The Hindu Business Line : ‘Cash support, not bonds, will help loss-making RRBs’

Kolkata, Nov. 14 The All India Regional Rural Bank Employees Association (AIRRBEA) has urged the Finance Ministry to opt for the cash route in preference to the bond route as a means to providing capital support to RRBs (regional rural banks) with negative net worth.

As announced by the Finance Minister in his last Budget speech, such support is to be provided by the Union Government as per the recommendations of the Reserve Bank of India and the National Bank for Agriculture & Rural Development and the process is believed to have already started.

In the case of the cash route, the RRBs, according to AIRRBEA, get liquid funds which they can immediately deploy as per the priorities set by them. This is not possible under the bond route. Second, the bonds being subject to market fluctuations, any erosion in their value caused by such fluctuations will be detrimental to the RRBs concerned. Next, the liquidity risk and the market risk of the sponsor bank and the State Government concerned will rise in case the bond route is opted for. Also, any bond available with RRBs with huge accumulated losses will have virtually no market for trading.

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