Cabinet approves Rs 632-cr capital infusion in RRBs

The government on Thursday approved capital infusion of Rs 632 crore in cash-starved regional rural banks (RRBs) to improve their capital adequacy and lending capacity to the agriculture sector.

"The RRBs will get Rs 632 crore from the central government", said a minister after the meeting of the Cabinet. Following recommendations of RBI deputy governor KC Chakrabarty, the government initiated recapitalisation process in 2009-10 for 40 financially weak RRBs, which provide credit to rural and agriculture sectors.

However, till March 2012, capital was infused in 16 banks as several states did not contribute. In order to complete the process of re-capitalisation, the Cabinet has decided to extend the scheme by two years.

 "The Union Cabinet on Thursday approved the release of 50% share of the central government for re-capitalisation of the remaining RRBs to improve the capital-to-risk-weighted-assets ratio (CRAR)," an official statement said.

"The release of the central government's share is subject to the release of state government's and sponsor bank's share," it added. The capital of RRBs is shared by the Centre, states and the sponsor bank in the ratio of 50%, 15% and 35% respectively.

Hence, in essence, these 16 RRBs would get Rs 1,264 crore of fresh capital if all stakeholders contribute in proportion to their share of recapitalisation. India has 82 RRBs and almost all of them are equipped with core banking solutions.