Urban Co-operative Banks
(RBI Annual Policy For 2007-08)

Urban co-operative banks (UCBs) play a crucial role in the Indian financial system in channelising funds and bridging the financing gap in respect of small and medium borrowers. A 'Vision Document for Urban Co-operative Banks' was prepared keeping in view the heterogeneity of the sector in terms of size, area of operation, performance and strength. The Vision Document was placed on the Reserve Bank's website in March 2005. Pursuant to the Vision Document, the Reserve Bank has so far entered into Memoranda of Understanding (MoUs) with nine State Governments, with a view to putting in place a structured arrangement for co-ordination between State Governments and the Reserve Bank to address the problem of dual control. Task Forces for Urban Co-operative Banks (TAFCUBs) have been constituted in States that have signed MoUs and consultative processes are in operation. A TAFCUB has also been set up for the multi-state co-operative banks coming under the Central Registrar of Co-operative Societies. Consequently, 79 per cent of the UCBs, constituting 90 per cent of the deposits of this sector, are covered by MoUs/TAFCUBs.

(a) Licensing of Branches of UCBs
It was indicated in the Annual Policy Statement of May 2004 that fresh issuance of licenses to UCBs would be considered only after a comprehensive policy on UCBs, including an appropriate legal and regulatory framework for the sector, is put in place and a policy for improving the financial health of the UCB sector is formulated. As a sequel thereto, grant of licences for opening of new branches was also put on hold. Keeping in view the positive developments in the UCB sector, it is proposed:

• to consider granting of branch licenses to well-managed and financially sound UCBs in States that have signed MoUs, subject to fulfillment of certain parameters.

(b )Guidelines on Augmenting Capital of UCBs
A Working Group comprising representatives of the Reserve Bank, State Governments and the UCB sector was constituted to explore various options for raising of regulatory capital funds of UCBs and identify alternate instruments/avenues for augmenting the capital funds. The report of the Group was placed on the Reserve Bank's website in November 2006 for wider dissemination and feedback. Based on the recommendations of the Working Group and comments received thereon, it is proposed:

• to issue guidelines to UCBs on the various options for raising capital by May 31, 2007.

(c) Prudential Norms for UCBs: Extension of Time
As a part of the two-track regulatory approach to deal with the UCBs sector, UCBs are classified under two categories, viz., Tier I and Tier II banks. Tier I UCBs were allowed to classify loan accounts as NPAs based on 180 days delinquency norm instead of 90 days norm up to March 31, 2007. Furthermore, effective from the financial year 2006-07, UCBs in Tier II were required to move towards a more stringent provisioning norms for doubtful assets. Taking into consideration the progress made by UCBs, so far, it is proposed:

• to extend by one year the existing relaxed prudential norms applicable to Tier I and Tier II banks.

(d)Undertaking Insurance Business
At present, Scheduled UCBs in Grade I with a net worth of not less than Rs.50 crore are permitted to undertake insurance business as corporate agents, without risk participation. Further, all UCBs are allowed to undertake insurance business on referral basis. With a view to providing avenues for fee-based income for a larger number of banks, it is proposed:

• To allow all UCBs in Grade I and II with a net worth of Rs.10 crore and registered in a State that has signed the MoU with the Reserve Bank or under the Multi-State Co-operative Societies Act, to undertake insurance business as corporate agents, without risk participation.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

(a) Recent Initiatives
The Corporation has taken a number of initiatives recently to eliminate delay in settlement of claims to the depositors. These include:

(i) Follow-up with liquidators, providing guidance and training to them for speedy preparation and submission of claim lists.

(ii) Where claim lists are not forthcoming from the liquidators within the prescribed time, the Corporation issues an advertisement in local newspapers. The advertisement mentions the non-receipt of claims at its end and also requests depositors to make claims with the liquidator under intimation to the Corporation. Before issue of such advertisements the concerned Registrar of Co-operative Societies is given one month's time for arranging submission of claim lists. The DICGC processes such cases after obtaining necessary details from the liquidator.

(iii) Where there is a Court case challenging cancellation of license/liquidation of banks, the depositors claims in such cases as per claim list will be settled after obtaining an irrevocable undertaking from the liquidator. If the court has directly restrained it from settling claims, the Corporation will make an application to have the injunction lifted.

(b) Liberalised Interpretation in case of Joint Holding
Currently, the maximum claim payable by DICGC to any depositor in the same right and same capacity is Rs.1 lakh. In case of joint deposit accounts, two accounts held in the names of, say, 'A & B' and 'B & A' are currently clubbed and considered as being held in the same right and capacity with claim payment limited to Rs.1 lakh.

In view of the large number of representations received and in order to redress the grievance of depositors, it is proposed:

• to treat only those joint accounts held exactly in the same nomenclature and having names in the same order with different branches of the same bank, as being held in the same capacity and same right. Accordingly, joint deposits held in the names of 'A & B' and 'B & A' will be treated as two separate accounts eligible for maximum claim of Rs.1 lakh each.