The Regional Rural Banks (Amendment) Act, 2015

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The Act to further amend the provisions of the Regional Rural Banks Act, 1976 (Act no. 21 of 1976) is enacted by the Parliament of India as ‘The Regional Rural Banks (Amendment) Act, 2015 (Act no. 14 of 2015). The Bill in connection to this law was introduced by the Finance Minister in Lok Sabha on 18th day of December, 2014 and it was passed from there on 22nd day of December, 2014 and later on April 28th, 2015, the present concerned bill was cleared from Rajya Sabha and the President of India has given his assent to this Bill on 12th day of May, 2015. Thus, the present Amending Bill has been brought into an Amending Act, which contains, in all seven sections seeking changes in the Original Act of 1976. The Original Act of 1976 was enacted to make provisions for the incorporation, regulations and winding up of the Regional Rural Banks with the aim and object to develop the Rural economy by offering the credits and other facilities for the purposes of the development of agriculture, trade, commerce, industry and other productive activities in the rural areas, especially, to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. Moreover, notably, the present concerned Original Act of 1976 was amended several times and its last amendment was effected in the year 2005. Now, looking towards the growing business of the Regional Rural Banks and Expansion of their roles in the qualitative and also in the quantities terms in extending banking services in rural areas, there was felt a need to amend the Original Act of 1976 so that the capital base of such banks will be strengthen and their overall capabilities will be improved. Thus, the present Amending Act was enacted and it was sought that it to be brought into operation by the Central Government’s notification.

The present Amending Act is as such firstly seeking amendment in the Section 3 of the Original Act, where under its Sub- Section (3) and Clause (c), the five years’ limit is sought to be removed. Thus, the Original Act’s providing Regional Rural Banks to be sponsored by banks and such sponsor banks were to be subscribed to share capital of such Regional Rural Banks; trained their personnel and also provided with the managerial and financial assistance for the first five years. Now such limitation of five year have been removed and the assistance will now continue beyond this duration.

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Moreover, the Amending Act is amending the Section 5 of the Act where the Original Act was providing for the authorized capital of each Regional Rural Bank to be Rs. 5 crore, and was not permitting the reduction of such capitals below to Rs. 25 lakhs. Now the Amending Act is raising such amount of authorized capital to Rs. 2,000 crore and the same should not be reduced below to Rs. 1 crore. Also in the same section, the Amending Act is also providing to add the capital issue should be at least Rs. 1 crore, which the Original Act was allowing the Central Govt. to specify from between Rs. 25 lakh and Rs. 1 crore.

By adding a proviso clause to Sub- section (2) of Section 6 to the Original Act, the Amending Act is allowing the Regional Rural Banks to raise their capital from sources other than the central and state government and also sponsor banks. Earlier, the Original Act was requiring the Capital issued by a Regional Rural Bank should be 50 per cent from Central Govt., 15 per cent from state government and remaining 35 per cent from the sponsor bank. Moreover, the Amending Act is requiring to mandate the Regional Rural Bank to fix the combined shareholding of Central Govt. and Sponsor bank up to 51 per cent.

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Moreover, the Amending Act is also by amending the Section 9 of the Original Act, which was providing for the composition of the Board of Directors of Regional Rural Bank to chairman and directors who should be appointed through the Central Govt., NABARD and Sponsor Bank and also by Reserve Bank Of India, etc., now amended and provides that the person who is director of one Regional Rural Bank then is not eligible to be on the Board of Directors of another such bank. Also, by amending Section 10 which was providing for the terms of the office of such director, a new section 10 replacing earlier is provided, which is saying that the director so nominated should not hold office exceeding three years and should hold office during pleasure of the Central Govt. Earlier such tenure was only of 2 years. Lastly, the section 19 of the Original Act is amended to replace the date of closing of the books of regional rural banks, from 31st day of December to 31st day of March.

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