Accumulated loss of 17 RRBs surge to ₹6,467 crore

The three major stakeholders of Regional Rural Banks (RRBs) – Central government, sponsor public sector banks (PSBs) and the government of the State in which they operate – may have to worry about the future of 17 RRBs whose collective accumulated loss soared to ₹6,467 crore as of March-end 2020.

Accumulated loss

As of March-end 2019, 11 RRBs had a collective accumulated loss of ₹2,887 crore. The Central government has a 50 per cent shareholding in every RRB, with the sponsor public sector bank (PSB)/ commercial bank and the State government holding 35 per cent and 15 per cent stake, respectively.

The RRBs with huge accumulated losses as of March-end 2020 include: Bangiya GVB (₹1,048 crore), Odisha GB (₹1,026 crore), Utkal GB (₹963 crore), Madhya Pradesh GB (₹656 crore), Madhyanchal GB (₹548 crore), Uttar Bihar GB (₹377 crore) and Assam GVB (₹372 crore), according to data compiled by the National Bank for Agriculture and Rural Development (NABARD).

As on March 31, 2020, 17 out of the 45 RRBs had CRAR (capital to risk weighted assets ratio) less than 9 per cent, of which, 6 RRBs had negative CRAR, as per the data.

System-wide CRAR of the RRBs deteriorated from 11.5 per cent as on March 31, 2019, to 10.2 per cent as on March 31, 2020.

Gross Non-Performing Assets (GNPAs) as a percentage of Gross Loans Outstanding declined marginally from 10.8 per cent as on March 31, 2019, to 10.4 per cent as on March 31, 2020.

Infusion of capital

To wipe out their accumulated losses, boost their CRAR, and help them make loan-loss provisions, the three stakeholders in RRBs may have to inject capital.

RRBs were established in 1975 under the provisions of the Ordinance promulgated on September 26, 1975, and Regional Rural Banks Act, 1976.

These banks were established with a view to developing the rural economy by providing for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas; credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs; and for matters connected therewith and incidental thereto.

As per latest NABARD data, 26 Regional Rural Banks (RRBs) earned a profit of ₹2,203 crore in FY20, vis-a-vis 39 RRBs earning a profit of ₹1,759 crore in FY19.

However, the number of RRBs that incurred a loss increased to 19 (collective loss: ₹4,409 crore) in FY20, against 14 RRBs incurring a loss of ₹2,411 crore, as per NABARD data.

Section 35(6) of the Banking Regulation Act, 1949, empowers NABARD to conduct inspection of RRBs.

The number of RRBs came down to 45 in FY20 from 53 in FY19, as three RRBs in Uttar Pradesh were amalgamated to form Baroda U.P. Bank under the sponsorship of Bank of Baroda with effect from April 1, 2020, and the amalgamation of 10 public sector banks, which are sponsor banks of RRBs, into four with effect from April 1, 2020. These banks operated through a network of 21,850 branches across the country.

RRBs’ cumulative deposits increased 10 per cent year-on-year (y-o-y) to ₹4,78,547 crore as of March-end 2020. Their cumulative advances were up 6 per cent y-o-y to ₹2,98,256 crore.

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