The move will enable banks to enhance their lending towards the farm sector

The Union Cabinet on Thursday approved capital infusion of Rs.1,100 crore for regional rural banks (RRBs) for improving their capital adequacy ratio.

“The share of the Central Government, that is, Rs.1,100 crore, will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011-12,'' Information and Broadcasting Minister Ambika Soni told reporters after a Cabinet meeting here.

The issued capital of RRBs is subscribed by the Central Government, the State Government concerned and sponsor banks in the proportion of 50 per cent, 15 per cent and 35 per cent, respectively. However, release of Central funds would be contingent on proportionate release of the share of the State Government concerned and the sponsor banks, Ms. Soni said.

RRBs are jointly owned by the Central Government, the State Government concerned and the sponsor banks. The fund infusion in RRBs will improve their capital to risk weighted assets ratio and enable the banks to enhance their lending towards farm sector.

Besides, the Cabinet approved an additional amount of Rs.700 crore as contingency fund to meet the requirement of weak RRBs, particularly those in the North Eastern and Eastern regions.

The necessary provision would be made in the budget as and when the need arises, she added.

Ms. Soni said a capacity building fund with a corpus of Rs.100 crore would be set up by the Central Government with the National Bank for Agriculture and Rural Development (Nabard) for training and capacity building of the RRB staff in the institution of Nabard and other reputed institutions.

The functioning of the Fund would be periodically reviewed by the Central Government. An action plan would be prepared by Nabard in this regard and sent to the government for approval, she added.