Extension of Scheme of Recapitalisation of Regional Rural Banks to improve their Capital to Risk weighted Assets Ratio

No: --- Dated: Jul, 16 2015

The Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi, today gave its approval for extension for the next three years, that is upto 2016-17 of the scheme of recapitalisation of weak Regional Rural Banks (RRBs). These banks are unable to maintain their minimum Capital to Risk weighted Assets Ratio (CRAR) of 9 percent. 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. 

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. 

Background: 

The 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 Government of India, concerned State Government and Sponsor Banks with the issued capital shared in the proportion of 50 percent, 15 percent and 35 percent, respectively. With a view to bring the CRAR of RRBs to at least 9 percent, the Dr. K. C. Chakrabarty Committee recommended recapitalisation support to the extent of Rs.2,200 crore to 40 RRBs in 21 States. The recapitalisation 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 recapitalisation was extended upto 31st March, 2014. A total amount of Rs. 1086. 70 crore has been released, as on 31st March, 2014, to 39 RRBs including the Central Madhya Pradesh Gramin Bank