[CO-OPERATIVE BANKS]

C O N T E N T S

EDITORIAL

Down but not out
The poor offtake of retail loans has pulled down credit growth

Red alert
After a sharp reduction in the last three years, NPAs are creeping back into banks’ balance sheets

A vote for the future
A distinguished Jury picks State Bank of India Chairman O P Bhatt as the Business Standard Banker of the year

Making the elephant dance
Interview with SBI Chairman O P Bhatt on his efforts at re-energising the bank

Round Table
Seven top bankers discuss “2009: Are banks in India ready for it?”

Dial ‘R’ for restraint
Cases of coercion and violence are forcing banks to soften their approach towards debt recovery

Database
All the data you wanted on banks

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Overcoming Obstacles

RBI has softened its stand on co-operative banks, but the guidelines are still strict, finds SHRIYA BUBNA

The last five years have been tough on the urban co-operative banks (UCBs). In 2002, when the sector was slipping into a crisis, the Reserve Bank of India (RBI) started going slow on giving fresh branch licences. Further, in June 2004, the apex bank took the extreme step and completely stopped issuing new licences till a suitable framework for regulating and supervising the existing UCBs was put in place.

But this year, RBI has softened its stance slightly. Now, UCBs with a minimum capital adequacy ratio of 9 per cent and a net worth of at least Rs 10 crore can open up to increase their number of branches by 10 per cent over the next two years. However, this relief has come with a lot of caveats as well. They include:

  • Banks with less than 10 branches presently cannot add new ones, even if their balance sheets are strong.

  • Banks have to maintain their net non-performing assets (NPAs) at below 10 per cent.

  • The average net worth per branch, including the new branches, should not fall below Rs 2 crore in major centres and Rs 1 crore in C and D centres.

  • There should not be any defaults on the cash reserve ratio (CRR) requirement and the statutory liquidity ratio (SLR) requirement in the previous year.

The above guidelines imply that a large part of the co-operative banking sector would not be eligible for securing new branch licences. Says K D Vora, chairman, Kapol Co-operative Bank, “Eighty per cent of banks will not be covered for fresh branch licences as the capital needed is more than Rs 10 crore. Besides, Rs 2 crore is needed per branch in the metros which is not possible. RBI has assured us that they will be reconsidering the guidelines.”

Clearly, the policy measures are looking to delineate strong banks from the weak ones. “RBI wants strong banks to expand. Therefore, there will be no additional branches even for a strong small bank. This could lead to stagnation for these smaller banks as there would be no opportunity to grow,” says D Krishna, chief executive, National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB).

LIABILITIES AND ASSETS OF URBAN
CO-OPERATIVE BANKS
(Amount in Rs crore)
Item

As at
end-March

Percentage
Variations

2006

2007 P

2006 - 07

Liabilities      
Capital 3,488 (2.3) 3,884 (2.4) 11.4
Reserves 10,485 (6.9) 10,867 (6.8) 3.6
Deposits 1,14,060 (75.6) 1,20,983 (75.7) 6.1
Borrowings 1,781 (1.2) 2,602 (1.6) 46.1
Other Liabilities 21,140 (14) 21,515  (13.5) 1.8
Assets      
Cash in Hand 1,558 (1) 1,639 (1) 5.2
Balances with Banks 9,037 (6) 9,806 (6.1) 8.5
Money at Call & Short Notice 1,835 (1.2) 1,859 (1.2) 1.3
Investments 50,395 (33.4) 47,316 (29.6) -6.1
Loans and Advances 71,641 (47.5) 78,660 (49.2) 9.8
Other Assets 16,488 (10.9) 20,571 (12.9) 24.8
Total Liabilities/Assets 1,50,954 (100.0) 1,59,851 (100.0) 5.9
P : Provisional.
Note: Figures in parenthesis are percentages to total liabilities/assets.
Source: Balance sheets of respective UCBs.

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Business Standard • December 2007