBs had ended. It has been extended to 2016-17. Rs 700 crore additional amount has been sanctioned," Finance Minister Arun Jaitley said after the Cabinet meeting here.

The Cabinet, chaired by Prime Minister Narendra Modi, approved for extension for the next three years, that is up to 2016-17 of the scheme of recapitalization of weak RRBs, he said.

These banks are unable to maintain their minimum Capital to Risk weighted Assets Ratio (CRAR) of 9%, he said, adding, this decision will help them improve this ratio.

A strong capital structure and minimum required level of CRAR will ensure financial stability of RRBs which will enable them to play a greater role in financial inclusion and meeting the credit requirements of rural areas, he said.

Presently, there is a Budget provision of Rs 15 crore for recapitalization of RRBs.

After this approval for extension of the scheme, further funds as required will be requested in Supplementary Demands, he said.

RRBs were established under Regional Rural Banks Act, 1976 to create an alternative channel to the 'cooperative credit structure' and to ensure sufficient institutional credit for the rural and agriculture sector.

RRBs are jointly owned by the Centre, state governments and sponsor banks with the issued capital shared in the proportion of 50%, 15% and 35% respectively.

With a view to bringing the CRAR of RRBs to at least 9%, the K C Chakrabarty Committee recommended recapitalization support to the extent of Rs 2,200 crore to 40 RRBs in 21 States.

The recapitalization process started in 2010-11. The share of Central Government in respect of some RRBs could not be released in the absence of the release of the share of state governments.

Therefore, the scheme of recapitalization was extended up to March 31, 2014.

A total amount of Rs 1,086.70 crore has been released, as on March 31, 2014 to 39 RRBs including the Central Madhya Pradesh Gramin Bank.