Centre issues draft guidelines for RRBs to raise funds via IPOs

Taking a step ahead to enable regional rural banks to raise funds via IPOs, the centre has set basic criteria for these banks to be able to get listed on the stock exchange.

The draft guidelines that mention the basic criteria for these banks include different terms and conditions like the net worth of at least ₹300 crore during the previous three years. Along with this, the respective RRBs aiming for public listing in the stock exchange market should also have capital adequacy above the regulatory minimum level of 9 per cent in each of the preceding three years.

There is also a set criterion of profitability for these banks, the RRBs should have a profitable record of minimum ₹15 crore for at least three out of the previous five years, stated the draft guidelines received by the finance ministry.

Apart from this, the bank should not have any accumulated loss. Moreover, the RRB should have given the return on equity of a minimum of 10 per cent in three out of the preceding five years, it said.

Sponsor banks will identify IPO lenders for RRBs

If all the criteria are fulfilled then it is the onus of the sponsor banks to identify suitable lenders for issuing an initial public offering of the RRBs. Along with this, the sponsor banks will also make sure that the chosen RRBs comply with the relevant norms and regulations of the Securities and Exchange Board of India (Sebi) and Reserve Bank of India (RBI) related to capital raising and disclosure requirements.

Notably, regional rural banks (RRB) are sponsored by Public Sector Banks (PSBs). They play an crucial role in credit generation in the agricultural sector.

As of now, the centre holds around 50 per cent stakes in RRBs. Whereas, around 35 per cent stakes are held by respective sponsor banks and the remaining 15 per cent shares are held by state governments.

RRBs play a crucial role in Agriculture sector

Formed under the RRB Act, 1976, these banks were the result of an effort to enhance credit creation in rural India, specifically in the agriculture sector. RRBs help in providing credit and other facilities to small farmers, agricultural labourers, and artisans in rural areas.

To increase source of raising funds for RRBs, the Act was amended in 2015. With this, RRBs were permitted to raise capital from sources other than the Centre, states and sponsor banks.

As of now, the RRBs have the option to issue perpetual debt instruments as another way to obtain regulatory capital. Moreover, RBI has made these instruments eligible for inclusion as extra tier-1 capital, with certain restrictions.

Currently, 43 RRBs are supported by 12 public sector banks. Out of them, 30 RRBs have together earned a net profit of ₹1,682 crore in year 2020-21.

With 21,856 branches, these RRBs have a wide network across rural areas of 26 states and 3 Union Territories of India. There are around 28.3 depositors and 2.6 crore borrowers from RRBs.

(With inputs from PTI)