Date:06/08/2005 URL: http://www.thehindubusinessline.com/2005/08/06/stories/2005080602400600.htm

Back RBI favours mergers to strengthen urban co-op banks

Our Bureau

Hyderabad , Aug. 5

THE Reserve Bank of India Governor, Dr Y.V. Reddy, has allayed the apprehensions over the financial health of thousands of urban cooperative banks (UCBs) spread across the country and also fears over failure of the cooperative movement.

Viewing that a vast majority of the UCBs were either financially strong or potentially healthy at present, Dr Reddy said the regulator has begun the process of analysis so as to permit mergers and acquisitions of UCBs. He stressed on the need to upgrade the relatively weak UCBs to a healthy level, for which a mechanism to consider their mergers and acquisition was necessary.

The RBI Governor was addressing newspersons here on Friday after chairing the first meeting of the Task Force for Cooperative Urban Banks (TAFCUB), which was constituted for reviewing the performance of UCBs at periodic intervals and to suggest suitable measures for strengthening them.

According to Dr Reddy, setting a trend for numerous UCBs across the country, the RBI had entered into a Memorandum of Understanding with the Andhra Pradesh Government for strengthening the State-based UCBs.

Andhra Pradesh was the first State with which RBI had entered into such MoU, followed by Gujarat. The apex bank proposes to enter into similar MoUs with other State Governments shortly.

While favouring mergers and acquisitions amongst UCBs, the RBI Governor, however, said the banking regulator would only make recommendations in this regard and "there is nothing like forced marriages."

At present, the UCBs are under dual control of RBI and State Governments. The MoU between RBI and State Governments envisages convergence on the approach and remedial actions required for facilitating the development of the cooperative urban banking sector, Dr Reddy said.

Stating that the key focus of the Task Force was on improving the performance of the UCBs, the Governor said the regulator would assist these banks in improving their accounting capabilities by providing training and technology upgradation.

Dr Reddy said the regulator has also come out with a draft `vision document' recently for strengthening the UCBs.

The RBI Governor said the UCBs were now classified into two categories - Tier-I UCBs, comprising localised banks and Tier-II UCBs, consisting of bigger entities with larger presence.

Of the 127 UCBs currently functioning in Andhra Pradesh, 112 were classified as Tier-I.