Urban Cooperative Banks (UCBs) are expected to have an umbrella organisation for liquidity support and self -regulation organisation by the end of this financial year.
While talks of having an umbrella organisation in the urban cooperative sector has been doing rounds for quite some time, the need to have one is now expedited by the recent fraud in Punjab Maharashtra Cooperative (PMC). The fraud, pegged at close to Rs 4,355 crore, has jeopardized the money of hundreds of depositors in the bank.
The umbrella organisation, which will essentially a non-banking finance company (NBFC), will have an authorised capital of Rs 500 crore, while the paid up capital would be Rs 300 crore, said Subhash Gupta, member secretary and chief executive, National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB). The funds will be contributed by the urban banks and their federations.
"One of the key functions of the umbrella organisation will be to provide liquidity support to the banks," said Gupta. Areas for self-regulations include governance and internal controls.
Few months back, Reserve Bank of India had also accorded its regulatory approval to the federation to promote an umbrella organisation. However, the federation would need an NBFC licence from RBI.
Notably, RBI has been trying to streamline UCBs for quite some time. This came after it pursued an active licensing policy for UCBs during 1993-2004, which led to a sharp increase in their numbers.
Subsequently, due to their weak financial position, RBI action led to merger/amalgamation of weak UCBs with viable ones and closure of unviable ones. At the end of March 2018, there were 1,551 UCBs, of which about 54 where scheduled UCBs. The RBI had also given the option of converting UCBs to small finance bank, a proposal which has been turned down by the UCBs.
At present, UCBs are under dual control of state government and RBI, which is also one of the reasons of blurred regulations. The top bosses in in the institutions are selected by elections, often marred by political intervention, unlike banks, where professionals are handpicked for the job. Experts favour singular supervision by the RBI.
The idea of setting up of umbrella organistaion for urban cooperatives was first mooted in the year 2006 by a working group of by the RBI on augmentation of capital of UCBs under N S Vishwanathan. More recently, the need for umbrella organization was stressed by the high powered committee on UCBs under R Gandhi in the year 2015.
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