Cabinet approves Rs 1,100 cr fund infusion in RRBs

New Delhi, Feb 10 (PTI) The government today approvedcapital infusion of Rs 1,100 crore for Regional Rural Banksfor improving their capital adequacy ratio.

"Share of Central Government that is Rs 1,100 crorewill be released as per provisions made by the Department ofExpenditure in 2010-11 and 2011-12," Information andBroadcasting Minister Ambika Soni told reporters after aCabinet meeting here.

The issued capital of RRBs is subscribed by CentralGovernment, State Government and sponsor banks in theproportion of 50 per cent, 15 per cent and 35 per cent,respectively.

However, release of Government of India share will becontingent on proportionate release of State Government andSponsor Bank share, Soni said.

RRBs are jointly owned by Government of India, theState Government concerned and the Sponsor banks.

The fund infusion in RRBs will improve their Capitalto Risk Weighted Assets Ratio CRAR) and enable the banks toenhance their lending towards farm sector.

Besides, the Cabinet approved additional amount of Rs700 crore as contingency fund to meet the requirement of theweak RRBs, particularly those in the North Eastern and EasternRegion.

The necessary provision will be made in the Budget asand when the need arises, she said.

Soni said a capacity building fund with a corpus ofRs 100 crore is to be set up by the Central Government withNational Bank for Agriculture and Rural Development (NABARD)for training and capacity building of the RRB staff in theinstitution of NABARD and other reputed institutions.

The functioning of the Fund will be periodicallyreviewed by the Central Government.

An Action Plan will be prepared by NABARD in thisregard and sent to Government for approval, she added.

Finance Minister Pranab Mukherjee after review of RRBsin 2009, constituted a committee under the Chairmanship of RBIDeputy Governor K C Chakrabarty.

This was to analyse the financials of the RRBs andsuggest measures including re-capitalisation to bring the CRARof RRBs to at least 9 per cent in a sustainable manner by2012.

The Committee, which submitted its report in May,2010, had recommended RRBs to have CRAR of at least 7 per centas on March 31, 2011 and at least 9 per cent by the end ofMarch 2012.

Recapitalisation requirement is of the order of Rs2,200 crore for 40 of the 82 RRBs. This amount is to bereleased in two installments in 2010-11 and 2011-12, the panelhad recommended.

The remaining 42 RRBs will not require any capital andwill be able to maintain CRAR of at least 9 per cent as onMarch 31, 2012, it had suggested.