Forty-five cooperative banks may face regulatory action--Mint
Lenders may be barred from raising deposits, lending if they fail to meet minimum capital reserve needs by 30 Jun
Mumbai: About 45 Indian co-operative banks with combined deposits of Rs.35,600 crore face penal action by the Reserve Bank of India (RBI), including possible prohibition on their operations, if they fail to meet a 30 June deadline to achieve minimum capital and reserve requirements.
These cooperative banks, spread across different states, have been operating for several years, but are struggling now due to poor financial health, alleged misappropriation of funds—in several cases—and weak managements. They have thousands of depositors.
Three of these lenders are state-level cooperative banks while most of the rest operate at the district level.
Cooperative banks have to achieve a capital adequacy ratio (CAR) of 4% by the end of June, under the banking regulator’s stipulation, and comply with cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements at par with commercial banks.
CAR is calculated as the percentage of a bank’s capital to its credit exposure. CRR is the portion of deposits banks need to park with RBI, on which they earn no interest. SLR is the portion of funds banks have to park with RBI in the form of government bonds.
RBI had already given several extensions to these lenders to shore up their capital base. The first deadline was in March 2012; it was extended to September and then to March this year.
To be sure, these banks are already under a monitorable action plan by RBI to revive their business, but many are struggling to stay afloat due to capital constraints.
“Most of these banks are struggling to raise funds due to multiple constraints, including a lack of support from respective state governments and their poor managements,” said Prakash Bakshi, chairman, National Bank for Agriculture and Rural development (Nabard).
“Since these banks have been given several extensions to achieve the required capital, there is a possibility that there will be strict action on these banks, including barring them from operating further if they fail to achieve the required capital,” Bakshi said.
Nabard is the nodal agency to regulate cooperative banks and regional rural banks.
Though RBI is unlikely to shut these banks at once, it may bar them from raising fresh deposits and giving loans.
Of the 45 cooperative banks, 23 do not even have licences but these together have Rs.7,600 crore deposits.
Of these, 16 are in Uttar Pradesh, three in Maharashtra, three in Jammu and Kashmir and one in West Bengal.
The 16 banks in Uttar Pradesh together have a deposit base of Rs.2,900 crore and will require Rs.1,400 crore of capital to meet the 4% CAR stipulation. The three banks in Maharashtra have about Rs.3,000 crore of deposits.
These 23 banks will require about Rs.2,100 crore of capital to achieve 4% capital adequacy ratio, according to Nabard’s estimates.
Bakshi declined to comment on the banks in Uttar Pradesh citing an ongoing litigation in the Allahabad high court between some depositors and banks, but said that states like Maharashtra have expressed willingness to provide capital to cooperative banks.
The remaining 22 of the 45 cooperative banks have licences but were served notices by the central bank two months ago for non-compliance with its stipulations.
Of these, seven are in Kerala. These banks have to raise their capital adequacy to 4% by the end of June and to 7% by March 2014. All cooperative banks have to gradually migrate to 7% capital adequacy by March, 2014.
India’s central bank began its clampdown on cooperative banks in 2008-09 by setting the March 2012 deadline to achieve minimum eligibility benchmarks that were based on the recommendations of a committee headed by former RBI deputy governor Rakesh Mohan.
The panel had recommended a minimum capital-to-risk-weighted assets ratio of 4% by March 2012 and CRR and SLR at par with commercial banks.
Under current norms, commercial banks need to keep 4% of their deposits with RBI in the form of CRR and invest at least 23% of deposits in government securities as SLR.
Apart from these, the Rakesh Mohan panel had recommended that cooperative banks should neither have excessive bad loans nor have been pulled up by RBI for violations such as misappropriation of funds.
These banks should also have a minimum net worth of Rs.1 lakh. India has 30 states and 370 district cooperative banks.
India’s cooperative banking sector has been suffering in the last many years due to poor management and capital shortage.
In March 2011, the total deposits of all district cooperative banks stood at Rs.1.61 trillion and the advances at Rs.1.2 trillion.
These banks have 27% loan over dues on their books.
