RBI allows rural co-operative banks to raise funds from preference shares, debt instruments

The Reserve Bank of India on Tuesday allowed Rural Cooperative Banks (RCBs) to raise funds from people in their area of ​​operation or existing shareholders through a variety of instruments.

RCBs, which include state co-operative banks and district central co-operative banks, can raise funds from preference shares and debt instruments, RBI said in a notification.

RBI said the review is being done following the rural co-operative banks coming under the ambit of the amended Banking Regulation Act.

Such lenders can augment their capital through the issue of preference shares, which can include issue of perpetual non-cumulative preference shares which will be eligible for inclusion in core tier I capital. Besides, tier-II capital instruments, including perpetual cumulative preference shares, redeemable non-cumulative preference shares and redeemable cumulative preference shares can also be utilized.

According to RBI, they can also raise funds through debt instruments, including perpetual debt instruments eligible for inclusion in tier I capital and long term subordinated bonds eligible for inclusion in tier II capital.

Such RCBs need to adhere to certain conditions like not using their fixed deposit rate as a benchmark and make necessary disclosures prominently, especially ones saying the instruments under which the funds are raised are not fixed deposits.

The procedure for transfer to legal heirs in the event of death of the subscriber of the instrument should also be specified, RBI said.

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