To pre­vent clo­sure of ur­ban co-op banks, NAFCUB to set up um­brella or­gan­i­sa­tion

The Hindu Business Line - - BANKING - K RAM KU­MAR

The Na­tional Fed­er­a­tion of Ur­ban Co­op­er­a­tive Banks and Credit So­ci­eties (NAFCUB) plans to set in mo­tion the process of es­tab­lish­ing an um­brella or­gan­i­sa­tion for the 1,551 ur­ban co­op­er­a­tive banks (UCBs) in the coun­try. This is to cater to their tech­nol­ogy, liq­uid­ity, and cap­i­tal needs, and also to en­sure that banks in the sec­tor do not close down.

The um­brella or­gan­i­sa­tion (UO) will be set up as a non­bank­ing fi­nance com­pany (NBFC) to be­gin with and could be con­verted into a bank down the line, said Jy­otin­dra Me­hta, Pres­i­dent, NAFCUB.

In its State­ment on De­vel­op­men­tal and Reg­u­la­tory Poli­cies is­sued in Fe­bru­ary 2019, the RBI said it has re­ceived a pro­posal for set­ting up a UO from NAFCUB.

“We are ex­pect­ing a (ap­proval) let­ter from the RBI soon.

It will also cater to the tech­no­log­i­cal and liq­uid­ity needs of banks

“The UO will be a shelter for all UCBs – unit banks (with a sin­gle branch), Tier-I banks (with less than ₹100 crore de­posits), and Tier-II banks (with more than ₹100 crore de­posits, in­clud­ing multi-state banks).

“Ini­tially, we ad­vo­cated that the UO should be in the co­op­er­a­tive sec­tor. But the reg­u­la­tor was not com­fort­able with this as the sec­tor does not have a res­o­lu­tion mech­a­nism. So, the UO will be an NBFC,” ex­plained Me­hta.

While NAFCUB, State UCB Fed­er­a­tions, and UCBs will be the main share­hold­ers of the UO, the fed­er­a­tion is also try­ing to rope in the Na­tional Co­op­er­a­tive De­vel­op­ment Cor­po­ra­tion (es­tab­lished by an Act of Par­lia­ment in 1963 as a Statu­tory Cor­po­ra­tion un­der the Min­istry of Agri­cul­ture and Farm­ers Wel­fare) and global co­op­er­a­tive funds to in­vest in the pro­posed ven­ture, said D Krishna, for­mer CEO, NAFCUB.

Save UCBs

Me­hta em­pha­sised that NAFCUB’s pri­mary vi­sion for UCBs is that they should sur­vive and thrive in the com­pet­i­tive fi­nan­cial ser­vices space and in­crease their mar­ket share.

Ac­cord­ing to the RBI, the UCB sec­tor saw 129 merg­ers/amal­ga­ma­tions of weak but vi­able banks be­tween 2004 and 2018, with the max­i­mum be­ing in Ma­ha­rash­tra (72), fol­lowed by Gu­jarat (31), and Andhra Pradesh (12).

Some of the func­tions that the UO could per­form in­clude liq­uid­ity man­age­ment for UCBs (those with surplus liq­uid­ity can park it with the UO, and those fac­ing deficit could draw funds from it), es­tab­lish­ing a com­mon IT in­fra­struc­ture, in­clud­ing pay­ment gate­ways and data cen­tres that could be shared by all banks, and fa­cil­i­tat­ing merg­ers in the sec­tor.

RBI Gover­nor Shak­tikanta Das, in a speech de­liv­ered at NIBM, Pune, on June 8, ob­served that a need is be­ing felt for es­tab­lish­ing a UO for UCBs, which may ex­tend loans and re­fi­nance fa­cil­i­ties, set up IT in­fra­struc­ture, and pro­vide sup­port for cap­i­tal and liq­uid­ity.

The struc­ture, func­tions, and reg­u­la­tory guide­lines of this or­gan­i­sa­tion are be­ing ex­am­ined by the RBI.

“Merg­ers and con­sol­i­da­tion in the sec­tor will also help in re­duc­ing op­er­at­ing costs, en­cour­ag­ing greater risk di­ver­si­fi­ca­tion and economis­ing cap­i­tal.

“We pro­pose to put in place a mech­a­nism for en­cour­ag­ing vol­un­tary merg­ers in the sec­tor through ap­pro­pri­ate in­cen­tives. We also pro­pose to cre­ate a Cen­tralised Fraud Reg­istry for UCBs,” the Gover­nor added.

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