The Central government has released draft guidelines for the listing of Regional Rural Banks (RRBs) on stock exchanges.
- The draft norms set certain basic criteria, including a net worth of at least Rs 300 crore during the previous three years.
- The banks should also have capital adequacy above the regulatory minimum level of 9 per cent in each of the preceding three years.
- The capital adequacy ratio (CAR) is a measure of how much capital a bank has available, reported as a percentage of a bank’s risk-weighted credit exposures.
- The purpose is to establish that banks have enough capital on reserve to handle a certain amount of losses, before being at risk for becoming insolvent.
- Moreover, the RRBs should have a track record of profitability and earned operating profit of minimum Rs 15 crore for at least three years of the previous five years.
- There should not be any accumulated loss and the lender should have given a return on equity of a minimum of 10 per cent in three out of the preceding five years.
About the ‘Regional Rural Banks’ –
- The Narasimham committee on rural credit (1975) recommended the establishment of Regional Rural Banks (RRBs) on the ground that they would be much better suited than the commercial banks or co-operative banks in meeting the needs of rural areas.
- Accepting the recommendations of the committee, the government passed the Regional Rural Banks Act, 1976.
- Primary objectives of RRBs include —
- Bridging the credit gap in rural areas.
- Check the outflow of rural deposits to urban areas.
- Reduce regional imbalances and increase rural employment generation.
- They have been created with a view of serving primarily the rural areas of India with basic banking and financial services.
- However, RRBs may have branches set up for urban operations and their area of operation may include urban area too.
- Ownership – RRBs are jointly owned by the Central Government, the concerned State Government and Sponsor Banks. The issued capital of a RRB is shared by the owners in the proportion of 50%, 15% and 35%