Regional rural banks (RRBs) are stand to lose Rs 400 crore annually due to the mandatory cash reserve ratio (CRR) that they need to park with the Reserve Bank of India. In addition, RRBs like the scheduled commercial banks get no interest from the central bank on the CRR. These banks have urged the finance ministry to look into the matter. The RRBs have suggested that the amount of CRR exceeding 3%, parked with RBI, should be diverted to Nabard since the latter may be agreeable to pay an interest of 6% for such fund.
Earlier, banks earned an interest at savings bank rate on the CRR balance exceeding 3%. However, since June 24, 2006, this has been discontinued. ?When other commercial banks have many compensating factors due to non-fund income and non-credit income such as float funds, lot of remunerative business like remittances, foreign exchange, insurance, tax receipts, subsidy fund and large number of high value zero interest current account, such advantages are not available to RRBs,? the All India Regional Rural Banks Employees? Association has pointed out.
When contacted, Dilip Mukherjee, general secretary, AIRRBEA, told FE the RRBs needed to be given special treatment in order to boost their bottomlines.
?The RRBs are a key channel of agriculture credit and it is extremely important to revive the financial health of these banks and special measures should be taken for this,? Mukherjee said.
Notably, the Karmakar Committee observed that since financial resources of RRBs are scarce and relatively costlier, the central bank may consider the request of RRBs for reduction of CRR to 3% keeping in mind that these banks primarily serve the poor and neglected sectors of society. About 82% of priority sector lending is done by these banks. In fact these banks also feel that they should be kept out of the income tax ambit.