1. Lifting of Ban on Loans to Directors

RBI : Relaxations in ban on loans to directors/relatives, would be to the extent permitted by Parliament and conveyed to RBI by the Government

Action Requested:
While the permission for urban banks to sanction loans against their own fixed deposits / LIC policies (of directors & relatives) has been given, RBI may kindly take up with Govt. of India for further modification in the ATR to Parliament on the issue, to extend provisions of Sec.20 of Banking Regulation Act, as applicable to commercial banks, to the urban cooperative banks also, as the next step.

RBI should also take up with the Govt. of India as to why the ban is made applicable to directors/relatives of urban cooperative banks ONLY, while they are not applicable to directors/relatives of State Cooperative Banks, District Central Cooperative Banks, Regional Rural Banks etc.

Further, in some states, like Madhya Pradesh, the provisions of the Cooperative Societies Acts stipulate that a member of a cooperative bank should necessarily be a loanee in order to be eligible to contest elections to the board of the bank. Unless RBI takes up the issue with the concerned states, the issue may not get resolved and there would be confusion prevailing.


2. Use of abridged names by urban cooperative banks

RBI : The word 'cooperative' should be invariably mentioned as part of the name of urban cooperative bank. RBI would like the rule to be observed in spirit and so long as there is adequate disclosure of cooperative character of urban cooperative bank in all publicity material and stationary of the bank, Reserve Bank should be satisfied

Action Requested :
Central Office may kindly instruct the ROs to ensure that the disclosure of cooperative character is adhered to in spirit. Clear visibility of the name as cooperative bank perhaps, would suffice. In case of a scheduled bank, the RO has, it appears, practically compelled the banks to write its full name on top as against its practice of writing shorter name on top and full name at the bottom which was also clearly visible, on its calendar. There appears to be variance in what RBI is saying and what the banks are ultimately compelled to do. In this context, we still strongly believe that cooperative banks should be allowed to project their brand image through easily remembered short names and this should not be construed as an attempt to hide cooperative character in any way.

3. Provisioning in respect of gold loans
RBI : As per the prudential norms, provisioning is linked to the age of the NPA irrespective of nature of security. However, RBI would look into the suggestions and take a review of the present instructions on gold loans

Action Requested:
The discussions on the subject in the meeting had actually brought out, (a) the importance of gold loans for urban cooperative banks, (b) the need for the banks to tailor the gold loan scheme(s) to requirements of the customer instead of imposing a scheme only in conformity in letter with the existing norms, and also (c) the fact that age of NPA depended on the meaning of NPA in the scheme.

It also emerged in the discussions that RBI will work out gold loan schemes providing for "bullet" payment of interest and the principal amount at the end of 12 & 24 months. The NPA will be reckoned after 180 days of the due date of such bullet payment, with provisioning norms being those applicable to secured advances.

It is requested that RBI may kindly make announcement of scheme in this regard at the earliest.

4. Mergers and amalgamations
RBI : RBI would expeditiously process the merger proposals. There was need for better coordination between RCS and RBI to quicken the process of implementation. TAFCUB had a critical role to play and signing of MoUs in more states will speed up the process

Action Requested:
Mous have since been signed in many states. 90% of the bank deposits are covered.

It is observed that delay of more than one month in final clearance of the merger could, at times, harm the interest of the taking over bank, when the outgoing management of the bank being taken over is still in charge. The delay invariably occurs on account of the proposal having to pass through the Screening Committee of outsiders (like retired commercial bankers etc.) and the proposals have to await the meeting to take place. Since these proposals are already examined by TAFCUBs and are scrutinized by the UBD, there appears to be little need to have it examined again by another Screening Committee whose members from outside are not familiar with the urban cooperative banks. If need be, such committee could consist of the Executive Director and two Chief General Managers from RBI. Perhaps only in cases where bank that is being merged is a scheduled bank, such a procedure of having an independent screening committee be adopted.

Further, we have come to understand that in a particular state, the approval for final merger orders, which are to be issued by RCS of the State where the bank that is being merged is registered, are going up to the minister. This could cause enormous delays and may not be exactly conducive to the process of consolidation. RBI needs to consider this development and take appropriate measures in this regard.

5. Forwarding of Inspection Report to Registrars
RBI : Since there are two regulators in the sector, as a matter of principle, inspection report of one regulator should be made accessible to the other regulator. However, there was a need to streamline the process of compliance report so that avoidable irritants in the process may be removed. For ensuring the same, interaction at local levels between RCS, RBI and Federations was necessary and TAFCUB, again has a role to play.

Under RIA, an application for furnishing a copy or extracts or information based on RBI's inspection report in RCS custody should be declined

Action Requested :
The fact that RIA does not permit information received in strict confidence and in a fiduciary capacity to be divulged is noted.

However, the issue is essentially about :
(a) possibility leakages of sensitive information about bank when it passes through various layers in the RCS office and even about the distortions of the information;

(b) RCS initiating unilateral and at times unwarranted actions against urban banks based on extracts taken from RBI's inspection report, invariably out of context. Such instances take place more in states where the number of UCBs are less and offices of RCS are not geared to regulate banking entities.

It is with this background that we would request RBI & RCS to agree that Office of RCS would not write directly to banks on any of the inspection observations by RBI on banking issues and that the RBI inspection reports would be handled only by person(s) superficially authorized by RCS in his office.


6. TAFCUB functions - extension of scope
RBI : Primary role of TAFCUB was to identify the viability of weak banks and to suggest a revival plan for viable weak banks or provide non-disruptive route for unviable entities. It was imperative not to lose focus particularly in the first 2 years of existence of TAFCUB. Thereafter, TAFCUB could be assigned additional roles


Action Requested :
Separate agenda issue for this meeting