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