The National Bank for Agriculture and Rural Development (NABARD) sees a trend of consolidation in the rural financial institutions space this fiscal and the number of regional rural banks (RRBs) may shrink further to 38 from 45 at present.
Also, some States have initiated the merger of district central co-operative banks (DCCBs) with State co-operative banks .
It is also laying the foundations for ushering in a risk-based supervision (RBS) regime for RRBs.
Harsh Kumar Bhanwala, Chairman, NABARD, said that consolidation in the rural financial institutions space is being driven by the need for regular investment in technology and limitations in measuring and enforcing managerial/governance norms. The number of RRBs came down from 56 to 45 due to amalgamation in FY2019. NABARD has also suggested that the State governments consider merging district central co-operative banks with State co-operative banks.
“Size limitation is one of the major risks for DCCBs. Since their area of operation is small and if the same is hit by a natural calamity, DCCBs’ entire lending portfolio could be affected. These banks are at huge financial risk on that account,” explained Bhanwala.
Two State governments — Kerala and Punjab — have initiated moves to amalgamate their DCCBs with State co-operative banks.
According to NABARD’s FY2018 annual report, there were 34 State co-operative banks and 364 DCCBs across the country.
Risk-based supervision
NABARD is gradually getting all the information from the regulated entities upfront in order to examine their financial soundness and to suggest ways and means for strengthening the institutions so as to enable them to play a more efficient role in purveying rural credit. Section 35(6) of the Banking Regulation Act, 1949, empowers NABARD, which was set up in 1982 by the government as a development bank for fostering rural prosperity, to conduct inspection of State co-operative banks, DCCBs and RRBs.
“There is an ‘ENSURE’ (ElectroNic SUbmission of REturns) portal of NABARD. So, the entire information — on assets, non-performing assets (NPAs), asset-liability management (ALM), interest rates being charged, etc — on which we base our further probe/inspection is upfront collected on the portal. So, we are better prepared in carrying out the inspection. This will ultimately pave the way to move towards risk-based supervision (RBS) of banks governed by us,” said Bhanwala.
RBS will help NABARD in taking a differentiated approach in dealing with the regulated entities.
Fund-raising
NABARD will be raising the same quantum of funds in FY2020 as it did in the previous financial year.
In FY2019, the development bank raised short-term funds aggregating to ₹2-lakh crore and long-term funds aggregating to ₹56,000 crore.