Fresh capital of up to Rs1,850 crore may be given to the regional rural banks to pull farmers into a formal credit system by getting the banks to pay off high-interest loans to money lenders.
Fresh capital would also help these banks expand their branch rural network to meet the government’s aim of increasing the flow of agricultural credit. But putting fresh capital into these banks would need the cooperation of state governments, who are shareholders in them, said finance minister P. Chidambaram, after meeting the heads of India’s 96 regional rural banks.
The equity holding in these banks is divided between the Centre, governments of states where the banks are located?and commercial banks that have sponsored them.
Central and state governments hold 50% and 15%, respectively, of the equity in each such bank, while the sponsor bank holds the rest. The Centre does not want to dilute the equity stake of state governments and the shareholding pattern will remain unchanged in each regional bank that needs recapitalization after the fresh infusion of capital, said Chidambaram.
Sponsor banks are likely to contribute their share of fresh capital through cash, while the Centre could choose to infuse capital through bonds that could be used by these rural banks to meet prudential requirements, said a finance ministry official.
Regional rural banks are a key link in the chain of rural credit disbursal as they blend ground level presence in 559 of India’s 604 districts, with access to the resources of the sponsor bank. A presence in the remaining districts would be achieved by the end of next the fiscal, said Chidambaram.
These banks have been set a broad goal of paying off farmers’ loans to money lenders. A start has been made by a few such banks, but “a large number hasn’t been done (yet),” said Chidambaram.
The government is yet to work out guidelines on the way these banks could gradually pull farmers out the grip of money lenders and targets have not been set, said Pawan Kumar Bansal, Union minister of state for finance.
Farmer households make up 89 million of the 203 million households in the country, and 73% of farm households do not have access to formal sources of credit, Usha Thorat, deputy governor of the Reserve Bank of India (RBI), had said at a conference in London on 19 June.
Chidambaram said these rural banks have also been set other goals such as bringing down their proportion of bad loans as a group. Sixteen such banks, which have both accumulated losses and current losses, have been asked to devise ways to become viable by the end of 2009-10, he added.
Regional rural banks, as a group, have net non-performing assets (NPAs) level of 3.4%. The?Centre?wants?them to bring it down to 1.3%, or lower by 31 March 2010. In comparison, the level of net NPAs of commercial banks stood at 2% on 31 March 2006.