Regional Rural Banks Push for Annual Capital Support Following Recent Infusion

The recent infusion of Rs 6212.03 crore by the union government into Regional Rural Banks (RRBs) as part of the recapitalisation scheme aimed at maintaining a minimum prescribed capital-to-risk (Weighted) assets ratio of 9% has reignited the long-standing demand for annual capital support.

Demand of Annual Capital Support

In parallel with commercial banks, the All India Regional Rural Bank Employees Association (AIRRBEA) has underscored the necessity of annual capital support from the Government of India (GoI) to address rural finance and development needs. 

Despite continuous appeals from its workforce, the provision for annual capital support to RRBs remains absent. Recent protests have intensified, highlighting the urgency of this demand.

 The Secretary General of AIRRBEA expressed to Kanal, “RRBs require annual capital support on par with commercial banks, a concern yet to be addressed by the Government of India and Ministry of Finance. While the government allocated Rs. 3,10,997 crore for bank recapitalisation over the last five financial years from 2016–17 to 2021–22, RRBs did not receive equivalent financial backing.”

He emphasised, “With RRBs serving approximately 40 crore customers across India, second only to the State Bank of India (SBI) catering to nearly 45 crore customers, they rightfully merit annual capital support.”

In fact, commercial banks received Rs. 20,000 crore for recapitalisation in the fiscal year 2021–2022.

Importance of Annual Capital Support

Annual Capital Support is crucial for RRBs, facilitating liquidity enhancement, lending expansion, and improving the Capital to Risk Weighted Assets Ratio (CRAR), thereby fostering overall growth. Additionally, it would enable the establishment of new branches and ensure adequate recruitment of employees and staff against vacancies, essential for operational efficiency.

Incremental Capital Infusion to RRBs

As per the Department of Financial Services (DFS) report, FY 2021-22 marked a pivotal year for RRBs, with the Government of India allocating Rs. 10,890 crore (GoI share - Rs. 5,445 crore) of capital during FY 2021-22 and FY 2022-23. While the total recapitalisation assistance for these fiscal years amounts to Rs. 10,890 crore, including contributions from State Governments (15%) and Sponsor Banks (35%), RRBs have historically received limited capital infusion.

The recent allocation of Rs. 8168 crore as recapitalisation assistance to 22 RRBs for FY 2021-22 highlights the ongoing efforts to support these institutions. However, challenges persist in ensuring equitable distribution and timely disbursement of funds, with NABARD playing a crucial role in facilitating this process.

Turnaround Performance of RRBs

Amid limited capital support, RRBs in the fiscal year 2022-23 have achieved historic highs across all metrics in FY 2022-23. They recorded the highest consolidated net profit ever at Rs. 4,974 crore, with a consolidated Capital to Risk Weighted Assets Ratio (CRAR), reaching an all-time high of 13.43% as of March 31, 2023. The Gross Non-Performing Assets (GNPA), measuring asset quality, at 7.28%, was the lowest in the past seven years. The credit expansion led to a consolidated CD ratio increase to 67.50%, the highest in over 15 years.

In conclusion, the All India Regional Rural Bank Employees Association (AIRRBEA) has emphasised the critical importance of annual capital support for Regional Rural Banks (RRBs) to foster rural finance and development. This imperative need, underscored by the association, aims to ensure that RRBs receive equitable support comparable to commercial banks, acknowledging their significant role in serving millions of customers across India.