Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

Whither the Co-operative Banking? (Speech delivered by Shri R. Gandhi Deputy Governor at Maharashtra Urban Co-operative Banks Conference 2015 at Nagpur on Oct 24 2015)

Dated:- 28-10-2015 - Dear Co-operators, I am thankful to the Maharashtra State Urban Co-operative Banks Federation for inviting me to this Seminar. The topic chosen for the Seminar is very contemporary. While I will certainly make a few points about it later, I would like to first discuss the current status of the urban co-operative banking in India, how it reached there, what recent initiatives the Reserve Bank has taken to strengthen the sector and what is the way forward. 2. The organisation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

241.61 billion and ₹ 179.27 billion respectively. With the liberalisation of bank licensing policy, UCBs continued to grow at a fast pace till 2004 when their numbers increased to 1926 and their deposits and advances to ₹ 1020.74 billion and ₹ 649.74 billion respectively. Madhavpura Crisis 4. Very few regulated entities have the distinction of shaping an entire sector and generally it is in a positive sense; but sometimes in a negative sense. As destiny would have it, the Madh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ess and sickness. This forced the Reserve Bank to look at the sector differently and new regulations had to be prescribed. 6. Some of the major changes were compliance with CRAR prescription in phases, complete prohibition / ban on loans and advances to directors and their relatives, prescription of Interbank limits, imposition of restrictions on capital market exposure, increase in quantum of investment in G-Sec for SLR purpose and prescription of limit for single broker exposure. 7. It was als .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

policy for improving the financial health of the urban co-operative banking sector is formulated. Further, embargo was also placed on issuance of new branch licenses for the UCBs. Vision Document 8. A vision document for the UCB sector was drawn up by RBI in 2005 which envisaged that state specific strategy would be adopted to deal with the UCBs. Business Growth 9. The UCB sector emerged financially stronger ever since RBI conceived the Vision document for the sector in 2005. The Vision Documen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as on March 31, 2015. 10. During this period, while the number of UCBs were coming down, the business that all the UCBs recorded went on increasing. The number of UCBs declined in 2006 to 1853 with total deposits of ₹ 1122.37 billion and advances of ₹ 703.79 billion. The number of UCBs further declined to 1579 as on March 31, 2015 although there is absolute increase in deposits and advances at ₹ 3551.34 billion and ₹ 2243.08 billion respectively as at March 31, 2015. 11. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2015 and Return on Equity (RoE) has increased to 9.85% in 2015. As regards capital adequacy, it is observed that 1503 UCBs i.e. 95.18% of the total UCBs have reported a CRAR of 9 per cent or more as on March 2015. 13. The sector, however, continues to be afflicted with the existence of 48 UCBs which are having negative net worth and 29 UCBs under All Inclusive Directions, as on date. Expert Committee on Licensing of New UCBs 14. Having satisfied with the stability achieved in the sector, an exp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed by RCS / CRCS and the banking function by RBI for overcoming the problem of dual control and recommended the creation of a Board of Management (BoM) in addition to Board of Directors (BoD). It also recommended creation of Umbrella organization at both national and state level for the urban Co-operative banking sector. 15. RBI s main objective of regulation and supervision has been to maintain confidence in the financial system by enhancing its soundness and efficiency. I would now like to spe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on to offer Demat account trading facility and liberalization of opening of off-site ATM are some of the steps taken by RBI to strengthen the sector. 17. More avenues have been provided for UCBs to earn fee based income. Accordingly, UCBs are now allowed to undertake Point of Presence (PoP) Services under Pension Fund Regulatory and Development Authority (PFRDA), act as PAN Service Agent (PSA) for providing PAN Issuance Services to its Customers and issue 'Semi-Closed Pre-paid Payment Instru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s (SAs) who will be qualified Chartered Accountants. However, it was observed that there were large divergences between the audited financial parameters of UCBs and that assessed by Inspecting Officers. As statutory audit is one of the important inputs based on which on-site supervision is conducted, it is imperative to improve and strengthen the quality of reports of SAs. It has therefore been decided to hold workshops / seminars for SAs to sensitize them with IRAC norms issued by RBI. Institut .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as declined to 339 constituting 21.50% of total number of UCBs as at the end of March 31, 2015. The number of UCBs in A & B rating increased from 948 in 2011 to 1240 as on March 31, 2015. 21. A new Supervisory Action Framework (SAF) was prescribed by RBI in March, 2012 which replaced the Graded Supervisory Action. As a part of the SAF, RBI specified regulatory trigger points in terms of five financial parameters viz. CRAR, Gross NPAs, concentration of deposits, profitability and CD ratio for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

