Study Notes: Banking and Finance

Dear BA’ins, 

Today in the study Notes we are Discuss about India’s RRBs (Regional Rural Banks) 

The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. The area of operation of the RRBs is limited to notified few districts in a State. The RRBs mobilise deposits primarily from rural/semi-urban areas and provide loans and advances mostly to small and marginal farmers, agricultural labourers , rural artisans and other segments of priority sector.

The RBI in 2001 constituted a Committee under the Chairmanship of Dr V S Vyas on “Flow of Credit to Agriculture and Related Activities from the Banking System” which examined relevance of RRBs in the rural credit system and the alternatives for making it viable. The consolidation process thus was initiated in the year 2005 as an off-shoot of Dr Vyas Committee Recommendations. First phase of amalgamation was initiated Sponsor Bank-wise within a State in 2005 and the second phase was across the Sponsor banks within a State in 2012. The process was initiated with a view to provide better customer service by having better infrastructure, computerization, experienced work force, common publicity and marketing efforts etc. The amalgamated RRBs also benefit from larger area of operation, enhanced credit exposure limits for high value and diverse banking activities. As a result of amalgamation, number of the RRBs has been reduced from 196 to 64 as on 31 March 2013. The number of branches of RRBs increased to 17856 as on 31 March 2013 covering 635 districts throughout the country.

The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and other sources including SIDBI and National Housing Bank.

The owned funds of RRBs comprising of share capital, share capital deposits received from the shareholders and the reserves stood at  19304 crore as on 31 March 2013 as against  16462 crore as on 31 March 2012; registering a growth of 17.26%. The increase in owned funds to the tune of  2842 crore was mainly on account of accretion to reserves by the profit making RRBs. The share capital and share capital deposits together amounted to  6174 crore of total owned fund while the balance amount of  13130 crore represented reserves.

(a) The Chakrabarty Committee reviewed the financial position of all RRBs in 2010 and recommended for recapitalisation of 40 out of 82 RRBs for strengthening their CRAR to the level of 9 per cent by 31 March 2012. According to the Committee, the remaining RRBs are in a position to achieve the desired level of CRAR on their own. Accepting the recommendations of the committee, the GOI along with other shareholders decided to recapitalise the RRBs by infusing funds to the extent of  2200 Crore. The shareholder wise proportion (GOI/Sponsor Banks/State Governments) is 50:35:15 respectively. 

(b) As on 31 March 2013, an amount of  2015.86 crore has been released to 37 RRBs in 20 States. The released amount includes GoI’s contribution of  1003.92 crore, State Govt’s contribution of 303.59 crore and Sponsor bank’s contribution of  708.35 crore. The recapitalisation is complete in respect of 35 RRBs (5 in Odisha , 3 in MP, 2 in Uttarakhand, 2 in Jharkhand, 2 in Chhatisgarh, 2 in Bihar, 2 in Maharashtra, 3 in West Bengal, 5 in Rajasthan and one each in Assam, Arunachal Pradesh, Nagaland, Tripura, J&K, Karnataka, Tamil Nadu, Gujarat & UT of Puducherry). GoI share 7.99 cr. is pending in respect of Manipur Rural Bank. Mizoram State Government has partially released  0.50 crore in respect of Mizoram Rural Bank and  2.80 crore is pending. Two State Govts. viz. UP(2 RRBs), & J&K (1 RRB) have not released any amount in respect of 3 RRBs operating in their states. Out of 35 fully recapitalised RRBs, 3 RRBs viz. Central Madhya Pradesh GB, Manipur Rural Bank and Mizoram GB have not achieved CRAR of 9 per cent as on 31.3.2013.

Deposits of RRBs increased from  186336 crore to  211458 crore during the year registering growth rate of 13.48 %. There are Thirty three (33) RRBs having deposits of more than  3000 crore each.

The Regional Rural Banks (Amendment) Bill, 2014

The Regional Rural Banks (Amendment) Bill, 2014 was introduced by the Minister of Finance, Mr. Arun Jaitley, in Lok Sabha on December 18, 2014.  The Bill seeks to amend the Regional Rural Banks Act, 1976. 

The Regional Rural Banks Act, 1976 mainly provides for the incorporation, regulation and winding up of Regional Rural Banks (RRBs). 

Sponsor banks:  The Act provides for RRBs to be sponsored by banks.  These sponsor banks are required to (i) subscribe to the share capital of RRBs, (ii) train their personnel, and (iii) provide managerial and financial assistance for the first five years.  The Bill removes the five year limit, thus allowing such assistance to continue beyond this duration.

Authorised capital:  The Act provides for the authorised capital of each RRB to be Rs five crore.  It does not permit the authorised capital to be reduced below Rs 25 lakh.  The Bill seeks to raise the amount of authorised capital to Rs 2,000 crore and states that it cannot be reduced below Rs one crore.

Issued capital:  The Act allows the central government to specify the capital issued by a RRB, between Rs 25 lakh and Rs one crore.  The Bill requires that the capital issued should be at least Rs one crore.

Shareholding: The Act mandates that of the capital issued by a RRB, 50% shall be held by the central government, 15% by the concerned state government and 35% by the sponsor bank.  The Bill allows RRBs to raise their capital from sources other than the central and state governments, and sponsor banks.  In such a case, the combined shareholding of the central government and the sponsor bank cannot be less than 51%.  Additionally, if the shareholding of the state government in the RRB is reduced below 15%, the central government would have to consult the concerned state government.  

The Bill states that the central government may by notification raise or reduce the limit of shareholding of the central government, state government or the sponsor bank in the RRB. In doing so, the central government may consult the state government and the sponsor bank.  The central government is required to consult the concerned state government when reducing the limit of shareholding of the state government in the RRB.

