has proposed to set up an umbrella organisation for urban cooperative banks
(UCBs) to make them more financially resilient and to enhance the depositors’ confidence. This move is expected to help individuals with savings accounts and deposits in UCBs. UCBs are subject to slightly different RBI regulations as compared to scheduled commercial banks
and therefore the former are not as robust as the latter.
What are urban cooperative banks?
According the RBI website, the term Urban Co-operative Banks, though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. “These banks, till 1996, were allowed to lend money only for non-agricultural purposes. This distinction does not hold today. These banks were traditionally centred around communities, localities work place groups. They essentially lent to small borrowers and businesses. Today, their scope of operations has widened considerably,” explains the central bank.
According to RBI, as on March 31, 2003 there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of these are located in five states, – Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. “Recently the problems faced by a few large UCBs have highlighted some of the difficulties these banks face and policy endeavours are geared to consolidating and strengthening this sector and improving governance,” says RBI.
What RBI says now
As per RBI’s latest statement on developmental and regulatory policies issued today along with the monetary policy by the RBI, the structure, size, lack of avenues for raising capital funds and limited area of operation of the Primary (Urban) Co-operative Banks (UCBs) add to their financial vulnerabilities. A long-term solution to make the UCB sector financially resilient and to enhance the depositors’ confidence is to set up an Umbrella Organization (UO) as prevalent in many countries. The UO, apart from extending liquidity and capital support to its member UCBs, would also be expected to set up Information and Technology (IT) infrastructure for shared use of members to enable them to widen their range of services in the wake of advances in information and communication technology at a relatively lower cost. The UO can also offer fund management and other consultancy services.
The idea of setting up of UO for the UCB sector was first mooted in the year 2006 by the Working Group (Chairman: Shri N S Vishwanathan) set up by the Reserve Bank on Augmentation of Capital of UCBs. It was examined in greater detail by the Working Group on Umbrella Organization and Constitution of Revival Fund for Urban Cooperative Banks (Chairman: Shri V S Das) in 2009 and the Expert Committee on Licensing of New Urban Co-operative Banks (Chairman: Shri Y H Malegam) in the year 2011. The need for UO has also been stressed by the High Powered Committee on UCBs (Chairman: Shri R Gandhi) in the year 2015.
The Reserve Bank has received a proposal for setting up an UO from the National Federation of Urban Cooperative Banks and Credit Societies Ltd. (NAFCUB). A decision on the specifics of the UO proposal will be taken by the Reserve Bank shortly.