“The crisis of confidence” brought about by the collapse of Ahmedabad-based Madhavpura Mercantile Co-operative Bank (MMCB) is a chapter in history feels NS Vishwanathan, the executive director of Reserve Bank of India (RBI) who on Saturday pointed out that the urban co-operative banking sector in the country was currently in a growth-mode.
“The failure of the Madhavpura Mercantile Co-operative Bank, had a deep impact on the sector. Everyone knows, it was a case of bad governance. The bank’s failure had a systemic impact as several UCBs (Urban Co-operative Banks) that had parked their funds with the bank. The failure of this bank in March 2001, resonated in other parts of the country as well. As a result there was a crisis of confidence in the sector,” said Vishwanathan while addressing an event at Gandhinagar that was organised to bring 250-odd co-operatives banks in Gujarat under one umbrella.
“But, today the problem of Madhavpura is largely behind us. We are today talking of growth and development,” he said talking about a period when MMCB’s multi-crore stock denting depositors confidence in the UCBs. He credited the RBI and the state and central governments for bringing in certain checks and balances for the UCBs.
Giving out figures on the growth of the sector, the RBI offiical said, “The deposits and advances of the sector stood at Rs 2781 billion and Rs 1809 billion (respectively), as on March 2013. This was a 16 percent growth (in deposits) and 14 percent growth (in advances) over the previous year. The sector has started growing.”
“Out of 1606 UCBs as on March, about 88 percent, i.e 1416 UCBs, had a CRAR (Capital to Risk Weighted Assets Ratio) of more than nine percent. So they are not under-capitalised. Profitability of the sector has shown improvement as the profits increased from 32 billion in 2011-12 to 34.86 billion in 2012-13,” Vishwanathan said
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“Asset quality has improved, despite the problem of NPAs elsewhere. The net NPAs have come down in the UCBs which again which we all should be proud of,” he said addressing the audience largely consisting of officials and representatives from Gujarat’s co-operative banking sector who were present at the two-day conference that was also attended by Gujarat chief minister Anandi Patel.
As a word of caution, Vishwanathan pointed out that the UCBs were still not in a comfort zone as the banks were still failing “occasionally” as many of them are not professionally managed, has no central recruitment system, lack of skill among the workers.
“Lack of professionalism in management. Despite RBI requiring the UCBs to have professional directors on the board, this has not got universal adoption yet. In some cases the principles of co-operative management have ceased to exist. It is run by the one or two person which upsets the delicate balance between the management and the depositors,” he remarked at the event organised by Gujarat Urban Co-operative Banks Federation and The Gujarat State Co-operative Bank Ltd.