FICCI seeks more reforms on urban coop banks

By Our Special Correspondent

NEW DELHI, MAY 7. The Federation of Indian Chambers of Commerce and Industry has called for removing the duality in control over urban cooperative banks (UCBs) as well as tackling other problems such as increasing incidence of weakness and low level of professionalism.

In a discussion paper, it has stressed that it is time for the essential spirit of the regulatory and reform measures adopted for commercial banks to be extended to cooperatives with necessary adaptations to suit their operating circumstances. In this context, it has noted that the sustainable growth of the urban cooperative banking sector depends to a great extent on the efficacy of regulation.

The chamber has noted that the urban cooperative banking sector has emerged as an important segment of the banking sector today, catering to the credit needs of lower and middle class borrowers in urban, semi-urban and rural areas.

On duality of control, the chamber observes that UCBs are primarily credit institutions meant to be run on commercial lines. But banking operations are under direct supervision of the Reserve Bank of India while managerial operations are controlled by the State governments under the provisions of the respective State Cooperative Societies Act.

The paper points out that banking operations such as branch licensing, expansion of areas of operations, interest fixation on deposits and advances, audit and investments are under direct jurisdiction of the RBI. On the other hand, managerial aspects of registration, constitution of management, administration and recruitment are controlled by the State government. In order to do away with confusion, the Narasimham Committee in 1998 had recommended removal of this duality of control and suggested fixing responsibility of regulation of UCBs on the board for finances supervisions.

Outlining the second major area of concern, it says the existence of a large number of unlicensed banks has become a serious cause for concern to regulators. Such huge proliferation has taken place, it is stated, due to mild screening process in the past. One of the major suggestions in this regard is that such banks be given licence only when they satisfy the essential quadruple criteria of minimum prescribed capital adequacy requirements, net NPA ratio not exceeding 10 per cent, have made profits continually for the last three years and have complied with the RBI regulatory directions.

Another issue of concern highlighted is the non-availability of comprehensive and up-to-date information on account of delay and non-submission of returns within the stipulated timeframe. Regarding financial and managerial weaknesses, it is felt funds infusion alone may not solve the problems. In this respect, it is felt the areas needing careful examination include pattern of resources of cooperatives, deployment of resources, management and supervision, role of cooperative banks in the financial system and the regulatory framework for cooperatives.

To discuss these issues, the FICCI has organised a seminar on future reforms in urban cooperatives to be addressed by the RBI Deputy Governor, Mr. Jagdish Capoor.

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Section  : Business
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