Rajya Sabha on 28 April 2015 passed ‘the Regional Rural Banks (Amendment) Bill, 2014’. With this, the bill has been passed by both houses of the Parliament. It was passed by the Lok Sabha on 18 December 2014.
The Regional Rural Banks (Amendment) Bill, 2014 that seeks to amend ‘the Regional Rural Banks (RRB) Act, 1976’ was introduced by the Union Minister of Finance, Arun Jaitley.
Main highlights of the Bill
- It seeks to amend the RRB Act, 1976 which mainly provides for the incorporation, regulation and winding up of Regional Rural Banks (RRBs).
- It removes the five year limit cap that was put on the sponsor banks to assist the upcoming RRBs under the RRB Act, 1976. As per the Act, sponsor banks were liable to train personnel and provide managerial and financial assistance for the first five years.
- It raises the amount of authorized capital to 2000 crore rupees and it is not to be reduced below one crore rupees. In the 1976 Act the authorised capital of each RRB was five crore rupees which was not permitted to be reduced below 25 lakh rupees.
- It allows Union government to specify that the capital issued by a RRB should be at least one crore rupees. Under the Act, a RRB was to issue capital between 25 lakh rupees and one crore rupees.
- The bill allows RRBs to raise their capital from sources other than the central and state governments, and sponsor banks as was mandated under the RRB Act. As per the Act, 50% of capital issued was held by Union government, 15% by concerned state government and 35% by the sponsor banks.
- It also provides that in case of raising of capital from other sources by a RRB, the combined shareholding of the central government and the sponsor bank cannot be less than 51%.
- Further, if the shareholding of the state government in a RRB is reduced below 15%, the Union government would have to consult the concerned state government.
- It provides that the Union government may by notification raise or reduce the limit of shareholding of the central government, state government or the sponsor bank in a RRB. In doing so, the central government may consult the state government and the sponsor bank.
- It provides that any person who is a director of a RRB is not eligible to be on the Board of Directors of another RRB, while the Act specified that the composition of the Board of Directors of the RRB to include a Chairman and directors to be appointed through the central government, NABARD, sponsor bank, Reserve Bank of India, etc.
- It provides that directors of a RRB Board shall be elected by shareholders based on the total amount of equity share capital issued to such shareholders.
- If the equity share capital issued to shareholders is 10% or less, one director shall be elected by such shareholders.
- Two directors shall be elected by shareholders where the equity share capital issued to them is from 10% to 25%.
- Three directors shall be elected in case of equity share capital issued being 25% or above.
- If required, the central government can also appoint an officer to the board of directors to ensure effective functioning of the RRB.
- It raises the tenure of a director (excluding the Chairman) to three years and says that no director can hold office for a total period exceeding six years. The Act specified that the term of office of a director (excluding the Chairman) should not more than two years.
- It also changes the date of closure and balancing of books to 31 March to bring the Act in uniformity with the financial year. While the Act of 1976 said that the books of a RRB should be closed and balanced as on 31 December every year.
