Incidentally, even Basel I norms are also not applicable to RRBs.
As for differences from other commercial banks, RRBs are established under separate Act. They are established by the Government of India by a notification in the Official Gazetteand RRB Act, 1976 provides the legislative framework for RRBs. Secondly, there are three shareholders of RRBs. i.e. GoI, state Government and sponsor bank and the share capital is subscribed by the Government of India (50%), state Government concerned (15%) and a sponsor bank (35%). They have limited avenues for raising fresh capital as like other commercial banks, they cannot raise capital from the market. Thirdly, the area of operation of commercial banks is nationwide whereas RRBs are confined to a few districts. As RRBs are operating in small pockets of various regions, insolvency, failure of one or two RRBs will not have contagion on the banking system as a whole. Also, commercial banks give loan to corporate houses whereas RRBs primarily give loans to people of small means.
9. On the issue of attracting foreign investment it is stated that in certain sectors, such as infrastructure, tax breaks and other fiscal incentives are granted. Could India specify what 'other fiscal incentives' mean? (Page 22, paragraph 56)
Reply: India has designed a number of incentives for attracting investment in the infrastructure sector. For instance, a tax holiday was granted for the enterprises being set up in the special economic zones in the country. The policy environment has been made more conducive for the spread of public private partnership in the infrastructure sector.
10. It is claimed that in 2008 there was further liberalization, under which the Government of India allowed foreign direct investment in most sectors of the economy, whether through government authorization or under the automatic procedure of Reserve Bank of India. Indicated in the footnote to page number 29 that there are sectors and activities not open to private investment. Could India mention what these sectors are and what is the authorization process other than the automatic process? (Page 22, paragraph 57)
