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The Government of India had constituted a committee in September 2009 (Chairman Dr. KC Chakrabarty committee) to study the current levels of capital-to-risk-waited asset ratio (CRAR) of RRBs and to suggest a road-map for achieving a CRAR of 9% by March 2012. The committee was also required to suggest the acquired capital structure for RRBs given their business level so that their CRAR is sustainable and provides for future growth and compliance with regulatory requirements. The committee submitted its report to the Government of India on April 30, 2010.
The following are the main recommendations of the KC Chakrabarty committee on recapitalisation of RRBs:
- The KC Chakrabarty committee carried out an assessment of capital requirement for all 82 RRBs to enable them to have CRAR of at least 7% as on March 31, 2011, and at least 9% from March 31, 2012, onward. The recapitalisation requirement would be Rs. 2200 crore for 40 out of 82 RRBs. This amount may be released in two installments i.e., Rs. 1338 crore in 2010-11 and Rs. 863 crore 2011-12. The remaining 42 RRBs will not acquire any capital and will be able to maintain CRR of at least 9% as on March 31, 2012, and thereafter on their own.
- The committee noted that some of the weak RRBs, particularly in North-Eastern and Eastern regions, might not be able to fully meet all the projected business parameters despite generally achieving acceptable growth. The committee, therefore, suggest that an additional amount of Rs. 700 crore may be kept to meet such contingencies and need based-additional capitalization provided to such RRBs once their draft balance sheets are prepared.
- The recapitalisation of Rs. 2200 crore to 40 RRBs should be one-time measure, and released subject to the signing of the memorandum of understanding (MoU) by the chairman of the RRB and on achieving the performance parameters specified in MoU. As per section 5 of the RRB Act, the authorized capital of RRB is Rs. 5 Crore. As a result recapitalisation amount are kept as share capital deposit. The KC Chakrabarty committee has recommended that the accumulated losses on March 31, 2010, may be written off against the available share capital deposits and the balance amount of share capital deposit may be appropriated as paid-up capital further, in view of expanding business of the RRB, the KC Chakrabarty committee recommended to increase in the authorized capital RRBs to Rs. 500 crore.
- In order to build public confidence, in due course, RRB with higher net worth may be allowed to access capital from the market.
- For improving the functioning of the RRB, change of sponsor banks may be considered, where ever required.
- RRB with a net worth of Rs. 100 crore or more as on March 2009 may be permitted to pay the dividend on April 1, 2013, onward. RRBs to be recapitalised in the current phase may be allowed to pay the dividend only after achieving a sustainable CRAR of at least 9%.
- RBI may prescribe “Fit and Proper” criteria for chairman of RRB. The sponsor may depute officer conforming to such criteria as Chairman on a tenure basis and wherever needed, such officers may be recruited by them from the open market and the deputed to RRBs. The compensation of chairman may be de-linked from existing salary structure of commercial banks and be more market oriented and a system of incentives and disincentives linked to performance benchmarks approved by the board may be built in the compensation package.
- The board as a body as well as individual board members may be made accountable for the banks performance and individual board need to be assigned specific responsibilities as per their expertise.
- Wherever required, sponsor banks may recruit the suitable person from the market, including staff of the RRB in their own service and then depute them as general managers in RRBs.