The Union Cabinet, chaired by the Prime Minister Narendra Modi on 2 December 2014 approved Regional Rural Banks (Amendment) Bill, 2013. The Bill seeks to amend the Regional Rural Banks (RRBs) Act, 1976.
The Bill will help enhance authorized and issued capital to strengthen their capital base and to bring flexibility in the shareholding between Union Government, State Government and Sponsor Bank.
Apart from this, the cabinet also decided that the term of the non-official directors appointed by the Union Government will be fixed and should not exceed three years.
Regional Rural Banks (Amendment) Bill, 2013
• The Regional Rural Banks (Amendment) Bill, 2013 was introduced in the Lok Sabha on 22 April 2013. The Bill was referred to the Standing Committee on Finance under the Chairmanship of Yashwant Sinha for examination.
• The Bill removes the five year upper limit mandated for Sponsor Banks to subscribe to the share capital of RRBs, train their personnel and provide managerial and financial assistance, thus allowing such assistance to continue beyond this duration.
• It increases the authorized capital of RRBs from 5 crore rupees to 500 crore rupees and the threshold limit from 25 lakh rupees to 1 crore rupees.
• It increases the ability of Union government to specify the capital issued by an RRB from earlier 25 lakh rupees – 1 crore rupees to 1 crore rupees and beyond.
• At present the shareholding pattern of RRB is 50 percent is subscribed to by the Union government, 15 percent by the concerned state government and 35 percent by the Sponsor Bank. The Bill permits an RRB to raise capital from other sources in addition to Union government, concerned State government and Sponsor Bank. In such case, however, the combined shareholding of the Union government and the Sponsor Bank shall not be less than 51 percent.
• It requires Union government to consult the concerned state government if the latter’s level of shareholding falls below 15 percent.
• The Bill provides for the appointment of Board of Directors by other entities also in addition to the nominations made by the Union government, the concerned state government, the Reserve Bank of India, NABARD and the Sponsor Bank. However, such nomination by other entities shall be in proportion to the share held by such entities.
• The Bill removes the specification that the term of a director shall not exceed two years and that he shall be eligible for re-nomination. However, this is only for directors other than those appointed by the central government.
• It retains the two year maximum term for directors appointed by the central government. Further, it states that such a director shall be eligible for re-nomination provided that he does not hold office for more than four years.
• As per the Act, the books of an RRB should be closed and balanced as on December 31 every year. The Bill changes the above date to March 31.
Regional Rural Banks (RRBs)
Regional Rural Banks (RRBs) were established in 1975 under the Ordinance promulgated on the 26 September 1975 and followed by Regional Rural Banks Act, 1976. It was established to create an alternative channel to the cooperative credit structure and to ensure sufficient institutional credit for the rural and agriculture sector.
The RBI in 2001 constituted a Committee under the Chairmanship of Dr V S Vyas on Flow of Credit to Agriculture and Related Activities from the Banking System which examined relevance of RRBs in the rural credit system and the alternatives for making it viable.
As a result of amalgamation, number of the RRBs has been reduced from 196 to 64 as on 31 March 2013. The number of branches of RRBs increased to 17856 as on 31 March 2013 covering 635 districts throughout the country.