Saturday, March 27, 2010

Recapitalisation of RRBs and Inclusive Growth

Reports are that GOI is thinking of implementing a latest (Dr KC Chakrabarty, Dy Governor-RBI) Committee Recommendations about infusing additional capital of Rs. 4,000 crores into the 83 RRBs to ensure that they attain at least 7% CAR. It is understood that such re-capitalisation has been going on in the previous years too with a dosage of R. 3,959 crores in 2006-07 and Rs. 1,795 crores. RRBs would be asked to open 2,000 more branches by March 2011.

The CAR for Commercial Banks is 9% now and is aimed at 12% soon. Even in their case too, capital infusion is taking place to the tune of Rs. 16,500 crores. All these banks are running for opening of ATMs and Branches in the nook and corners of the country and open Savings Accounts in order to attain cent per cent Financial Inclusion. Such opening of branches and accounts (where is the money with rural folk to save or deposit in banks?) need not necessarily lead to Inclusive Growth. On the other side, there are also reports that Banks in India have lent more than RBI targets.

Coming back to RRBs, the exercise started on October 02, 1975 (during Emergency Rule) with a pious objective of reaching out to the rural poor by setting up low-cost outfits. These 196 RRBs were covering one to two contiguous districts; sponsored by the PSBs, and their share capital was shared by Central / State Govts / Sponsor Banks. Initial manpower was deputed by the sponsor banks but the design was that eventually local rural talent would be employed at all levels with low-cost operations. Unfortunately this did not happen. Their staff are now drawing equal salaries on par with sponsors but their operations are not competitive. In the last three-four years, there has been large scale consolidation which reduced their number from 196 to 83. Point of Sales (PoS) concept is not working here. There is no localisation but they adopted Unionisation.

There have been studies on the Productivity and Profitability of RRBs. It is interesting for us to wait and see how the original objective of RRBs is achieved while pursuing Inclusive Growth. We had witnessed a miserable experience of Cooperative Banks in India since beginning. In particular, Rural Cooperatives were always linked to local politics. Irrespective of whichever type of banks are operating in rural areas, poor farmers have been resorting to committing suicides when they fail to realise crop proceeds and repay the debt obligations. Latest news was about another Urban Cooperative Bank in Belgaum in Karnataka being asked to observe RBI strictures. Where lies the fault - PSBs, Private, RRBs, Cooperative Banks and Foreign Banks - are all on the same platform. Thank God being conservative, Indian Banking System could withstand the onslaught of recent recession and global meltdown. Reports are that over 100 banks in USA were closed down in an year's time.

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