In its bid to improve capital to risk weighted assets ratio (CRAR) of Regional Rural Banks (RRB), the government has approved the release of Rs 632 crore for recapitalization of cash-starved RRBs. The Union Cabinet’s move to release 50 percent share of the central government for recapitalization of the remaining RRBs is likely to help the banks in enhancing their capital adequacy and lending capacity to the agriculture sector.
The central government shares 50% of the issued capital of RRBs while the concerned state government and the sponsor bank share 15% and 35%, respectively. As all state governments have not contributed their share, the government decided to extend the scheme of capitalization of weak RRBs by another 2 years in order to complete the process of recapitalization.
As per the recommendations of Dr Chakrabarty, Deputy Governor, RBI, the government had initiated the process of recapitalization of 40 financially weak RRBs in 2009-10 and capitalization in 16 RRBs was completed till the end of March, 2012. The Regional Rural Banks were established in 1975 with the objective to create an alternative channel to 'cooperative credit structure' with a view to ensure sufficient institutional credit for rural and agriculture sector.
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