deficiencies in the functioning of the bank and taking timely action to address them. 22. In view of the critical importance of CBS in the banking system, it has now been decided to include CBS implementation as an additional criterion for a UCB to be classified as an FSWM bank. With a view to imparting transparency and removing any unintended element of subjectivity the criterion of regulatory comfort has also been redefined. Regulatory Convergence 23. Pursuant to the amendment to the Banking R .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

manner. Similarly KYC guidelines for co-operative banks have also been brought at par with commercial banks. Way Forward 24. RBI had come out with a discussion paper on Banking Structure in India - The Way Forward in August 2013. The paper envisaged four tier banking structure consisting of International Banks at Tier I, National Banks at Tier II, Regional Banks at Tier III and Local Banks at Tier IV. The paper has brought to the fore a case for re-orienting the existing banking structure to mak .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

banks for people of small means. They cater to the financial needs of local communities and serve the lower and middle strata of population in urban and semi-urban areas, within a limited geographical boundary. Conversion of Multi State UCBs into commercial banks 26. As regards the Multi-state co-operative banks, the paper noted that there is a case for their conversion into commercial banks. As UCBs become larger and spread into more states, the familiarity and bonding amongst their members di .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

State UCBs. UCBs enjoy arbitrage in terms of both statutory and prudential regulations. Only some provisions of Banking Regulation Act, 1949 are applicable to them. UCBs continue to be under Basel I capital framework. Though, these may not cause serious concerns when UCBs are small and their operations are limited, regulatory arbitrage may create incentives for large multi-State UCBs to have greater leverage. Their remaining under lighter regulation is a risk. Larger multi-State UCBs, having pre .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

antage and may lag behind their competitor commercial banks as they are unable to provide a wider range of facilities to their customers. Conversion into commercial banks would give more business opportunities to such UCBs. 27. The existing laws governing co-operatives do not specifically provide for conversion of UCBs into (banking) companies. Therefore, the Paper suggested that necessary amendments to the Co-operative Societies Acts / Multi-State Co-operative Societies Act and Companies Act, 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ay be able to further extend the reach of banking services Licensing of new UCBs and conversion of UCBs into commercial banks 29. In pursuant of the conclusions of the Discussion Paper and in view of the high aspirations of UCBs to undertake the business akin to commercial banks despite lack of level playing field for regulation of UCBs vis-a-vis commercial banks and pursuant to the deliberations held in the 31st Standing Advisory Committee of UCBs, a High Powered Committee under my chairmanship .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

weak resolution regime and non-availability of powers to RBI to regulate and supervise UCBs at par with commercial banks, RBI faces constraints in making such relaxations. No powers are available with RBI for constituting Boards of UCBs, removal of directors, supersession of Board of Directors, auditing of UCBs, winding up and liquidation. The resolution regime for UCBs exists in a rudimentary form. The growth of the sector, therefore, has to be in a carefully calibrated manner, consistent with .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

HPC inter alia include UCBs having a business size of ₹ 200.00 billion or more may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory. Smaller UCBs can apply for conversion to Small Finance Banks provided they fulfil the eligibility criteria for such conversion and the licensing window is open. 32. Licenses to set up new UCBs may be issued to financially sound and well-managed co-operative credit societies having a minimum track record of 5 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng public comments; I am glad that this Seminar today also has been arranged to discuss the recommendations of the Committee. Debate, in any case, is always welcome and differing or different views will certainly augment final decision which will be taken by RBI after duly considering the views of all the stakeholders. Co-operative Character in Co-operative Banking 34. While the likely loss of co-operative character of the large Multi-State Co-operative Banks was vividly deliberated in the Discu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lack of meaningful discussions in AGMs, etc. Thus, it was observed that the co-operatives especially UCBs are losing their co-operative character. 35. We need to reflect on certain soul searching questions. It may cause certain shock to several of you, the veterans of co-operative movement, to undertake this search. Because, you need to find answers to some inconvenient questions. They are as follows: Has the co-operative movement retained its relevance after its 130 years existence in India? Ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version