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Draft Vision Document for Urban Co-operative
Banks |
Urban Co-operative Banks (UCBs) are an important
part of the financial system in India. It is,
therefore, necessary that the UCBs emerge as a
sound and healthy network of jointly owned,
democratically controlled, and ethically managed
banking institutions providing need based
quality banking services, essentially to the
middle and lower middle classes and marginalized
sections of the society.
This document sets out the broad approach and
strategies that need to be adopted to actualize
this vision.
to remain in competition. |
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1. Background
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The urban cooperative banking system has
witnessed phenomenal growth during the last
one and a half decades. From 1307 urban
cooperative banks (UCBs) in 1991, the number
of UCBs has risen to 2105 in the year 2004.
Deposits have increased by over 1100 percent
from Rs. 8600 crore to over Rs.100, 000 crore,
while advances have risen from Rs. 7800 crore
to over Rs.65,000 i.e. by 733 percent during
the above 15-year period. This growth path has
been possible mainly on account of the
enabling policy environment in the Post 1991
period, which encouraged setting up of new
urban cooperative banks. Further, the
deregulation of interest rates, as available
to commercial banks, enabled the UCBs to
mobilize vast deposits, which, together with
the liberal licensing policy propelled the
growth of UCBs in terms of numbers as also in
size. This significant growth in business,
which has come about in a competitive
environment was largely due to the efforts and
the ability of the sector to harness resources
from the small depositors.
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Thus, while the sector has shown spectacular
growth during the last decade exhibiting
substantial potential for sustained growth,
there are certain infirmities in the sector
that have manifested in the form of weakness
of some of the entities resulting in erosion
of public confidence and causing concern to
the regulators as also to the sector at large.
There is, thus, a need to harness the benefit
of rapid growth and mitigate the risk to which
individual banks and the system are exposed by
providing a regulatory and supervisory
framework that will address the problems of
the sector as also the shortcomings of dual
control.
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2. Objective
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In
the light of above, the broad objectives of
the document can be set out as under: -
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To
rationalize the existing regulatory and
supervisory approach keeping in view the
heterogeneous character of entities in the
sector
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To
facilitate a focused and continuous system of
supervision through enhanced use of
technology.
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To
enhance professionalism and improve the
quality of governance in UCBs by providing
training for skill up-gradation as also by
including large depositors in the decision
making process / management of banks.
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To
put in place a mechanism that addresses the
problems of dual control, given the present
legal framework, and the time consuming
process in bringing requisite legislative
changes
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To
put in place a consultative arrangement for
identifying weak but potentially viable
entities in the sector and provide a framework
for their being nurtured back to health
including, if necessary, through a process of
consolidation
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To
identify the unviable entities in the sector
and provide an exit path for such entities.
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3. The Operating Environment
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Urban cooperative banks form a heterogeneous
group in terms of geographical spread, area of
operation, size or even in terms of individual
performance. As such, development of the urban
cooperative banking institutions into safe and
vibrant entities requires the small banks in
the group to be insulated from systemic shocks
by emphasizing their cooperative character.
Further, the weak banks may have to be
strengthened as a group, through a process of
consolidation that may entail mergers/
amalgamations of viable entities and exit of
the unviable ones, if there are no other
options available. It is also felt that it is
necessary to set up a supervisory system that
is based on an in-depth analysis of the
heterogeneous character of the urban
cooperative banks and one that is in tandem
with the policy of strengthening the sector.
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4. Structures and Spread of UCBs
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In
terms of geographical spread, UCBs are
unevenly distributed across the states. Five
states viz., Maharashtra, Gujarat, Karnataka,
Andhra Pradesh and Tamil Nadu account for 1523
out of 1924 banks that presently comprise the
sector. Further, the UCBs in these states
account for approximately 82% of the deposits
and advances of the sector as may be seen from
the table below:
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Name of the State |
No of banks in operation |
% to total no. of banks |
Deposits
(Rupees in lakhs) |
% of deposits to total deposits |
Advances
(Rupees in lakhs) |
% of advances to total advances |
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Maharashtra |
639 |
26.68 |
60,72,498 |
55.08 |
37,42,401.2 |
55.09 |
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Gujarat |
321 |
15.24 |
16,27,946 |
14.77 |
9,70,287.03 |
14.28 |
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Karnataka |
300 |
14.25 |
8,35,274 |
7.58 |
5,37,186.7 |
7.91 |
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Tamil Nadu |
132 |
6.27 |
3,10,521 |
2.82 |
2,12,113.28 |
3.12 |
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Andhra Pradesh |
131 |
6.22 |
2,11,324 |
1.92 |
1,37,888.23 |
2.03 |
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Total |
1,523 |
2,106 |
90,57,563 |
82.15 |
55,99,876.5 |
82.44 |
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For
all UCBs in the country, the total Deposits are
Rs. 1,10,25,642 lakhs and total Advances are Rs.
67,93,017 lakhs. |
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