BANGALORE: The Reserve Bank of India (RBI) will put in place mechanisms to help unviable urban cooperative banks.

Stronger banks in the urban cooperative sector will be allowed to go in for mergers and acquisitions with the consent of the respective State governments, RBI Governor Y.V. Reddy said here on Saturday.

"The RBI is prepared to consider proposals for mergers and acquisitions in the urban cooperative banking sector. But the final decision in this regard rests with the State Government, which governs these banks," Mr. Reddy told presspersons.

He was speaking after inaugurating the first meeting of the State-level Task Force on Urban Cooperative Banks (TAFCUB) set up in the wake of the memorandum of understanding signed by the State Government and the RBI on September 5 on urban cooperative banks in the State.

Banks being segregated

Out of the 296 urban cooperative banks in the State, 142 appear to have no problems at all, he said.

The rest have to be segregated into those that are potentially viable and those that are unviable. This exercise is being carried out by TAFCUB.

According to the RBI Governor, the unviable banks can either be consolidated with stronger banks through mergers and acquisitions or the States can resort to "non-disruptive exits."

"Consolidation can be a mechanism by which some of the urban cooperative banks can get strengthened.

"The option of non-disruptive exits may not be required as the general state of health of most of the urban cooperative banks in Karnataka is much better than those in other States," Mr. Reddy added.

Referring to the dual control of urban cooperative banks by the RBI as well as the State governments concerned, Mr. Reddy said the problem can be resolved through "consultation, cooperation and coordination both at the macro and micro level."

The Reserve Bank of India is of the view that while the governance of the urban cooperative banks should be left to the State governments concerned, the RBI would look after the regulatory aspects.

"Any overlapping issues can be resolved through a coordinated mechanism at the level of TAFCUB," he said.

Extending financial and technological help to improve the health of urban cooperative banks is imperative since these banks cater for the needs of the weaker sections of the society, he said.

Special reports

Mr. Reddy also said that the RBI would call for "special reports from urban cooperative banks" of their capital market exposure following reports that they are overstepping their limits.

"But, no cases of complaint have come to us so far. We have to keep a watch and we are keeping a watch on their capital market exposures," Mr. Reddy asserted.

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