The government today approved Rs 632 crore capital infusionin cash-starved regional rural banks (RRBs) to improve their capital adequacyand lending capacity to the agriculture sector.
"RRBs will get Rs 632 crore from the centralgovernment", said a minister after the meeting of the Cabinet.
Following recommendations of Reserve Bank Deputy Governor KC Chakrabarty, the government had initiated recapitalisation process in 2009-10for 40 financially weak RRBs, which mainly provide credit to rural andagriculture sectors.
However, till March 2012, capitalisation was done in 16banks as several states did not provide their contribution.
In order to complete the process of recapitalisation, theCabinet has decided to extend the scheme by two years.
"The Union Cabinet today approved the release of 50 percent share of the central government for recapitalisation of the remaining RRBsto improve their capital to risk weighted assets ratio (CRAR)," anofficial statement said.
"The release of central government share is subject tothe release of state government and sponsor bank share," it added.
The capital of RRBs is shared by centre, states and thesponsor bank in the ratio of 50 per cent, 15 per cent and 35 per centrespectively.
Hence, in essence, these 16 RRBs would get Rs 1,264 crore offresh capital if all stakeholders contribute in proportion to their shares forrecapitalisation.
India has 82 RRBs and almost all of them are equipped withcore banking solutions.