The Cabinet Committee on Economic Affairs on March 25, 2020 gave its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20, that is, up to 2020-21.
Those RRBs will be recapitalizes which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR) of 9%, as per the regulatory norms prescribed by the Reserve Bank of India.
The CCEA also approved utilization of Rs.670 crore as central government share for the scheme of Recapitalization of RRBs (i.e. 50% of the total recapitalization support of Rs.1340 crore), subject to the condition that the release of Central Government’s share will be contingent upon the release of the proportionate share by the sponsor banks.
K.C. Chakrabarty report: Consequent upon RBI’s decision to introduce disclosure norms for Capital to Risk Weighted Assets Ratio (CRAR) of RRBs with effect from March 2008, a committee was set up under the Chairmanship of Dr. K.C. Chakrabarty. Based on the Committee’s recommendations, a Scheme for Recapitalization of RRBs was approved by the Cabinet in its meeting held on 10th February, 2011 to provide recapitalization support of Rs. 2,200 crore to 40 RRBs with an additional amount of Rs. 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly in the North Eastern and Eastern Region. Therefore, based on the CRAR position of RRBs, as on 31st March of every year, National Bank for Agriculture and Rural Development (NABARD) identifies those RRBs, which require recapitalisation assistance to maintain the mandatory CRAR of 9%.
What is Capital to Risk Weighted Assets Ratio (CRAR) ?
Capital to risk weighted asset ratio (CRAR) is the capital needed for a bank measured in terms of the assets (mostly loans) disbursed by the banks. Higher the assets, higher should be the capital by the bank.
