The cabinet approved amendments in the Regional Rural Banks (RRBs) Act, 1976, to enhance authorized and issued capital to strengthen their capital base and to bring flexibility in the shareholding between the central government, state governments and sponsor banks.
The term of the non-official directors appointed by the central government will be fixed not exceeding three years, a cabinet note said.
The amendments will ensure financial stability of RRBs which will enable them to play a greater role in financial inclusion and meeting credit requirements of rural areas and the Board of RRBs will be strengthened.
The Regional Rural Banks Amendment Bill 2013
The Act has a provision for RRBs to be sponsored by Sponsor Banks.
The Bill increases the authorized capital from Rs 5 crore to Rs 500 crore and changes the threshold amount from Rs 25 Lakhs to Rs 1 crore.
The Bill permits an RRB to raise capital from other sources, in which case the combined shareholding of the central government and the Sponsor Bank shall not be less than 51 percent. The Act provides for the appointment of directors by the central government, the concerned state government, the Reserve Bank of India, NABARD and the Sponsor Bank.
The Act specifies that the term of a director shall not exceed two years and that he shall be eligible for re-nomination. The Bill removes this specification for directors other than those appointed by the central government.
As per the Act, the books of an RRB should be closed and balanced as on December 31 every year. The Bill changes the above date to March 31.