There are at present 196 RRBs working in 23 states of the country with morethan 14,500 branches with a total paid up capital of Rs 129 crore. Thereare 30 sponsor banks of these RRBs, including 27 public sector commercialbanks, 2 private sector commercial banks and one from the cooperativesector, namely UP State Cooperative Bank. The finance ministry in itsproposal for creation of NRBI sent to the Reserve Bank of India noted thatthe existence of numerous separate units of RRBs are not presenting ahealthy picture of rural credit institutions. Excepting 40 RRBs all of themare in red. Their functioning has not been satisfactory and due to problemsof resource constraints and restricted operations they have been unable tomeet the credit requirement in the rural areas. Due to additional burden tobe borne by them by way of increased salary due to NIT Award, most of themhave not only eroded their networth but have also started eating into thedeposits. Hence, the proposed NRBI would be able to turn around from thisbad state of affairs into a unified national level institution with a focusand coordinated action to build up a healthy rural credit system. Theproposal document stated that NRBI will start with a clean balance sheet andviable operations. For this purpose, the cumulative losses incurred by theRRBs till 1992-93 amounting to Rs 550 crore and the liability to be met inshape of arrears of salary to be given under NIT award Rs 220 crore willhave to be neutralised.

The cumulative loss of Rs 550 crore will be treated as funded liability ofthe RRBs. The composition of this amount would consist of the Rs 129 croreshare capital of RRBs, Rs 35 crore reserves of the RRBs and Rs 367 crorerefinance support from the sponsor banks. This will total up to Rs 531crore. The outstanding refinance of sponsor banks will be treated as `lossassets' and will be written off by the sponsor banks as one time operation.The balance of the losses and liability will be met from the new equity ofNRBI.

In order to take care of the erosion in the value of assets of the existingRRBs amounting to Rs 198 crore by 1992-93 and the fresh share capital to bebrought in, Nabard should contribute towards the share capital of theconcerned sponsor out of its budgetary outlay. This will enable Nabard totake care of a portion of the share capital requirement of NRBI.

As regards the payment of arrears under the NIT award to the employees ofthe existing RRBs, it will be met out of the future earnings of the NRBI. Aportion of the arrears could be set off towards the share capitalcontribution to be made by the employees against the component of the sharesto be offered to them in the NRBI. This liability, however, should be keptoutside the books of NRBI, the document stated.

The document further stated that the proposed share capital of NRBI at Rs200 crore consequent upon neutralising the accumulated loss at Rs 550 crorewill enable it to conform to the BIS capital adequacy norms, but theprovision for enhancing the capital base in line with capital adequacyratios in future will have to be made. The public sector banks will be askedto transfer 10 per cent their incremental deposits generated from ruralareas amounting to Rs 500 crore per year through their rural branches toNRBI at the existing rate interest. Incremental deposit growth of commercialbank in rural areas is estimated at about Rs 5,000 crore per year and isgrowing at the rate of 15 per cent per annum. Similarly, the foreign banksand domestic private sector can be asked to transfer their shortfalls inachievement of priority sector lending targets to NRBI.