Govt plans IPO to boost capital of select regional rural banks

The government is planning to list a few financially strong regional rural banks (RRBs) on the stock exchanges, in order to augment their capital base, as part of banking sector reconstruction.

This is outside the budgetary support of Rs235 crore in the current year’s budget towards recapitalisation of RRBs and at least 3-4 RRBs are likely to hit the capital market this year, say reports.
Also, according to reports, the consolidation exercise currently underway could bring down the number of RRBs to 38 from the current 45, with the possibility that some more consolidations will take place as state governments give their go-ahead.
As many as 21 banks were amalgamated in various states in the last few months to create larger entities having scale and higher capital base. Amalgamation of RRBs within a state also minimises overheads, optimise the use of technology, expand area of operation and increase their exposure.
These banks were formed under the RRB Act, 1976 with an objective to provide credit and other facilities to small farmers, agricultural labourers and artisans in rural areas.
The Act was amended in 2015 whereby such banks were permitted to raise capital from sources other than the centre, states and sponsor banks. Currently, the centre holds 50 per cent in RRBs, while sponsor banks and state governments hold 35 per cent and 15 per cent, respectively, with these banks.
Even after stake dilution through IPOs, the shareholding of the centre and the sponsor public sector banks together cannot fall below 51 per cent as per the amended Act.