Regional rural banks (RRBs) may soon be allowed to tap retail and institutional investors to raise capital.
A Bill to allow RRBs to raise capital from sources other than the Central Government, State Governments and sponsor banks, was introduced by the Minister of State for Finance Jayant Sinha, in the Lok Sabha on Thursday. This is significant as RRBs are currently not permitted to raise capital from investors other than Central and State Governments and sponsor banks.
While allowing RRBs to raise capital from external investors, the Bill has stipulated that in no event can the combined shareholding of the Central Government and sponsor banks go below 51 per cent.
Currently, the Centre’s shareholding in RRBs is pegged at 50 per cent, while sponsor banks and State governments hold 35 per cent and 15 per cent, respectively.
The Bill also stipulates that State Governments will have to be consulted if their shareholding in RRBs is reduced to below 15 per cent.
Besides increasing the authorised share capital of each RRB to ₹2,000 crore from the existing ₹5 crore, the Bill also provides for continuing managerial and financial assistance from sponsor banks beyond the first five years of functioning of such banks.