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For co-operative banks identified as viable, the RBI will prepare a revival plan, which includes setting milestones for their turnaround.

The Reserve Bank of India Governor, Dr Y.V. Reddy, addressing a press conference in Bangalore on Saturday. The RBI Regional Director for Karnataka, Ms Devaki Muthukrishnan, looks on. — K. Murali Kumar

Bangalore , Sept. 17

THE Reserve Bank of India has proposed mergers and a non-disruptive exit for weak co-operative banks.

After the first meeting of the Task Force on Urban Co-operative Banks in Karnataka on Saturday, the RBI, Dr Y.V. Reddy, told reporters, "The taskforce will examine consolidation of weak co-operative banks and if necessary consider non-disruptive exits."

Karnataka's 298 co-operative banks together have a deposit base of about Rs 8.35 lakh crore and advances of about Rs 5.37 lakh crore. The RBI's reform package is part of a memorandum of understanding signed between the State Government and the apex bank on September 5. Besides Karnataka, the RBI has signed such MoUs with Gujarat, Andhra Pradesh and Tamil Nadu. Maharashtra is the only State that has not signed the MoU.

Dr Reddy said Karnataka's taskforce, headed by the Regional Director, had reported that 142 of the State's co-operative banks have no problems. But for the rest, the RBI is prepared to consider a reform package. For co-operative banks identified as viable, the RBI will prepare a revival plan, which includes setting milestones for their turnaround. The RBI will closely monitor the bank's progress on the revival plan and initiate appropriate action, in case of non-achievement of the targets, as per the plan.

Unviable banks will be allowed to merge with some of the stronger co-operative banks in the State, said Dr Reddy. Consolidation, however, is not on RBI's agenda, he said.

RBI will only make enabling provisions for the consolidation. He said only the really weak ones would be allowed to exit. The exit will include either voluntary conversion into a co-operative society by repayment of non-member deposits or going into liquidation.

He said the taskforce would examine issues relating to dual control of the co-operative banks and suggest changes where necessary. Historically, both the State Government and RBI have regulated co-operative banks. However, some of RBI's regulatory responsibilities overlap those of the State Government, especially those relating to governance issues. This is mainly because RBI is the prudential regulator.

Dr Reddy said RBI was also prepared to incur expenditure for training the co-operative sector's manpower for capacity building and skill upgradation.

He said RBI was also prepared to improve the banks' technological infrastructure by enhancing their operational efficiency and management information system.

Referring to investments by the co-operative banks, he said problem areas such as investments in State Government securities, where there were over-dues, would be examined by the RBI and the taskforce. In Karnataka, he said, most co-operative sectors were receiving their debt servicing dues.

However, an area of concern for RBI is investments in stock markets by some co-operative banks. RBI is keeping a close watch on such co-operative banks, said Dr Reddy.

He said wherever investments in the stock markets were more than the permissible limits, "RBI was making special reports on the nature of the exposure."

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