RBI Relaxes Financing Constraints for Rural Cooperative Banks
The RBI (Reserve Bank of India) said RCBs (rural cooperative banks) – which include state co-operative banks and district central co-operative banks – are permitted to issue shares to "persons within their area of operation" and additional shares to the existing shareholders.
Under the revised regulations, RCBs can also issue preference shares that are either perpetual or redeemable, cumulative or non-cumulative, as well as perpetual debt instruments and long term subordinated bonds.
RCBs that issue regulatory capital instruments will not be allowed to use their fixed deposit rate as a benchmark for floating rate instruments, and they will be required to ascertain and attest that investors understand the features and risks of the instruments.
Disclosures will need to be made prominently, clearly stating that the instruments are not fixed deposits.
The RBI will also allow RCBs to withdraw or reduce their share capital except when and as specified by the central bank. Share capital can only be refunded to shareholders if a rural bank's capital to risk-weighted assets ratio (CRAR) is at least nine percent, and will remain above this threshold following such a refund.
The revised regulations are expected to help strengthen RCBs' capital ratios, enable them to boost rural lending, and pave the way for the development of new products and digital infrastructure.
Source: Regulation Asia
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