December 28, 2007

Chairmen
All Regional Rural Banks

Dear Sir

Mid-Term Review of Annual Policy Statement for
the year 2007-08 -Application of Capital Adequacy
norms to Regional Rural Banks

Please refer to Paragraph 149 of the Mid-Term Review of Annual Policy Statement for the year 2007-08 (copy of the extract enclosed). At present, Regional Rural Banks (RRBs) are outside the Capital to Risk weighted Assets Ratio (CRAR) framework. In order to assess the capital structure of the RRBs, in the context of financial stability of the whole system, it is proposed that they should disclose the level of CRAR as on March 31, 2008 in their Balance Sheets.

2. Accordingly, all Regional Rural Banks are advised to disclose their CRAR as on March 31, 2008 and thereafter every year as 'Notes on Accounts' to their Balance Sheets. The roadmap for achieving the desired level of CRAR norms would be communicated in due course.

3. Under the proposed CRAR framework, the Balance Sheet assets and non-funded / off-balance sheet items will be assigned weights and banks have to compute the ratio of their capital funds to the aggregate of risk weighted assets and other off-balance sheet exposures. The details of the framework and other procedural guidelines are indicated in the enclosed 'Memorandum of Instructions', which may please be studied carefully for the purpose of such computation.

4.  Additionally, banks should furnish an annual return to our Regional Office / NABARD Regional Office, indicating capital funds and risk assets ratio, in the format given in Annex 2. The return should be signed by two officials who are authorised to sign the statutory returns submitted to the Reserve Bank. The statement as per the format (Annex 2) indicating the position as on March 31, 2008 may please be furnished to the Regional Office of RPCD / NABARD under whose jurisdiction the bank is located, as soon as the annual accounts are finalised.

5. Please bring the contents of this letter to the notice of the Board of Directors of your bank.

6. Please acknowledge receipt to our Regional Office concerned.

Yours faithfully

(G. Srinivasan)
Chief General Manager