COMMITTEE WILL BE SET UP TO STUDY ESTABLISHMENT OF NEW UCBS, SAYS RBI

Excerpts from Annual Policy Statement for the Year 2010-11 of the Reserve Bank of India dated 20.04.2010

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Conversion of Term Deposits, Daily Deposits or Recurring Deposits for Reinvestment in Term Deposits
104.    As per extant guidelines, banks should allow conversion of term deposits, daily deposits or recurring deposits to enable depositors to immediately reinvest the amount lying in the aforesaid deposits with the same bank in another term deposit. Banks are required to pay interest in respect of such term deposits without reducing the interest by way of penalty,
provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract. On a review of the extant regulatory norms and in order to facilitate better asset-liability management (ALM), it is proposed:

• to permit banks to formulate their own policies towards conversion of deposits.

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Urban Co-operative Banks
Establishment of New Urban Co-operative Banks
84.      Taking into account the systemic financial health of urban co-operative banks  (UCBs), it was decided in 2004 not to set up any new UCBs. With a view to improving the financial soundness of the UCB sector, memoranda of understanding (MoU) were signed with all State Governments. Following the consolidation, the financial condition of the UCB sector has improved considerably and UCBs have also been allowed to enter into new areas of business. With a view to increasing the coverage of banking services amongst local communities, it is proposed:

•   to set up a Committee comprising all stakeholders for studying the advisability of granting new urban co-operative banking licences under Section 22 of the Banking Regulation Act, 1949 [as applicable to co-operative societies (AACS)].

Liberalisation of Off-site ATMs by UCBs
85.      Under the extant policy of branch authorisation, UCBs, which are well-managed and meet the regulatory criteria, are required to submit annual business plans, based on which centres are allotted to them according to their choice for opening of branches. Centres where UCBs desire to open off-site ATMs are also required to be included in their annual business plan. In order to further improve the banking infrastructure, it has been decided to liberalise the approach to setting up of off-site ATMs by UCBs. Accordingly, it is proposed:

•   to allow well-managed UCBs to set up off-site ATMs without seeking approval through the annual business plans.

86.      Detailed guidelines in this regard will be issued by mid-May 2010.

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Rural Co-operative Banks
Revival of Rural Co-operative Credit Structure
76.      Based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof.A.Vaidyanathan) and in consultation with the state governments, the Government of India had approved a package for revival of the short-term rural co-operative credit structure. As envisaged in the package, so far 25 States have entered into Memoranda of Understanding (MoU) with the Government of India and the National Bank for Agriculture and Rural Development (NABARD). Fourteen States have made necessary amendments to their respective Co-operative Societies Acts. As on December 31, 2009, an aggregate amount of about Rs.7,000 crore was released by the NABARD as Government of India’s share under the package to primary agricultural credit societies (PACS) in 11 States.
Financial Inclusion through Grass-root Co-operatives
77.      There is a need for better understanding of the grass-root level rural co-operatives, which can play a more effective role as vehicles of financial inclusion. Besides, a large number of PACS, large adivasi multi-purpose co-operative societies (LAMPS) and farmers’ service societies (FSS), a number of thrift and credit co-operative societies have been set up under the parallel Self-Reliant Co-operative Societies Acts in some States. There is a need to understand the operations of these co-operative societies with reference to their membership profile, management structure, range of services being offered by them, savings mobilised from members/non-members, percentage of non-borrower members, credit extended to tenant farmers, oral lessees and agricultural labourers to appreciate the strengths of the well-functioning societies and their potential as an effective vehicle of financial inclusion. It is, therefore, proposed:

• to constitute a Committee comprising representatives from the Reserve Bank, the NABARD and a few State Governments to study the functioning of well-run PACS, LAMPS, FSS and thrift and credit co-operative societies set up under the parallel Self-Reliant Co-operative Societies Acts to gather information on their working and assess their potential to contribute to financial inclusion.