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Vision Document
and Extension of scope of TAFCUBs
The medium term framework being drawn up by RBI
as per the vision document has provided the
right environment and has given certain amount
of confidence to the sector to overcome the
difficulties being faced.
At present TAFCUBs in each of the States where
MoUs have been signed, are meeting very
regularly to study in detail, the working of all
the banks that are classified under Gr.III &
Gr.IV and recommending future course of action,
regulatory or otherwise, in respect of each of
the banks. The progress is quite encouraging.
Most importantly, there is a great feeling of
involvement of the sector and the RBI is freed
from doing lot of spadework and also from giving
feeling of taking decisions to even cancel
licenses in a routine manner. TAFCUB could
therefore be a body, which could not only be
used to oversee many aspects of regulatory
compliance, but also imbibe the culture of
self-regulation and greater regulatory
compliance. TAFCUB could be given functions of
recommending appointment of
administrators/committees, liquidators and
monitoring the progress made by them as also the
progress in settlement of claims of DICGC. It
could also be forum for discussions of problems
of individual banks and of redressal of their
grievances. The RBI can consider these
suggestions and make appropriate announcement in
the policy.
Relaxation in 90-day norms
Relaxation of 90-day norms to the Tier-I banks
has also given relief to all the smaller banks.
The Annual Policy could announce extension of
the relaxation to 31st March 2009.
TAFCUB for weak scheduled banks
Restructuring of weak scheduled banks has been
taken up by RBI by discussions with the banks
individually. This is not as per the
dispensation suggested in the draft vision
document. A Committee for weak scheduled & multi
state banks on the lines of TAFCUBs was to be
constituted. RBI should consider and announce
formation of such a committee so that it would
be a standing forum for these banks. Formation
of TAFCUBs is showing encouraging results and
this committee for scheduled banks will also be
useful. |
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1. Opening of
branches, extension counters and ATMs by UCBs
RBI's decision not to issue licenses to urban
cooperative banks to open branches/extension
counters/ATMs and also not to give approval for
registering any new banks is in force now for
over 4 years. The decisions of RBI was to be
effective till acceptable regulatory framework
was put in place. Subsequently a MoU route was
proposed and adopted by RBI. Three of the 4
major states have already signed MoU and decks
are clear for signing by the 4th state also.
There is therefore no reason for RBI not
permitting natural growth of sound urban banks.
Even in the event of the banks being freely
permitted to open branches/extension
counters/ATMs, they will have a lot of catching
up to do on account of opportunities lost in the
last 3 years, which wee very momentous years for
the Indian Banking Industry and for Indian
economy as a whole. RBI, therefore, can make
announcement in the Annual Policy to resume
giving licenses for branches/extension
counters/ATMs at least to all the banks that are
categorized as Gr.I or Gr.II. This could be the
most important policy announcement that the
sector is waiting for during the last 3 years.
2. Permission for formation of new urban
cooperative banks
As for the resumption of permission for
registering new urban banks, it needs to be
addressed from the point of removing huge
geographical imbalance in the sector. Perhaps
two criterion, one for the five states of
Maharashtra, Gujarat, Karnataka, Andhra Pradesh
and Tamil Nadu and the other for the rest of the
states may have to be evolved. Strong and
well-managed scheduled urban banks may be
encouraged to open branches in the capitals/main
cities of states, which have very little
presence of urban cooperative banks in the first
stage. After that they may be given all
facilities and support to organize new banks in
different parts of particular state(s), by being
one of the promoters. This may require some
changes in the law. This route of expansion of
urban banks, which is very much needed to
fulfill the goals of financial inclusion of the
population, will ensure that the newly formed
banks will be organized on sound footing. A
policy announcement on resumption of issuance of
new banks licenses with a view to correct
geographical imbalance and for wider coverage by
urban banks is requested.
3. Avenues for raising capital
Budget proposal to amend Sec.80(P) of Income Tax
Act that has now been passed by the Parliament
has brought in sharp focus the absence of any
appreciation for cooperative institutions being
different from commercial ones. Taking away a
significant part of the limited surplus of
cooperative banks by way of tax will definitely
affect the growth of profit making banks. The
present system of capital formation and the
system of withdrawable nature of the share
capital by members of cooperatives are major
constraint in their rapid growth. Raising share
capital only from members is very inadequate.
Unless this issue is addressed, cooperative
banks may not take their rightful place in the
banking scenario in the country. The last
meeting of SAC discussed the issue and suggested
formation of a committee to study the issue in
all its entirety and to give recommendations.
The subject will attract wider discussions if it
finds mention in the Annual Policy Statement. It
is requested that capital formation of urban
cooperative banks is taken up for mention in the
statement and for further action.
4. Investments in G-Secs.
RBI is kindly requested to permit UCBs to
categories investments in G.Secs upto 40% of
NDTL as held to maturity for at least 3 years to
tide over the difficulty they are facing on
account of excess holdings in gilts that are
presently illiquid and have depreciated sharply
over the last 18 months. The banks can exit only
when the yields start going southwards again.
Till then, they require sympathetic treatment
from the Regulator by some supportive
relaxations from time to time. As a large number
of banks are affected, any decision will have
far reaching impact on the sector.
5. Gold Loans tailored to the needs of weaker
sections
Across the country and in all the states, there
is a practice of people borrowing from private
moneylenders against security of gold/ornaments.
The gold loans or jewel loans being granted by
urban banks require quarterly payment of
interest/ installment, which is not very popular
with people. In order to bring a sizeable
portion of that population which is in the
category of 'financially excluded' and which is
nevertheless borrowing from private
moneylenders, into the fold of banking, the RBI
should permit urban cooperative banks to tailor
their gold loan schemes to match that offered by
the moneylenders. The urban cooperative banks
should be permitted to sanction loans with
bullet repayment of loan amount and interest at
the end of, say, 12 months or 24 months.
Further, the present provisioning norms of
classifying loans against 'gold-ornaments' as
against 'other assets' and requiring to provide
100% needs to be reviewed. These measures could
be considered and announced in the policy
statement.
6. Mergers and Amalgamations
The acceptance of mergers amongst urban
cooperative banks by the sector has been a
pleasant surprise as cooperatives being
democratic organizations, mergers are not
generally considered and very feasible route for
consolidation. However, the mergers have been
encouraged to some extent by denial of banks by
RBI to take up natural expansion. This situation
cannot go on for long and the UCBs need to grow
on their own. Under these circumstances the
strong banks, which offer to take over weak
banks, could be given incentives by way of
sanctioning offsite ATMs or specific branches
required by the banks. etc.
7. Assistance for acquisition of IT hardware
by UCBs
As per the MoU, one of the development aspects
of RBI's initiatives in respect of UCBs would be
to support them in becoming IT enabled so as to
be in sync. with the rest of the banking
industry. Many of the institutions are small and
financially not very strong to invest in
software and hardware. Technology up gradation
must take place say, in the next 12 months or
so. RBI must consider helping these banks and
their Federations by financially supporting
their hardware acquisition programmes. An
announcement on this subject will be welcome. |
