In a bid to provide regional rural banks (RRBs) more operational leeway, the task force set up by the Reserve Bank of India last year for empowering RRB boards, has recommended them to consider providing a slew of products for all financial needs.
The panel, under the chairmanship of KG Karmakar, who is managing director of Nabard, has recommended that provisions for tax exemption, under Section 80(P) of the Income Tax Act, be reinstated for another five years or or till the structuring processes are completed. The exemption was withdrawn in the Finance Bill, 2006.
The panel suggested that RRBs must constitute risk management committee, management committee, investment, HR & IT committee, audit committee for improving operational efficiencies. The task force recommended exploring the feasibility of 80 uncovered districts out of 605 districts in India.
The panel has suggested the relationship between RRBs and sponsor banks to be a synergistic one beneficial to both banks, instead of sponsor banks being perceived as competitors to RRBs. To further improve the performance of RRBs, it suggested that a memorandum of understanding be reached between the sponsors banks and the Centre and sponsor banks with their sponsored RRBs.
Currently, the RRB Act, 1976, allows the central government to increase the number of directors on boards to 15. ?The Task Force feels that such a provision may be invoked on selective basis in case of large sized banks, created after amalgamation?, the panel recommendation said.
Other recommendations proposed by the panel include extension of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to RRBs, appointment of RRB chairman by sponsor bank in coordination with Nabard and that the chairman must have a minimum residual service period of two years and up to a maximum of five years.