In a move to shore up capital adequacy of regional rural banks (RRBs) the centre has lined up recapitalisation plans aimed at rejuvenating the institutions with a capital risk-weighted assets ratio (CRAR) less than 7 per cent. The move will increase credit flow to poor farmers. The exact amount required is being worked out.
The government aims to strengthen weak RRBs to enable them to achieve 7 per cent CRAR by 2010 and 9 per cent by 2012. There were 33 RRBs with CRAR less than the 7 per cent mark as of March 2008 and though some improvement has been reported in 2008-09, the finance ministry is yet to release data pertaining to the 84-odd RRBs.
According to finance minister Pranab Mukherjee, the government wants all RRBs to earn profits by 2010 and in a review meeting with RRB chiefs on Tuesday, he outlined the recapitalisation plans according to which the centre, the state government and sponsor banks are to infuse capital in the ratio of their shareholding – i.e. 50 per cent, 15 per cent and 35 per cent respectively. However whether state governments would agree to chip in with funds for the recapitalisation remains to be seen.
As many as 27 RRBs have received fresh capital over the past two years to pull them into the positive CRAR zone to taken on fresh business. The banks received a recapitalisation package of Rs1,796 crore, however, the CRAR of as many as 22 RRBs remains less than 1 per cent while 11 have CRARs between 1 per cent and less than 7 per cent.
According to an RRB chairman a new committee would likely be set up to look into the capital infusion issue. According to All India Regional Rural Bank Employees Association general secretary, Dilip Kumar Mukherjee it was heartening that RRBs would get additional capital support as it was necessary to make the set up vibrant.
In the context of the draught-like conditions presently prevailing in the country, the finance minister has asked RRBs to support farmers with more credit. There are at present no proposals for loan waiver to affected farmers under consideration.
Mukherjee said that most of the 84 RRBs are profitable except for five. He added that a target of setting up 2,000 new branches in the next two years has been set up.
He said that the RRBs would switch to core banking by the end of 2010. He added that on the agriculture credit flow front the institutions were doing a good job.