Search the Internet          Tips  Sites: Finance, Investment

Centre's move on rural banks likely to spawn consolidation

BS Banking Bureau

The Centre's bid to strengthen and restructure 196 regional rural banks is likely to trigger a consolidation among them and an enabling regime which will allow them to undertake fee-based activities through amendments in the Regional Rural Banks Act, 1976.

Economics of size and financial viability considerations demand that there be mergers among rural banks, which have vast network of 14,475 branches, sources in the know of the development said.

This is significant in light of the fact that the Reserve Bank of India Deputy Governor Y V Reddy had said at the Bank Economists Conference earlier this year, that the RRBs should be revamped so that ownership of the Centre and states was made optional.

They could be brought under the Companies Act and flexible ownership promoted through Nabard.

At present, though RRBs, known in local parlance as grameen banks, can grant loans to small and marginal farmers, agricultural labourers, artisans, small entrepreneurs/ traders individually or to a group or co-operative societies they are precluded from undertaking fee-based activities.

A working group on the functioning of RRBs is of the view that amendments to the RRB Act should help them take up fee-based activities such as selling insurance products/services, mutual fund schemes, issue guarantees / demand drafts as also conduct state government business to a limited extent.

The group, which is analysing the whole gamut of financial, structural, recapitalisation and corporate governance needs of the RRBs, is examining the possibility of aligning the pay scales of the RRB employees with that of the public banks in keeping with the National Industrial Tribunal Award and keeping in view the banks capacity to pay.

The RRBs are jointly owned by the Centre, the government of the concerned state and sponsor nationalised banks.

The authorised capital of each bank is Rs 10 million and the issued capital is Rs 2.5 million. The three entities own capital in the proportion of 50 per cent, 15 per cent and 35 per cent, respectively.

Powered by

ALSO READ:
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report