Centre asks IBA to ready EASE-like plan for regional rural banks

Similar to the Enhanced Access and Service Excellence (EASE) for public sector banks (PSBs), the Centre has asked the Indian Banks’ Association (IBA) to prepare a viability plan for regional rural banks (RRBs). 

The IBA has been asked to conduct workshops for discussing the issues regarding preparation of a viability plan for the regional banks, said an official.

At a review meeting between Finance Minister Nirmala Sitharaman and RRB chiefs last month, these lenders were asked to submit a roadmap with implementation timelines for scaling up operations and to ensure deeper penetration.

At a later date, a meeting with stakeholders would be held for finalising a viability plan for each of the 43 RRBs.

Towards this, the Centre has roped in the IBA since it has been undertaking the EASE reforms for PSBs.

The banks’ lobby group has been asked to assist with the preparation of the viability plan for RRBs.

It is to be done in consultation with National Bank for Agriculture and Rural Development (NABARD), sponsor banks and regional lenders.

EASE is a common reforms agenda for all PSBs prepared by the IBA.

The EASE reforms agenda was started in FY19, and the fifth edition or EASE 5.0 focuses on common reforms as well as bank-specific roadmaps.

For the Centre, restructuring and making RRBs viable has become a priority.

The Department of Financial Services (DFS) had formed an expert committee to seek recommendations for making RRBs viable in the medium to long term.

The panel has recommended operational and governance reforms for RRBs that will be based on achievement of operational milestones.

These include credit expansion, business diversification, NPA reduction, cost rationalisation, technology adoption and improvement in corporate governance, among others.

After posting two straight years of losses in FY19 and FY20, RRBs reported a consolidated net profit of Rs 1,682 crore in FY21. Net profit surged 91 per cent to Rs 3,219 crore during FY22.

For operationally-sound RRBs, the Centre is looking to list them on the stock exchanges. This move is seen as providing additional sources to meet their regulatory capital requirement.

The Union government has asked sponsor banks to identify RRBs that can be listed on the stock exchanges based on defined criteria. This includes a minimum net worth of Rs 300 crore and a minimum capital-to-risk weighted asset ratio (CRAR) of 9 per cent in the last three years. 

Among other parameters, regional lenders must have reported an operating profit before tax (PBT) of Rs 15 crore in three out of five years.

They also must have a return on equity (RoE) of 10 per cent and return on assets (RoA) of 0.5 per cent in the past three out of five years.

The lender must not be under the RBI’s prompt corrective action (PCA) framework.

Sponsor banks have been asked to hand-hold RRBs during the entire process of their initial public offerings (IPOs).

Sponsor banks hold about 35 per cent in RRBs, while the Centre and state governments own 50 per cent, and 15 per cent, respectively.

For FY22 and FY23, the Centre had decided to infuse capital to the tune of Rs 10,890 crore into RRBs. The Centre’s share would be Rs 5,445 crore and the remaining would come from states and sponsor banks. This compares with the total capital infusion of Rs 8,393 crore by all the stakeholders from 1975 till FY21.

Roadmap

• IBA told to conduct workshops for discussing issues pertaining to preparation of regional banks’ viability plan
• In a review meeting last month, RRBs were asked to submit a roadmap with implementation timelines for scaling up operations and ensure penetration
• An expert set up by the govt had recommended operational and governance reforms for RRBs. They would be based on achievement of operational milestones  
• Milestones include credit expansion, business diversification, NPA reduction, cost rationalisation, technology adoption and improvement in corporate governance, among others