The Reserve Bank of India (RBI) allowed Rural Cooperative Banks (RCBs) to raise funds from people in their area of operation or existing shareholders through preference shares and debt instruments w.e.f. April 19, 2022.
- RCBs include state co-operative banks and district central co-operative banks.
- This step by RBI followed the covering of RCBs under the ambit of the amended Banking Regulation (BR) Act, 1949.
Currently, RCBs are permitted to raise share capital/funds by way of (i) issue of shares to persons within their area of operation, in accordance with the provisions of their bye-laws, and (ii) issue of additional shares to the existing members. Now, these are permitted to issue the following instruments to augment their capital:
I.Preference Shares
i.Tier-I Preference Shares: Perpetual Non-Cumulative Preference Shares (PNCPS)
The outstanding amount of PNCPS and Perpetual Debt Instruments (PDI) along with outstanding Innovative Perpetual Debt Instruments (IPDI) should not exceed 35% of total Tier-I capital at any point of time.
- Maturity– Perpetual (endless)
ii.Tier-II Preference Shares: PCPS, RNCPS, and RCPS
Collectively referred to as Tier-II preference shares, the outstanding amount of Perpetual Cumulative Preference Shares (PCPS), Redeemable Non-Cumulative Preference Shares (RNCPS), and Redeemable Cumulative Preference Shares (RCPS) should not exceed 100% of Tier-I capital at any point of time.
- Maturity– These can either perpetual (PCPS) or dated (RNCPS and RCPS) instruments with a minimum maturity of 10 years.
II.Debt instruments
i.Perpetual Debt Instruments (PDI) for Tier-I capital:
The amount of PDI reckoned for Tier-I capital should not exceed 15% of total Tier-I capital. The outstanding Innovative Perpetual Debt Instruments (IPDI) will also be covered in the aforementioned ceiling of 15% and reckoned for capital purposes.
- Maturity– Perpetual
ii.Long Term Subordinated Bonds (LTSB) for Tier-II capital:
The amount of LTSB eligible to be reckoned as Tier-II capital should be limited to 50% of total Tier-I capital.These instruments, together with other components of Tier-II capital shall not exceed 100 per cent of Tier-I capital.
- Maturity– Minimum 10 years.
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Refund of Share Capital:
In terms of Section 12 (2) (ii) read with Section 56 of the BR Act, a co-operative bank should not withdraw or reduce its share capital, subject to conditions. Accordingly, it has been decided to permit RCBs to refund the share capital to their members, or nominees / heirs of deceased members, on demand, subject to the following conditions:
- The bank’s Capital to Risk-Weighted Assets Ratio (CRAR) is 9% or above.
- Such refund does not result in the CRAR of the bank falling below regulatory minimum of 9%.
Banks’ scope widened for opening current, CC/OD accounts:
The Reserve Bank of India (RBI) has expanded the scope of exemptions on opening of Current Accounts and Cash Credit (CC)/Overdraft (OD) Accounts by Banks. It has permitted banks to open and operate inter-bank accounts, and accounts of All India Financial Institutions (AIFIs), among others.
- The four AIFIs referred are EXIM Bank (Export-Import Bank of India), NABARD (National Bank for Agriculture and RuralDevelopment), NHB (National Housing Bank), and SIDBI (Small Industries Development Bank of India).
Some Key Specific Accounts under Exemptions:
- Accounts opened as per the provisions of Foreign Exchange Management Act, 1999 (FEMA)
- Accounts for settlement of dues related to debit card/ATM card/ credit card issuers, Accounts of white label ATM operators and their agents for sourcing of currency,
- Accounts for cash-in-transit (CIT) companies/cash replenishment agencies (CRAs) for providing cash management services
- Accounts opened by a bank funding a specific project for receiving/ monitoring cash flows of that specific project, provided the borrower has not availed any CC/OD facility for that project
Key Points:
i.Opening of Current Accounts for borrowers availing Cash Credit/ Overdraft Facilities from the Banking System:
- For borrowers, where the aggregate exposure3 of the banking system is less than ₹5 crore, banks can open current accounts without any restrictions placed vide this circular subject to obtaining an undertaking from such customers that they (the borrowers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more.
- Where the aggregate exposure of the banking system is ₹5 crore or more then, Borrowers can open current accounts with any one of the banks with which it has CC/OD facility, provided that the bank has at least 10 per cent of the aggregate exposure of the banking system to that borrower. In case none of the lenders has at least 10 per cent of the aggregate exposure, the bank having the highest exposure among CC/OD providing banks may open current accounts.
ii.Opening of Current Accounts for borrowers not availing Cash Credit/ Overdraft Facilities from the banking system:
- In case of borrowers where aggregate exposure of the banking system is ₹50 crore or more.
- Banks shall be required to put in place an escrow mechanism. Borrowers shall be free to choose any lending bank as their escrow managing bank. All lending banks should be part of the escrow agreement. The terms and conditions of the agreement may be decided mutually by lending banks and the borrower.
- Current accounts of such borrowers can only be opened/ maintained by the escrow managing bank.
3. Opening of Cash Credit/ Overdraft Facilities:
- When a borrower approaches a bank for availing CC/OD facility, the bank can provide such facilities without any restrictions placed vide this circular if the aggregate exposure of the banking system to that borrower is less than ₹5 crore. However, the bank must obtain an undertaking from such borrowers that they (the borrowers) shall inform the bank(s), if and when the credit facilities availed by them from the banking system becomes ₹5 crore or more.
- For borrowers, where the aggregate exposure of the banking system is ₹5 crore or more:
- Banks having a share of 10 per cent or more in the aggregate exposure of the banking system to such borrower can provide CC/OD facility without any restrictions placed vide this circular.
- In case none of the banks has at least 10 per cent exposure, bank having the highest exposure among CC/OD providing banks can provide such facility without any restrictions.
- Where a bank’s exposure to a borrower is less than 10 per cent of the aggregate exposure of the banking system to that borrower, while credits are freely permitted, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10 per cent or more of aggregate exposure of the banking system to that borrower.
Recent Related News:
i.As per RBI data on ‘Sectoral Deployment of Bank Credit – December 2021’ the bank’s non-food credit registered a growth of 9.3 percent (on a year-on-year (y-o-y) basis) in December 2021 as compared to 6.6 percent in December 2020.
ii.On February 15, 2022, RBI extended the deadline for non-banking financial companies (NBFCs) to comply with new Non-Performing Assets (NPAs) classification norms (the norms are issued by RBI in November 2021) to September 2022 from the earlier deadline of March 2022.
About Reserve Bank of India (RBI):
Establishment – 1st April 1935
Headquarters – Mumbai, Maharashtra
Governor – Shaktikanta Das
Deputy Governors – Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar
