RBI to UCBs: Shape up, don’t fritter away money

The move on best practices comes in the wake of observations of the Joint Parliamentary Committee — which inquired into stock market scam and related matters — that RBI must identify best practices found across banks and establish uniform standards to be followed by all banks. Moroever, several co-operative banks had collapsed recently following mismanagement, huge bad loans and fund diversion.

UCBs have been asked to emphasise reduction in gross non-performing assets (NPAs) rather than the net NPAs and review position of overdue accounts on a weekly basis to arrest slippage of fresh accounts into the NPA category. It sought establishment of a recovery competition system among staff members and adoption of a system of market intelligence for deciding the credibility of borrowers. It asked them to ensure that reasonable credit-deposit ratio is maintained.

The central bank wants an internal credit rating system to be put in place for borrowers enjoying fund-based credit facilities of Rs 10 lakh and above for objective credit pricing on an ongoing basis. Further, half-yearly balance confirmation certificates should be obtained from the borrowers regularly.

Due to the lower credit risk and consequent higher profitability, greater encouragement should to be given to the small borrowers.

RBI, with a view to encourage expenditure control and maximisation of profit, said the UCBs should not seek to open new branches as a matter of routine and should not fill up the vacancies arising out of retirements and deploying available staff judiciously.

Chief executive officers should take full responsibility and directors should not involve themselves in day-to-day affairs of the bank. The central bank sough periodical meeting with customers at branch level for getting feedback on the deficiency, if any, in banking service. It wants UCBs to follow a system of personally meeting customers, especially borrowers, at regular intervals and formation of Customer Care Service Centre.

UCBs have been asked to comply with and also maintain CRR and SLR norms. They have also been asked to frame well-documented Investment Policy.

Central Bank’s advice to Co-op banks

• Offer interest rates in line with market trend

• Don’t offer higher dividends

• Emphasis on reduction in gross NPAs

• Adopt market intelligence system

• Maintain reasonable credit-deposit ratio

• Directors should not inlvolve on daily basis

• Internal rating system for big borrowers

• Don’t open branches on routine basis