Board of directors:  The Act specifies the composition of the Board of Directors of the RRB to include a Chairman and directors to be appointed through the central government, NABARD, sponsor bank, Reserve Bank of India, etc.  The Bill states that any person who is a director of an RRB is not eligible to be on the Board of Directors of another RRB.

The Bill also adds a provision for directors to be elected by shareholders based on the total amount of equity share capital issued to such shareholders.  If the equity share capital issued to shareholders is 10% or less, one director shall be elected by such shareholders.  Two directors shall be elected by shareholders where the equity share capital issued to them is from 10% to 25%.  Three directors shall be elected in case of equity share capital issued being 25% or above.  If required, the central government can also appoint an officer to the board of directors to ensure effective functioning of the RRB.

The Act specifies the term of office of a director (excluding the Chairman) to be not more than two years.  The Bill raises this tenure to three years.  The Bill also states that no director can hold office for a total period exceeding six years.

Closure and balancing of books:  As per the Act, the books of a RRB should be closed and balanced as on December 31 every year.  The Bill changes this date to March 31 to bring the Act in uniformity with the financial year.  

At present there are 56 RRBs in India (There is no RRBs working in Goa and Sikkim)

Name of the RRBs Present Head Office State / UT 

1. Allahabad UP Gramin Bank Banda, Uttar Pradesh 

2. Andhra Pradesh Grameena Vikas Bank Warangal, Telangana 

3. Andhra Pragathi Grameena Bank Kadapa, Andhra Pradesh 

4. Arunachal Pradesh Rural Bank Naharlagun (Papumpare), Arunachal Pradesh 

5. Assam Gramin Vikash Bank Guwahati, Assam 

6. Bangiya Gramin Vikash Bank Murshidabad, West Bengal 

7. Baroda Gujarat Gramin Bank Bharuch, Gujarat 

8. Baroda Rajasthan Kshetriya Gramin Bank Ajmer, Rajasthan

9. Baroda UP Gramin Bank Raibareilly, Uttar Pradesh 

10. Bihar Gramin Bank Begusarai, Bihar 

11. Central Madhya Pradesh Gramin Bank Chhindwara, Madhya Pradesh 

12. Chaitanya Godavari Grameena Bank Guntur, Andhra Pradesh 

13. Chhattisgarh Rajya Gramin Bank Raipur, Chhattisgarh 

14. Dena Gujarat Gramin Bank Gandhinagar, Gujarat 

15. Ellaquai Dehati Bank Srinagar, Jammu & Kashmir 

16. Gramin Bank of Aryavart Lucknow, Uttar Pradesh 

17. Himachal Pradesh Gramin Bank Mandi, Himachal Pradesh 

18. J & K Grameen Bank Jammu, Jammu & Kashmir 

19. Jharkhand Gramin Bank Ranchi, Jharkhand 

20. Karnataka Vikas Grameen Bank Dharwad, Karnataka 

21. KashiGomtiSamyut Gramin Bank Varanasi, Uttar Pradesh 

22. Kaveri Grameena Bank Mysore, Karnataka 

23. Kerala Gramin Bank Mallapuram, Kerala 

24.  Langpi Dehangi Rural Bank Diphu, Assam 

25. Madhya Bihar Gramin Bank Patna, Bihar 

26. Madhyanchal Gramin Bank Sagar, Madhya Pradesh 

27.  Maharashtra Gramin Bank Aurangabad, Maharashtra 

28. Malwa Gramin Bank Sangrur, Punjab 

29.  Manipur Rural Bank Imphal, Manipur 

30. Meghalaya Rural Bank Shillong, Meghalaya 

31. Mizoram Rural Bank Aizawl, Mizoram 

32. Nagaland Rural Bank Kohima, Nagaland 

33. Narmada Jhabua Gramin Bank Indore, Madhya Pradesh 

34. Odisha Gramya Bank Bhubaneshwar, Odisha 

35.  Pallavan Grama Bank Salem, Tamil Nadu 

36.  Pandyan Grama Bank Virudhunagar, Tamil Nadu 

37. Paschim Banga Gramin Bank Howrah, West Bengal

38.  Pragathi Krishna Gramin Bank Bellary, Karnataka 

39. Prathama Bank Moradabad, Uttar Pradesh 

40. Puduvai Bharthiar Grama Bank, Puducherry 

41. Punjab Gramin Bank Kapurthala, Punjab

42. Purvanchal Bank Gorakhpur, Uttar Pradesh 

43.  Rajasthan Marudhara Gramin Bank Jodhpur, Rajasthan 

44. Saptagiri Grameena Bank Chittor, Andhra Pradesh  

45. Sarva Haryana Gramin Bank Rohtak, Haryana 

46. Sarva UP Gramin Bank Meerut, Uttar Pradesh 

47. Saurashtra Gramin Bank Rajkot, Gujarat 

48. Sutlej Gramin Bank Bhatinda, Punjab 

49. Telangana Grameena Bank Hyderabad, Telangana 

50. Tripura Gramin Bank Agartala, Tripura 

51. UtkalGrameen Bank Bolangir, Odisha 

52. Uttarbanga Kshetriya Gramin Bank Coochbehar West Bengal 

53. Uttar Bihar Gramin Bank Muzaffarpur Bihar, 

54. Uttarakhand Gramin Bank Dehradun, Uttarakhand 

55. Vananchal Gramin Bank Dumka, Jharkhand 

56. Vidharbha Konkan Gramin Bank Nagpur, Maharashtra 

  All the Very Best BA’ins for BOB PGDBF 2016