Rediff Logo
Money
Line
Home > Money > Business Headlines > Report
May 14, 2002 | 1225 IST
Feedback  
  Money Matters

 -  Business Headlines
 -  Corporate Headlines
 -  Business Special
 -  Columns
 -  IPO Center
 -  Message Boards
 -  Mutual Funds
 -  Personal Finance
 -  Stocks
 -  Tutorials
 -  Search rediff

    
      









 Secrets every
 mother should
 know



 Your Lipstick
 talks!



 Make money
 while you sleep.



 Bathroom singing
 goes techno!



 
 Search the Internet
         Tips
 Sites: Finance, Investment

Print this page Best Printed on  HP Laserjets
E-Mail this report to a friend

RRBs have done better than co-ops

BS Banking Bureau

The Nabard expert committee report said that the regional rural banks have done better than co-operatives and other banks in the areas of attracting deposits, lending to small businesses and small borrowal accounts.

"More than half of their investments comprise deposits with sponsor banks. Their credit deposits ratios have continued to drop despite growth in advances, since recoveries have also improved. Profitability has been restored to some extent... The RRBs have shown some signs of revival, but are still all too strongly tied to sponsor banks through deposits," it said.

At the same time, the committee has pointed out that there are serious viability concerns in the RRBs located in some of the regions of the country. According to the report, these institutions will require greater attention from the central government, state governments, sponsoring banks and Nabard.

The viability of the RRBs depends on several factors (level and quality of business, recoveries, leadership, shareholders' support), and not on size alone. Selective mergers should be resorted to depending on the stronger partner's ability to absorb the weaker one.

It should also depend on compatibility of area and sponsor banks and should also be subject to the acceptance by all stakeholders including RRB employees. The report has added that the option of liquidation should be considered in the case of patently non-viable RRBs.

The RRBs without accumulated losses should be recognised as Local Area Banks (LABs) and converted into banking companies and incorporate them as such in the Companies Act.

They would need strong, regionally oriented management and larger capital flow, possibly from strategic local private sector partners. They should allowed access to capital markets for initial public offerings of their shares particularly to meet capital adequacy requirements. The report has added that no other new LAB should be set up in the private sector in future.

The state governments that are yet to contribute their share of recapitalisation should do so at the earliest. Also the application of capital adequacy norms should be reviewed after three years based on a fresh assessment.

The Nabard should help RRBs to develop a profit-oriented plan for five years. Sponsor banks should select the right chairman and provide other need-based support, the report said.

According to the report any proposed central assistance to RRBs needs to be based on the state governments' actions to improve recoveries and reduce the non performing assets.

In cases where there have been inordinate delays in state governments' contributing their share of re-capitalisation it should be viewed as indifference to RRBs in such states, the report said. These RRBs, according to the report, may be selected for winding up.

It has also said that the government should nominate non-official directors from a panel of professionals recommended by Nabard, sponsor bank or the RRB itself, instead of local politicians.

The nominees of the sponsor banks' should be from their zonal or head offices. This will help correct impressions of pressure from local controlling offices of the sponsor bank for various purposes.

Powered by

ALSO READ:
The Rediff Budget Special
The Rediff-Business Standard Special
Money

ADVERTISEMENT