Recapitalization of RRBs to improve Capital to Risk Weighted Assets Ratio

The Union Cabinet today approved the release of 50% share of the Central Government for recapitalization of remaining Regional Rural Banks (RRB) to improve their Capital to Risk Weighted Assets Ratio (CRAR).

As all State Governments have not contributed their share the Cabinet decided to extend the scheme of capitalization of weak RRBs by another 2 years.

Background

The Regional Rural Banks were established in 1975 with the objective to create an alternative channel to `cooperative credit structure` with a view to ensure sufficient institutional credit for rural and agriculture sector. The issued capital of RRBs is shared by Central Government, the concerned State Government and the sponsor bank in the proportion of 50%, 15% and 35%, respectively.

In pursuance of the recommendations of Dr. Chakrabarty, Deputy Governor, RBI on CRAR of RRBs, Government had initiated the process of recapitalization of 40 financially weak RRBs in 2009-10. The recapitalization amount has to be shared by stake holders in proportion of their share holding.

The release of Central Government share is subject to release of State Government and sponsor bank share. Capitalization has been completed in 16 RRBs till the end of March, 2012.

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