The cabinet has approved a Rs. 632 crore funding for cash deficient regional rural banks (RRB) to give some support to their capital adequacy and lending capabilities to the agricultural sector.
The move is a result of Dr. K.C. Chakrabarty's recommendations to recapitalize 40 sick RRBs, which provide loans to the priority sector. As of March 2012, 16 banks were recapitalized, while there were issues with the state government's contribution for the remainder.
"The Union Cabinet today approved the release of 50 per cent share of the central government for recapitalisation of the remaining RRBs to improve their capital to risk weighted assets ratio (CRAR)," said an official release.
The central government owns half of the capital of RRBs, while the sponsor bank owns 35%, the remainder is owned by the state government. In case of recapitalization the contributions are to be made on proportionate basis.