Law Summary
Policy and Objectives
- Promote and expand the rural economy in an orderly and effective manner.
- Provide rural communities with credit facilities to improve productive activities.
- Encourage cooperatives.
- Government agencies such as the Department of Agriculture and Natural Resources, and the Department of Commerce and Industry shall assist rural banks with advice on business and farm management.
Regulatory Authority
- The Monetary Board of the Central Bank of the Philippines shall formulate rules and regulations for establishing and operating rural banks.
- The Monetary Board shall supervise the operation of rural banks.
Organization and Ownership
- Rural Banks must have a Certificate of Authority from the Monetary Board.
- Organized as stock corporations.
- Cooperatives may organize rural banks or subscribe to shares.
- At least 60% of the capital stock must be owned by Filipino citizens.
- If private subscription is insufficient, the Rehabilitation Finance Corporation (RFC) may subscribe equivalent shares.
- Stock subscribed by RFC may be sold to Filipino private individuals with preference given to local residents.
- Board members must be Filipino citizens.
Loan Purposes and Eligibility
- Loans primarily for small farmers cultivating up to 50 hectares, cooperatives, and small merchants (capital not exceeding 25,000 pesos).
- Preference given to applicants with small cash requirements.
- No Torrens title required for loans secured by real estate.
Lending to Small Enterprises
- Rural Banks may lend to small businesses and essential rural industries with capital not exceeding 25,000 pesos, within limits set by the Monetary Board.
Supplemental Capital
- RFC may subscribe to capital stock to supplement capital or stimulate private investment.
- RFC’s shares are preferred only as to assets upon liquidation, non-voting, and share dividends equally.
- RFC shares can be retired or sold to private shareholders, with preemptive rights to existing shareholders.
Funding by RFC
- RFC authorized to obtain funds from the "Counterpart Fund" and "Special Account" (not exceeding 10 million pesos) for subscribing to stock and loans to rural banks.
- Funds constitute a revolving fund with interest used solely for these purposes.
Stock Issuance
- Preferred stock as to assets issued only to government contributions through RFC.
- Otherwise, only one class of stock may be issued.
- Monetary Board prescribes amount, value, and class of stock.
Supervisory Powers of the Monetary Board
- Control over maximum credit per individual, interest rates, loan period and procedures.
- Mandate technical assistance, uniform accounting and records.
- Conduct credit examinations, audits, surveys, and training for rural bank personnel.
Expanded Banking Activities (with Monetary Board permission)
- Accept savings and time deposits.
- Open current/checking accounts.
- Act as correspondent for other financial institutions and collection agents.
- Rediscount paper with Philippine National Bank, RFC, or other banks at prescribed rates.
RFC Loans to Rural Banks
- Loans up to 10 years at 2% interest against adequate securities.
- Conditions include inadequate resources to meet local credit needs and scarcity of private capital.
Emergency Loans
- Central Bank may extend emergency loans against acceptable assets by majority Monetary Board vote.
Tax Exemptions
- Rural Banks with assets not exceeding 500,000 pesos are exempt from all taxes and incorporation fees.
Technical Assistance
- Central Bank to provide free technical assistance in organization and operations to preserve Act’s objectives.
Notary and Registration Fees Waived
- Justices of the Peace (notary ex officio) shall perform services free for loans not exceeding 2,000 pesos.
- Registers of deeds shall accept registration free of charge for documents related to loans not exceeding 2,000 pesos.
Exemption from Departmental Contributions
- Rural Banks exempt from contributing to the Department of Supervision and Examination under Republic Act 265.
Bonding Requirements
- Officers or employees handling funds of 1,000 pesos or more must be covered by adequate bonds.
- By-laws may require bonding of other employees.
Authority to Utilize Government Services
- Central Bank may require services and facilities from any government department or employee to carry out Act’s objectives.
Agency Role
- Rural Banks serve as agents of the Philippine National Bank and RFC where no branches or agencies exist.
Penalties - Misconduct by Bank Personnel
- Fines up to 2,000 pesos or imprisonment up to one year or both for actions such as:
- Making false entries affecting the bank or others.
- Disclosing confidential information without court order.
- Accepting unauthorized gifts or commissions.
- Overvaluing securities to influence loan approval.
- Acting as guarantor or surety for loans.
Penalties - Borrowers
- Similar penalties for borrowers who:
- Misuse or divert loan proceeds.
- Fraudulently overvalue security property.
- Furnish false information for loan approval.
- Attempt to defraud the bank.
- Offer inducements to bank personnel.
- Dispose or encumber loan security improperly.
Penalties - Government Examiners and Personnel
- Penalties for government examiners or employees who commit or connive in fraudulent acts with rural banks.
Penalties - Notaries and Registers of Deeds
- Fines up to 1,000 pesos or imprisonment up to one year for accepting fees or gifts improperly in performing duties related to rural bank loans.
Prohibition on Unauthorized Use of "Rural Bank"
- Any unauthorized bank or entity using "Rural Bank" in its name is penalized with fines of at least 50 pesos per day.
Reporting Requirement
- Monetary Board must report annually to Congress on rules, regulations, and supervisory actions related to rural banks.
Severability Clause
- Invalidity of any provision does not affect other provisions or their application.
Incorporation of Related Laws
- Provisions of Republic Acts 265 and 337 apply insofar as they are consistent with this Act.
Effectivity
- The Act takes effect immediately upon approval.