MUMBAI, DECEMBER 3: Worried over the rising financial indiscipline among urban cooperative banks (UCBs), the Reserve Bank of India committee on UCBs has suggested bringing these banks under prudential norms to ensure their continued financial stability.The RBI committee has proposed that UCBs should be subjected to CRAR (capital to risk assets ratio) discipline in a phased manner, with initially lower CRAR norms being prescribed for non-scheduled UCBs as compared to scheduled UCBs. The RBI panel's proposal assumes significance as several UCBs in different parts of the country are being grossly mismanaged due to the prevailing weak guidelines.By March 31, 2001 scheduled UCBs have to reach a CRAR of 8 per cent, in the next year to nine per cent and by March 31, 2003 on par with commercial banks. For non-scheduled UCBs, the committee has recommended that they should reach a six per cent CRAR by March 31, 2001, seven per cent in the following year and nine per cent by March 31, 2003, the panel, chaired by KMadhav Rao (former chief secretary of Andhra Pradesh) stated in its report presented to the RBI.The twin criteria of a strong start-up capital and requisite norms for promoters' eligibility should be prescribed at the entry level for the new UCBs, it said while pointing out that certain conceptual tools like existence of credit gap and the average population per bank office are not effective in determining the need for an urban bank in a given locale.For issuing licenses to new UCBs, the committee has said that the current quantitative criteria for viability standards should be dispensed with and they should be replaced by qualitative norms like CRAR, tolerance limit of non-performing assets and operational efficiency. The committee felt that existing entry point norms for UCBs are low and has suggested that they should be on par with peer groups like local area banks and regional rural banks.The merger of sick USBs with others USBs has also been suggested by the committee, including creation of arehabilitation fund by the RBI or the government which would be used for maintaining the CRAR of the sick UCBs. Branch licensing policy for UCBs should be on par with commercial banks, according to the committee, provided they have complied with all the prudential and provisioning norms set out by the RBI.Under legislative reforms, the committee has recommended amendments in the various state acts so that regulation of UCBs would be under the RBI to avoid the irritants of a dual control regime. Automatic conversion of primary cooperative credit societies into UCBs have been advised against to contain sickness in the sector.
