The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, approved the amendments in the Regional Rural Banks (RRBs) Act, 1976 to enhance authorized and issued capital to strengthen their capital base and to bring flexibility in the shareholding between Central Government, State Government and Sponsor Bank. The term of the non-official directors appointed by the Central Government will be fixed not exceeding three years.

The amendments will ensure financial stability of RRBs which will enable them to play a greater role in financial inclusion and meeting credit requirements of rural areas and the Board of RRBs will be strengthened.

Background:

Regional Rural Banks were established under Regional Rural Banks Act, 1976 (the RRB Act) to create an alternative channel to the cooperative credit structure and to ensure sufficient institutional credit for the rural and agriculture sector. RRBs are jointly owned by Government of India, the concerned State Government and Sponsor Banks with the issued capital shared in the proportion of 50 percent, 15 percent and 35 percent respectively. As per provisions of the Regional Rural Banks Act, 1976 the authorized capital of each RRB is Rs. five crore and the issued capital is maximum Rs. one crore.

Regional Rural Banks capital reform expands capital and shareholding flexibility and limits non-official director tenure to strengthen governance. Amendments increase authorized and issued capital limits for Regional Rural Banks and permit flexibility in shareholding among Central Government, State Government and Sponsor Banks, while fixing an upper limit on the term of non-official directors appointed by the Central Government and strengthening RRB boards to ensure financial stability and support financial inclusion and rural credit delivery.