Regional Rural Banks (Amendment) Bill 2014 : Features

Regional Rural Banks (Amendment) Bill 2014: Features

Q.1: Banking is a crucial sector of the economy where reforms are needed. Discuss the features of the Regional Rural Banks (Amendment) Bill 2014 passed by the RS recently.

• RS has passed the Regional Rural Banks (Amendment) Bill 2014

• It seeks to amend the RRB Act 1976 which is concerned with the following functions of the RRBs:
- Incorporation
- Regulation
- Closure

• The Act removes 5 year limit cap placed on sponsor banks to provide assistance to upcoming RRBs as per the RRB Act 1976

• Earlier, according to the Act, sponsor banks were liable to train personnel and provide managerial as well as financial assistance for 5 years

• Amount of authorised capital was raised to INR 2000 crore and not reduced below INR 1 crore rupees; Earlier, authorised capital was INR 5 crore and it was not permitted to be reduced below INR 25 lakhs

• Union government will now be able to specify capital issued by RRB should be a minimum of INR 1 crore

• Bill also permits RRBs to raise capital from other sources rather than just central and state governments

According to the Act:

- 50% of capital is being issued by Union government
- 15% is by concerned state government
- 35% is by sponsor banks

• The Bill also states when capital is being raised by other sources, the shareholding of central government and sponsor banks cannot fall below 51%

• Also, state government will have to be consulted if shareholding of the state government in the RRB is lowered below 15%

• Union government may through notification raise/lower limit of shareholding patterns following consultation with state government and sponsor banks
• Bill also stipulates that person who is director of RRB is not eligible to be placed on Board of Directors of another RRB

• Directors of RRB board should be elected by shareholders associated with total amount of equity share capital issuance to such shareholders

• 2 directors will be elected by shareholders when equity share capital issued ranges from 10 to 25 percent

• Three directors should be elected when equity share capital issuance is beyond 25%

• The tenure of a director excluding the Chairman has been extended to minimum of three years and maximum of 6 years

• Date of closure and balancing of books to 31st March has provided uniformity in the fiscal

Facts and Stats

• RRBs were formed in 1975 as per an Ordinance promulgated on 26th September 1975 followed by the Regional Rural Banks Act 1976

• RRBs aim to develop rural economy

• They also create supplementary channel to Cooperative Credit structure

• RRBs funds comprise owned fund, deposits, NABARD borrowings, sponsor banks and other sources like SIDBI

• Owned funds of RRBs comprise share capital, share capital deposits from shareholders and reserves

• Owned fund of RRBs stood at 19304 crore in 2013 as against 16462 crore on March 2012