The Government Has Released Proposed Criteria for the Listing of RRBs’ Which Call for a Minimum Net Value of Rs 300 Crore.

The government has announced provisional rules to allow regional rural banks (RRBs) to acquire capital via listing on stock exchanges. One of the requirements is that the RRB must have a net value of at least Rs 300 crore over the preceding three years. They should also have maintained a capital adequacy ratio over the 9% threshold for at least the previous three years.

 Proposed Criteria for the Listing of RRBs

Recent draught rules provided by the finance ministry stipulate that RRBs must demonstrate a history of profitability by generating an operating profit of at least Rs 15 crore for at least three of the preceding five years. In addition, there must be no cumulative loss, and the lender must have provided a return on equity of at least 10% in three of the five years prior. Under the proposed guidelines, it will be up to the individual sponsor banks to source the capital necessary to launch an initial public offering (IPO). While selecting RRBs for an IPO, the sponsor bank will keep in mind Sebi and RBI rules on capital raising and disclosure.

In India, Public Sector Banks back Regional Rural Banks (RRBs) because of the crucial role they play in providing credit to the agricultural sector (PSBs). Fifty percent of RRBs are owned by the federal government at present, with the remaining 35 and 15 percent held by sponsor banks and state governments, respectively. Credit and other services for small farmers, agricultural laborers, and rural craftsmen are the reason these banks were established under the RRB Act of 1976. It was not until 2015 that the Act was revised to allow these banks to seek funding from outside of the federal government, individual states, and sponsor banks.

The RBI has permitted RRBs to issue perpetual debt instruments to raise capital and has allowed such instruments to be counted as additional tier-1 capital under certain conditions. Currently, 26 states and 3 Union Territories (Puducherry, Jammu & Kashmir, and Ladakh) are served by 43 RRBs, all of which are backed by 12 public sector banks with 21,856 branches. The total number of depositors at these institutions is 28.3 billion, and the total number of loans is 2.6 billion. The FY’21 net profit for all RRBs was Rs 1,682 crore, with 30 of the 43 reporting profits.

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