Centre revives IPO plans for Regional Rural Banks

Central government has asked sponsor banks to identify regional rural banks (RRBs) that can be listed on the exchanges based on defined criteria, reviving an earlier plan to come up with initial public offering (IPO) of such lenders.

All RRBs are presently unlisted. Sponsor banks – that hold about 35 per cent in RRBs – have been asked to handhold regional lenders at all stages from identification of merchant bankers to the conclusion of IPO. While the Centre holds 50 per cent in RRBs, state governments own the remaining 15 per cent.

The exercise to nudge RRBs to come up with IPOs is seen providing liquidity and an avenue for raising capital from the market.

The exercise is the next step to provide additional sources to RRBs to meet their regulatory capital requirement after the Reserve Bank of India (RBI), in 2019, permitted such banks to issue perpetual debt instruments. The Centre was also considering launching IPOs of RRBs in 2019, as it was conducting a consolidation exercise in the regional rural banking space, which saw the number of such lenders reduce from 196 in 2005 to 43 in FY21.

The government is also undertaking the exercise to restructure RRBs in order to make them operationally viable. After two straight years of losses in FY19 and FY20, RRBs reported a consolidated net profit of Rs. 1,682 crore in FY21. Of the 43 RRBs, 30 posted a net profit in FY21. However, 17 RRBs out of 43 carried accumulated losses of Rs. 8,264 crore as on March 31, 2021.