The Cabinet Committee on Economic Affairs (CCEA) has given a green signal to infuse ₹1,340 crore capital in the Regional Rural Banks (RRBs) so that they can meet the minimum capital requirements and become financially stronger by extending quality loans.
Crux of the Matter
What’s the Deal? Regional Rural Banks were formed under the RRB Act, 1976 with an aim to extend credit and other facilities to farmers, artisans, and agricultural labourers in the rural region. The government’s recapitalization plan for RRBs began in 2011 and is going on in phases. This year the CCEA has approved ₹1,340 crores for RRBs to help them maintain their capital to risk-weighted asset ratio (CRAR). This ratio is an important measure of a bank’s health as it measures the capital available with the bank versus the various risks it undertakes. A higher positive balance denotes a healthy company that has the capacity to absorb losses as well. The government will infuse ₹670 crores in the RRBs in the next financial year to stabilize RRBs’ CRAR. Other ₹670 crores will be infused by sponsor banks. The recap will be directed to only those RRBs that are unable to maintain CRAR of 9%.
Why is it Important? Structurally, the government holds a 50% stake in the RRBs, while 35% and 15% are held by sponsor banks and state governments. Adhering to the RBI guidelines, RRBs have to lend 75% of their total credit under the Priority Sector Lending (PSL) that includes lending to small farmers, rural artisans, small enterprises, and weaker sections of the society. Therefore, infusing capital in RRBs is the government’s responsibility so as to enable these banks to lend to these borrowers and continue their support to rural livelihoods. Currently, there are 45 operational Regional Rural Banks. And given the critical time of lockdown due to the pandemic Coronavirus, making rural banks more robust and efficient could support the lives of daily wagers and many rural dwellers.
In a policy statement, RBI Governor Shaktikanta Das announced that all the banks, NBFC, Housing Finance Companies, RRBs, Scheduled Commercial banks (SCB) will be allowed a moratorium of 3 months on payment of installments by customers as of 1/3/2020. https://t.co/F1dhZChcyC — Tushar (@tushjain15) March 27, 2020
Curiopedia
Regional Rural Banks are Indian Scheduled Commercial Banks (Government Banks) operating at a regional level in the different states of India. They have been created with a view of serving primarily the rural areas of India with basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too. The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. Such banks perform various functions in the following heads:
Providing banking facilities to rural and semi-urban areas.
Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions, etc.
Providing Para-Banking facilities like locker facilities, debit and credit cards, mobile banking, internet banking, UPI etc.
Small financial banks. More Info
Curated Coverage
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