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MoF Issues Guidelines for RRBs to Raise Resources Through IPOs & Rights Issue

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FinMin issues guidelines to RRBs to raise resources via IPO, rights issue

The Ministry of Finance (MoF) has released guidelines for Regional Rural Banks (RRBs) to acquire capital through rights issues, private placements with chosen investors such as large banks and insurance firms and Initial Public Offerings (IPOs).

Regional Rural Banks (RRBs)

The RRBs are jointly owned by the Government of India (GoI), the respective State Governments (SGs), and the Sponsor Banks (SBs), with equity contributions in the ratio of (GoI: SG: SB :: 50:15:35).

  • There are currently 43 RRBs with 21,892 branches across India, sponsored by 12 scheduled commercial banks (SCBs).
  • As of March 2022, RRBs have deposits, loans, and advances (net) aggregating Rs. 5,62,538 crore and Rs. 3,42,479 crore, respectively.

The Guidelines for RRBs

i.Prior to issuing shares to the public via the IPO route, RRBs should consider issuing bonus shares (to reward existing shareholders who have not been paid dividends and have first claim on the existing reserves) and a Rights Issue in consultation with merchant bankers and the sponsor bank.

ii.The total value of the issue may ideally be placed through a rights offer with the provision allowing promoter shareholders to subscribe/renounce the offer.

iii.Large banks and insurance organizations such as Life Insurance Corporation (LIC) may be granted equity shares.

  • Other private insurance firms, pension funds, and mutual funds could be approached to subscribe in the book building process.

iv.The Department of Financial Service, MoF, may consult with the concerned State Government (SG) if the SG’s shareholding in the RRB can be decreased below 15% (in accordance with section 69 (b) of the RRBs Act, 1976, after amendment).

v.RRBs will be listed to provide liquidity, marketability, and visibility, as well as the ability to raise capital in the future.

Criteria for Selecting RRBs for Capital Raising:

i.Net value of at least Rs. 300 crore in each of the previous three years

ii.Minimum Capital to Risk-weighted Assets Ratio (CRAR) CRAR above the regulatory requirement of 9% in each of the previous three years

iii.A track record of profitability-pre-tax operating profit of minimum Rs. 15 crore in at least three of the previous five years, excluding extraordinary times

iv.RRBs should have a minimum return on equity of 10% in three of the previous five years, as well as a minimum return on assets of 0.5% in three of the previous five years.

v.RRBs must not have any accumulated losses

vi.The should adhere to the Banking Regulation Act of 1949 and the RBI Act of 1935

vii.RRBs should not be under prompt corrective action by RBI/NABARD

Recent Related News:

In August 2022, the Securities and Exchange Board of India (SEBI) issued new guidelines for Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) for making investment abroad, under which overseas investee firms are no longer required to have an Indian connection.

About Ministry of Finance (MoF):

Union Minister– Nirmala Sitharaman (RajyaSabha – Karnataka)
Ministers of State (MoS) – Pankaj Chaudhary; Dr. Bhagwat Kishanrao Karad