The large Urban Co-operative
Banks(UCBs) might come only under the provisions of Banking Regulations (BR) Act
while smaller UCBs are to remain in the exclusive fold of Registrar of Co-operative
Societies (RoCS).These changes will bring forth a finale for the much debated
problem of dual control of UCBs, which has been in trend for the past 54 years.
These banks came into the scope of the RBI when some of the provisions of the
BR Act was extended to them effective from March 1996 even though RoCS remained
in power of the functioning of their boards and management.
In the revised setup, the inspection
of the UCBs will be done solely by central and those of others will be carried
out by the RoCS. But both large and small categories of UCBs will get cover
from the Deposit Insurance and the Credit Guarantee Corporation.
The new framework will affect
1551 UCBs which had a total business of 7.36 trillion Rupees according to the
last consolidated RBI’s report on Trend and Progress of banking in India,
2017-2018, out of which 4.56 trillion Rupees were deposits and 2.80 trillion in
advances.
A source has told the Business
Standard that the RBI and the Ministry of Finance are in advance talks and any changes are yet to be include in the
unnamed(as of now) Bill. The Bill is likely to be introduced in this session of
parliament. The Dual regulation is expected to go off with this bill. The
ministry handling the UCBs is the Ministry of Agriculture and the state
governments also have some say.
Attention has been drawn to the fact
that, the suggestion by R Gandhi Committee (2005), which set the threshold of
business size of Rs.20000 crore for conversion into commercial bank could be
revisited and even those below this point may be brought under the BR Act. This
is also in line with the committees view with a slight degree of difference
that such a conversion need not be made for a particular day and UCB’s growth
in terms of branches, area of operation and business line can be marked to
restricted unrestrained growth.
The larger UCBs have no option
but to convert into a scheduled commercial bank over a period of time. The
conversion into a small finance bank(SFB) is out of scope due to the
restrictions under the licence terms, which in turns restricts the ticket size
of loans and nature of business they can undertake.
The RBI has given the UCBs access
to its Central repository of information on large credits as an attempt to make
the database available to a larger audience in financial sector stakeholders, meanwhile
indicating what is in store for the UCBs. The UCBs which are to come fully
under the BR Act will be subjected to Basel III guidelines ,as of now they are
under the Basel I guidelines. The only conversion till date of a UCB into a
commercial bank is of DCB bank in 1996 which was not a forced one.
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