Regional Rural Banks should have net worth of at least Rs 300 crore in past 3 years for IPO listing

16 Sep 2022 , 11:14 AM

By releasing a full draft of the criteria recommended for them to acquire capital and placing the responsibility for selecting suitable RRBs on their sponsor banks, the government has started the process of listing regional rural banks (RRBs).

According to the draft guidelines published on Wednesday, RRBs wishing to raise capital through an IPO must have had a net worth of at least Rs300 crore during the previous three years. Additionally, they must have capital adequacy beyond the legal requirement of 9%.

Additionally, the sponsor banks were urged by the Ministry of Finance to identify RRBs that could raise money.

There are currently 43 RRBs supported by twelve commercial banks. The Regional Rural Bank Amendment Act, 2015 allowed these banks to access the capital market in addition to their current owners, which are the various state governments, sponsor banks, and the federal government, who hold shares in each RRB in the ratio of 50:35:15.

To date, no RRB has used the capital market.

The government advised against any bank filing for an IPO while having accrued losses. According to the draft, these banks must have an operating profit of at least Rs15 crore for at least three of the five years just before the share sale, with a 10% return on equity and a 0.5% return on assets.

It stated that as part of the capital raising process, these institutions should create a three-year capital roadmap.

According to the draft guidelines, the RRBs would be able to generate capital by selling shares to major banks, state-owned insurers like Life Insurance Corporation of India, private insurers, pension funds, and mutual funds through book building.

The Reserve Bank of India has previously given RRBs the option to issue perpetual debt instruments as another way to obtain regulatory capital and has made these instruments eligible for inclusion as extra tier-1 capital, subject to certain restrictions.

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