Financial Daily from THE HINDU group of publications
Tuesday, May 10, 2005
Financial Daily from THE HINDU group of publications Tuesday, May 10, 2005 |
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Money & Banking
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Regional Rural Banks Capital adequacy norms for RRBs likely Our Bureau
Mumbai , May 9 THE Reserve Bank of India may prescribe a minimum capital adequacy ratio for regional rural banks (RRBs). An internal committee of the RBI has suggested that a regulatory minimum capital adequacy ratio be made applicable to the RRBs. Currently, they are out of the purview of the minimum nine per cent capital to the risk weighted asset ratio (CRAR) mandatory for commercial banks. From the regulatory perspective, the CRAR forms the most important indicator for assessing the soundness and solvency of banks. Considering the peculiar circumstances under which the RRBs operate, the RBI committee is understood to have a prescribed a lower CRAR of five per cent for RRBs. Earlier, a Government-appointed working group had also suggested a phased introduction of a five per cent CRAR for regional rural banks from 2003. It was also suggested that the weak RRBs, which were not be able to mobilise capital to meet the norms, could seek an exemption from the RBI. The RBI committee is also understood to have suggested that the RRBs be allowed to raise funds through issue of bonds if their owners fail to re-capitalise them. The RRBs are owned jointly by the Central and State Governments and public sector banks. These banks may also be allowed to explore new areas of business such as selling mutual funds etc. As part of the restructuring of the RRBs, the committee favoured a merger of select RRBs intra-State. It was not in favour of merger of the RRBs with the sponsor banks.
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