Law Summary
Role of Monetary Board and Central Bank
- Monetary Board formulates rules and supervises rural banks.
- Ensures provision of credit facilities to farmers, merchants, cooperatives, and rural populace.
Establishment and Ownership of Rural Banks
- Rural banks require Certificate of Authority from the Monetary Board to operate.
- Shall be stock corporations.
- Cooperatives and corporations primarily organized to hold equities in rural banks may organize or subscribe to shares.
- Capital stock must be owned by Filipino citizens or qualified Filipino entities.
- Exemption from ownership ceiling for ten years with Monetary Board approval.
- Government financial institutions may subscribe to capital stock if private subscription is insufficient, with rights of preemption for private citizens.
Board of Directors and Conflict of Interest Provisions
- Directors must be Filipino citizens.
- Public officials may serve in rural banks.
- Directors and officers cannot borrow from the bank or act as guarantors without majority board approval.
- Violations result in dismissal and penalties.
- Limitations on credit accommodations to directors, officers, and significant stockholders.
Loans and Collateral Security
- Loans primarily to farmers, fishermen, cooperatives, and merchants for normal credit needs.
- Preference to small cash requirement applicants.
- Security accepted includes lands without Torrens Title upon conditions.
- Foreclosure procedures exempt from newspaper publication if loan is under P100,000.
- Foreclosure redemption rights for homestead or free patent holders defined.
Scope of Loanable Funds
- Up to 15% of net worth may be lent to small businesses and essential enterprises.
Supplemental Capital and Preferred Stocks
- Government banks may subscribe to capital stock to supplement rural banks' capital.
- Preferred stocks issued with structured dividends and non-voting rights.
- Conversion to common stock allowed upon sale to private shareholders.
- Past due loans converted into preferred stocks.
Funding and Subscription by Government Financial Institutions
- Such institutions may obtain funds from authorized sources to invest and lend.
Capital Stock Issuance and Monetary Board Authority
- Stock certificates issued for government and private contributions.
- Monetary Board prescribes terms, amount, value, and class of stock.
Supervisory Powers of Monetary Board
- Set limits on credit, interest rates, loan terms, and ensure uniform accounting.
- Conduct periodic audits and enforce compliance.
- Authority to take over management upon violations after due process.
- Power to administer oaths and require production of bank documents.
Authorized Operations of Rural Banks
- Can accept deposits, open accounts, act as correspondents, collection agents, official depositaries, and extend various services.
- May act as trustees with Monetary Board approval.
- May perform services authorized to savings, mortgage, or commercial banks with approval.
Investment in Allied Undertakings
- Investment allowed up to 25% of net worth in related activities.
- Single enterprise investment limited to 15% of net worth.
- Allied undertakings include financial institutions, post-harvest facilities, agricultural input distributors, transport, marketing, leasing.
Concessional Loans from Government Banks
- Loans with up to 10-year repayment and concessional rates available upon certification of need.
- Conditions include inadequate rural bank resources, lack of private capital, and inability to increase capital.
Tax Exemptions
- Five-year exemption from taxes, fees, and charges except corporate income and local taxes for newly established and existing rural banks.
Central Bank Loans and Rediscounting
- May grant emergency loans against rural bank assets.
- Rediscount loans with liquidity up to 360 days.
- Authorized to borrow from international lenders for agricultural/industrial development financing.
Deposit Limits and Exceptions
- Deposits in government banks exempt from Single Borrowers Limit.
- In areas without government banks, rural banks may exceed deposit limits in private banks subject to regulations.
Incentives for Mergers and Consolidations
- Merged/consolidated rural banks receive reserve requirement reductions and unrestricted branching in the region.
- Incentives last seven years.
Technical Assistance and Support
- Central Bank provides technical assistance on request or as deemed necessary, free of charge.
Fee Waivers for Certain Banking Transactions
- Judges and Registers of Deeds must administer oaths and register documents free of charge for loans under P50,000.
Annual Supervisory Fee
- Rural banks may be required to pay an annual supervisory fee not exceeding 1/40 of 1% of average total assets.
Bonding of Bank Personnel
- Officers or employees handling funds above P5,000 must be bonded.
- Rural bank bylaws may require additional bonding.
Cooperation of Government Agencies
- Central Bank authorized to require services and facilities from other government entities to fulfill Act objectives.
Rural Banks as Agents
- Rural banks act as agents of principal government banks where these have no offices.
Penalties for Violations by Bank Personnel and Borrowers
- Fines and imprisonment for falsification, unauthorized disclosure, accepting bribes, overvaluation, acting as guarantors, loan misuse, fraudulent applications, and other violations by bank officials and borrowers.
Penalties for Judges and Registers of Deeds
- Fines and imprisonment for demanding or accepting fees or causing unjustified delays in performing their duties.
Prohibition on Unauthorized Use of 'Rural Bank'
- Fines for banks or entities improperly using the term Rural Bank.
Reporting to Congress
- Monetary Board to submit annual reports on regulations and actions concerning rural banks.
Separability Clause
- Invalidity of any provision does not affect the remaining provisions of the Act.
Repeal and Applicability
- Republic Act No. 720 repealed.
- Relevant provisions of Republic Acts No. 265 and 337 incorporated if not conflicting.
Effectivity
- The Act takes effect upon approval.