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MoF's Guidelines to RRBs

Published on September 16, 2022
Current Context: The Ministry of Finance issued guidelines to the Regional Rural Banks (RRBs) to raise capital through Initial Public Offering (IPO) and Rights Issue.
MoF's Guidelines to RRBs
  • These guidelines aim to direct the RRBs to acquire capital through issuing rights, private placements with chosen investors, viz. large banks and insurance firms, and through IPOs.
  • The guidelines recommended that RRBs should first issue bonus shares which can be later followed by the issuance of IPOs.
  • According to the guidelines, RRBs that are planning to make IPOs must have at least Rs 300 crore of net worth for the previous three years.
  • It mentioned that the Capital Adequacy Ratio (CAR) for these banks must be above 9%, which is the minimum regulatory level.
  • It also said that "Rights Issue" must be done in consultation with sponsor banks and merchant bankers.
  • RRBs are scheduled commercial banks which are owned jointly by the Government of India, any Nationalized Bank (aka Sponsor Bank), and respective State Governments in the ratio of 50%:35%:15%. The objective of the RRBs is to enhance financial inclusion in rural areas. The RRB was founded in 1975 under the Ministry of Finance.
  • A rights issue is a dividend of subscription rights made to the existing shareholders to purchase additional new shares in the company.

Question:

Q.1 Recently the MoF issued guidelines to raise capital through IPOs and Rights Issues to?
a. RRBs
b. NBFCs
c. SFBs
d. NABARD

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