Umbrella Organization can make UCBs stronger
The NAFCUB CEO Roundtable at FCBA discusses the future road map for the cooperative industry:
Babu Nair, Publisher, Banking Frontiers, led the discussion. The other panelists were Jyotindra Mehta, President of NAFCUB and Chairman of Gujarat State Urban Cooperative Bank Federation, V. S. Das, former Executive Director of RBI, D. Krishna, Former CEO of NAFCUB, Raja Debnath, Banking Expert & Consultant, Anurag Srivastava, CEO of Uttar Pradesh Urban Cooperative Banks Federation, P.K.
Arora, former CGM at RBI, Satish Utekar, former CEO of TJSB Bank.
Babu Nair: What is the road ahead for umbrella organization for I ndia’s cooperative banks.
V.S. Das: It’s been 13 years since the idea for an Umbrella Organization for the cooperative banks started. As an Umbrella Organization our prime responsibilities will be to grow stronger together, pool the resources and protect the smaller players, while encouraging newer talents. The greatest advantage for all the members under the UO will be that we will be able to scale larger peaks, while supporting each other. Internationally, such umbrella organizations have been providing solidarity to the cooperative banks. They have been protecting the cooperative banks by providing capital and liquidity, through IT platforms and developing the grass roots.
At the end of long road RBI has given approval for the umbrella organization. It gave a detailed approval and mentioned various aspects for the structure of the organization. Some of them were on capital and equity contributions, how it should be managed, etc. RBI has also strictly mentioned the sources and uses of the funds. Under the directive, UO can perform other functions like self-regulatory authority, funds management, consultancy services and R&D.
Lot of challenges are there ahead for us. The first and foremost is raising funds. It has to come from the member banks. Getting experts to manage the affairs would be the next task.
In recent times, owing to various factors, there has been a dip in public trust in cooperative banks. UO will bring professionalism, integrity and customers back to the cooperative banks. With markets being unpredictive and non-performing assets on the rise, all banks will have to go through highs and lows.
I am confident UO will be the game changer for India’s urban cooperative banking sector. It will help restore the confidence of depositors in cooperative banks and give the much needed face lift to the whole sector.
Anurag Srivastava: How are we going to ensure that investments in the UO are going to fetch returns?
P K Arora: Certainly, as i n any investment we will have to give 1 or 2 years for dividends to start coming in.
Raja Debnath: This question can be broken into 2 parts. The 1st part is with regard to the investment in terms of capital and 2nd part in terms of loan which they are giving to NBFCs. P.K. Arora has answered the capital part - that the dividend part will not be an issue out there. If the dividend is not paid that’s the income yet to be received, so that there is no NPI. But when it comes to the loan, if you give a loan to the UO and if it gets defaulted you still have to report it. So, RBI is not going to say that because you have given money as a loan to the UO, the money will go down the drain.
Babu Nair: What type of assurance you would like to have to support investments in the UO?
Satish Utekar: UO is a concept to strengthen the cooperative banks from inside as well as outside. The smaller banks lack expertise and funds to meet the online challenges. Cooperative banks’ strength and reputation will go up. As a result, they will attract more customers and hence, the investments will give good returns.
Babu Nair: What is the kind of trust we are going to build in the sector and make sure that the investments are safe?
Raja Debnath: Many banks and organizations want to be part of this wonderful organization. State federations and banks which will be part of the UO will be the initial investors. Globally, multilateral organizations which are interested in SMEs of India are also keen in taking this forward. To keep the ethos of cooperative banks we should definitely like to see the cooperative banks to reach out to the UO.
Jyotindra Mehta: An awareness campaign has begun. Once the trust in the concept is built it will be easy to get partners on board.
D. Krishna: The apex body in many countries is a holding company and also its own bank. Such bodies are the largest and most trusted financial institutions. The apprehension should fade. We have enough pointers which show that cooperative banks will have larger roles to play in the coming years. It will be a win-win situation for all. Once the top banks in the industry show trust others are sure to follow.
Babu Nair: Will measures like insuring the loans given help in creating the confidence of the investors?
Arora: Many smaller banks cannot do business for failing to the criteria set by the regulator. Once they come under the UO it will be easier for them to scale those criteria.
Babu Nair: Large scale consolidation of the small urban cooperative banks should not be carried in such a structure that it dissolves the entire structure of the sector as sector plays an important role in the economy.
Anurag: We are seeing decline in the cooperative banking sector. The quality of banking should improve despite decrease in quantity.
Arora: The regulator on its part is going extra mile to help the cooperative sector. It is trying to make them on par with the commercial banks.
Babu Nair: How will you encourage the cooperative banks to remain in the sector rather than getting converted to small finance bank or getting privatized?
Das: The urban cooperative banks have been working in stand-alone mode. They have to be brought under one network.
Krishna: Cooperative banks are here to stay. One or 2 banks converting is not going to bring change in the sector.
Arora: The regulators have always been in the favor of the cooperative banks. The rules and regulations applied to them are also lenient compared to the commercial banks.
Jyotindra Mehta: Cooperative banks are universal banks. No one will want to move to small finance banks. They would like to keep cooperativeness in the cooperative banks.
Utekar: Maintaining the cooperativeness in the mind and keeping it as a viable unit is important. It is the cooperative bank’s responsibility to make the UO stronger. This is to bring the smaller as well as the larger cooperative banks better future.