The government is likely to allow the regional rural banks (RRBs) to handle funds of various central and state departments. Sources said that the Centre would soon issue a directive to this effect.
The move would substantially boost the current Rs 88,000-crore deposit base of RRBs. This is in addition to the finance minister P Chidambaram?s announcement in the 2007-08 Union Budget allowing RRBs to undertake deposits from non- resident Indians.
This is in line with the government?s attempt to devise ways to boost the deposit base of the RRBs and to make it an effective financial channel, as the government wants these banks to focus on priority sector lending.
The government has also indicated that it would attempt for consolidation among RRBs. At present, there are 96 RRBs, which could come down to 82.
In his recent meeting with the RRB heads, Chidambaram also highlighted that capital support of Rs 1,850 crore would be provided to 29 RRBs having a negative net worth.
The Centre also wanted the state governments to part-finance this programme. The cumulative net profit of RRBs have increased to Rs 800 crore in 2006-07 compared to Rs 600 crore in the previous year. The accumulated losses of RRB have increase by about Rs 100 crore to Rs 1,700 crore in 2006-07. ?The profit making banks have performed better, while the loss making ones have done worse,? Dilip Kumar Mukherjee, general secretary, All India Regional Rural Bank Employees Association said.