Clean chit
On the other hand, a recent RBI investigation, which followed money laundering allegations by online investigative magazine Cobrapost.com, had criticized the role of cooperative banks for allegedly channelizing large amounts of cash into the banking channel.
According to the investigation, there is a practice of cooperative banks opening current accounts with commercial banks on which they issue a large number of cheques payable “at par” to their customers.
Bakshi denied the allegations against cooperative banks. “We have done detailed inspection of operations of district cooperative banks for the financial year ended 2011-12. We haven’t found any wrongdoings with cooperative banks,” he said.
India’s cooperative banking sector has often come under severe criticism by experts for alleged misappropriation of funds by local politicians and mismanagement by officials, raising questions about the weak regulation on such entities and their relevance.
“RBI or any such authorities should consider conducting a study on the working of cooperative banks on whether the cooperative banks should continue in future, given that RBI is driving the financial inclusion agenda very strongly with existing scheduled commercial banks,” said Akeel Master, partner, financial services, at KPMG.
Nabard red alert to cooperatives on capital adequacy norm
THIRUVANANTHAPURAM, JUNE 7:
Strident opposition of cooperatives in the State to abiding by capital adequacy norm by the June-30 deadline is likely to land them in big trouble.
National Bank for Agriculture and Rural Development (Nabard) has sounded out a red alert on this front, asking them to shape up or risk being disconnected with the banking mainstream.
MAINTAINING CAPITAL
Capital adequacy norm prescribed by the Reserve Bank of India, the banking regulator, requires them to maintain capital at the level or Rs 4 for every Rs 100 lent.
R. Amalorpavanathan, chief regional manager, Nabard Kerala office, told newspersons here that it was high time stakeholders and the State Government sat together to find a way out.
June 30 is the deadline for meeting the first milestone of four per cent in the capital adequacy roadmap, he said.
Full adequacy would involve achieving progressive milestones of seven per cent by March, 2014, and nine per cent by 2015.
It would be foolhardy to expect that the regulator would make any exception from these rules for a single State.
ROOT PROBLEM
Failure to achieve these would mean that cooperatives would not be allowed to participate in the payment clearance system and not able to transact business.
There won’t be access to claims on the network anymore, Amalorpavanathan said.
“Capital adequacy is a stipulation of the regulator. Nabard cannot do anything with it; it’s just a supervisor of the sector.”
The objective was to ensure safe, secure and stable means for transacting financial business.
Amalorpavanathan traced the root of the problem to the State’s continued opposition to implementing the Vaidyanathan committee package addressed to cooperatives.
As part of the package, the Centre was willing to provide adequate funds to cooperatives to initiate essential reforms and clean up finances.
PERIODIC INFUSION
This would not be a one-shot affair; in fact, there would be periodic infusion to ensure that the cooperatives did not fall back on their old ways.
It was also meant to be a starting point on the long road to joining the banking mainstream. Unfortunately, Kerala had decided not to accept the recommendations.
It was only frontline State to reject the idea. The result is that State’s cooperatives find themselves at the receiving end, Amalorpavanathan said.
The problem had cropped up at the worst time, coinciding as it did with launch of direct benefit transfer scheme, in which entitlements are being made available through beneficiary accounts in banks.
Nabard was willing to sit with representatives of the State Government and stakeholders to hold continuous discussions to settle the matter.
Saturday, May 18, 2013
Closure Of Cooperative Banks
Though every year some or the other chit fund, NBFC,cooperative bank, or rural bank or even commercial banks have found to be involved in corruption and cheating , neither Reserve Bank of India nor Government of India have taken any such strong and effective step in the past which could stop repetition of loot of bank's fund by none other than Managers of the bank.
I have no doubt and no hesitation to say that RBI and GOI both failed to stop such scams and such broad day loot of the bank.They always preach the sermons and promise to take stringent action against erring persons but always fail in imposing actual punishment to the main guilty and always fail to nip in the bud despite having plenty of so called control mechanism in the system.
I have no doubt and no hesitation to say that RBI and GOI both failed to stop such scams and such broad day loot of the bank.They always preach the sermons and promise to take stringent action against erring persons but always fail in imposing actual punishment to the main guilty and always fail to nip in the bud despite having plenty of so called control mechanism in the system.
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