The Hindu : Business : Urban coop. banks: RBI suggests revival strategy

Online edition of India's National Newspaper
Saturday, Mar 05, 2005

Business

Business

Urban coop. banks: RBI suggests revival strategy

By Our Special Correspondent

CHENNAI, MARCH. 4. A draft vision document prepared by the Reserve Bank of India has suggested state-level strategies for urban co-operative banks.

This can involve the establishment of State-level task forces on urban co-operative banks. Such State-specific task forces can comprise representatives from varied agencies linked to the monitoring of such banks, including the RBI.

The document released by the apex bank feels such task forces can be immediately set up in five States where the concentration of urban co-operative banks is high and in few others where there are over 50 such banks. The objective is to explore viable State-specific solutions, including on the future set up of the existing unlicensed banks who applications are pending with the RBI. Based on the experience, others can also adopt similar approach in the next phase, the document says.

The document suggests that the regional director of the RBI can head such task forces. They can frame time-bound programme for revival of such entities by going into the entire gamut of the issues involved. The suggested revival package can be monitored by the RBI for any correctives if need be. In case of non-viable urban co-operative banks, mechanisms such as exit option of mergers and acquisition can be explored. There are about 1924 urban co-operative banks. Most of them (1,523, to be precise) are in Maharashtra, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh. The urban co-operative banks in these States account for about 82 per cent of advances and deposits.

The vision document favours signing of memoranda of understanding between the RBI and the State governments to ensure that the difficulties caused by dual control are suitably addressed.

It also prescribes differential treatment vis-a-vis regulation and supervision of unit urban co-operative banks. Unit banks with deposits less than Rs. 50 crores, the document says, can be subject to simpler regulatory and supervisory norms. For those with deposits of over Rs. 50 crores, the document prescribes a treatment on a par with commercial banks for the purpose of regulation and supervision. The document proposes an additional three years for unit banks to classify non-performing assets based on a 90-day delinquency norm. Yet, they can be asked to build adequate provisions during the period to transit to the 90-day norm at the end of three-years.

The draft vision document is prepared after vetting the report submitted by a committed formed by the RBI recently.

Printer friendly page
Send this article to Friends by E-Mail

Business