RBI panel suggests umbrella organisation to revive urban co-op banks
The UCB sector is keen that the organisation should provide payment and settlement services and liquidity assistance.
Our Bureau
Mumbai, Nov. 17 Urban co-operative banks (UCBs) are likely to heave a sigh of relief. A Reserve Bank of India working group has recommended that an umbrella organisation be floated to provide, among others, loans and advances, refinance, payment and settlement services, capital support, IT services and funds management to these banks.
Instead of setting up a Rs 2,500-crore revival fund for providing solvency support to weak and sick UCBs (23 per cent of the 1,721 UCBs fall in this category), the group has pitched for setting up State-specific Emergency Fund schemes to provide liquidity support.
The idea of creating a fund has been shelved as contribution from the profits would be resisted by UCBs. Moreover, the Central and State Governments are unlikely to come forward to contribute to the fund.
“The working group is convinced that an umbrella organisation that provides a variety of professional services to UCBs, helps them augment their capital and provides emergency liquidity support would be helpful for the sector (UCB),” according to the report of the working group on umbrella organisation and constitution of revival fund.
To be floated as a non-deposit taking non-banking finance company with a paid-up capital of Rs 100 crore, the organisation would also provide services such as ATM network, investment banking, management consultancy, and capacity building services. The conversion of the umbrella organisation to a banking company could be considered in due course in the light of experience gained.
The UCB sector is keen that the organisation should provide payment and settlement services and liquidity assistance. There are concerns that the new eligibility norms would make Magnetic Ink Cheque Recognition-based clearing, Real Time Gross Settlement, Securities General Ledger/ Constituent SGL accounts out of reach for a large number of banks and lack of avenues for temporary liquidity assistance (even against government securities) in case of need and urgency.
Centralised bodyMany small UCBs are looking forward to a centralised organisation for buying, selling and managing government securities on their behalf in view of their lack of skill and expertise in the areas.
As on March-end 2009, there were 1,721 UCBs with an asset size of Rs 1,96,395 crore. If these banks initially contribute Rs 0.10 per every Rs 100 of assets, then Rs 196 crore could be raised by way of capital. However, since shareholding in the organisation would be voluntary for UCBs, their participation, according to the group, is expected to be 50-60 per cent in terms of assets, though it could be much more in terms of actual number.
The paid-up capital could be called up/ subscribed in two or more instalments. To begin with, a one-time fee of Rs 1 lakh a member could also be collected and kept in the reserve fund. The group felt that some kind of fiscal incentives by the Government to UCBs for their contribution would help the organisation mobilise the share capital.
To make the umbrella organisation sustainable, the RBI could reckon deposits kept by the UCBs with the organisation for the purpose of cash reserve ratio and statutory liquidity ratio, permit the organisation membership of Payment and Settlement systems; and setting up ATM networks, etc.
Being a non-deposit taking NBFC, it would be in a position to access working capital via borrowings from banks/ financial institutions; term deposits from UCBs; bonds/ debentures; and refinance against loans and advances/ securities.
