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UCB classification based on financial position

BS Banking Bureau in Mumbai

The Reserve Bank of India said urban co-operative banks having an unsatisfactory financial position will be classified either as 'weak' or 'sick' commencing from March 31, 2002. The RBI has also asked these banks to formulate action plans for revival on their own or with the help of bank management experts.

Pursuant to the recommendations of the committee on UCBs, chaired by K Madhava Rao, UCBs will be classified as 'weak' if their capital to risk-weighted assets ratio falls below 75 per cent of the minimum prescribed level of CRAR or the level of their net non-performing assets exceeds 10 per cent of loans and advances outstanding as on 31st March 2002 or showing net losses in operation for two years of the last three consecutive financial years.

UCBs will be classified as 'sick' if their CRAR falls below 50 per cent of the minimum prescription and net NPA exceeds 15 per cent or more of loans and advances outstanding as on 31st March 2002 or showing net losses in operation for the last three consecutive financial years.

The central bank, in its annual report, further stated that the system of constituting bank level rehabilitation review committee for monitoring progress of rehabilitation of UCBs has been discontinued.

It said the modalities of implementation of a rating system as evolved by a working group is being examined.

This is with a view to bring UCBs under a rigorous supervisory regime similar to commercial banks.

Political interests stifling co-op system

On the present system of dual regulatory and supervisory control of the co-operative banking system, which is not conducive to their efficient functioning, the RBI has observed that "in view of the local interest involved, it is clear that there is no consensus, at present, in favour of removing supervisory and regulatory responsibilities at central, state government levels, and for entrusting it to the RBI.

The central bank expressed concern that the managements and boards of several co-operative institutions continue to reflect political interests rather than genuine co-operative spirit and are not always amenable to normal banking discipline in their operations.

In this regard, it pointed out that it has already proposed the establishment of a separate supervisory authority that will exclusively be responsible for efficient functioning of the co-operative institutions and safety of public deposits. A draft legislative bill proposing amendments to the Banking Regulation Act, 1949 has been forwarded to the Centre for providing wider powers to it.

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RBI Annual Report 2001-02
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