The Hindu Business Line : More leeway for urban co-op banks likely

After sampling UCBs based on their balance sheets for March 2007, the RBI would consider allowing new branches on a select basis, said the RBI Governor, Dr Y.V. Reddy, at a press conference to announce signing of a memorandum of understanding (MoU) between the RBI and the Government of Maharashtra on co-operative banks and the setting up of a State Level Task Force for Co-operative Banks.

The RBI had stopped issuing fresh licences to UCBs for new branches since 2001 following the Madhavpura Co-operative Bank crisis. As a counter, several financially sound UCBs had aggressively taken to mergers and acquisitions to expand their network.

Dr Reddy said Maharashtra accounts for one-third of the total UCBs and a little less than two-thirds (Rs 70, 000 crore) of the country's deposits.

Signing of the MoU and forming a task force are the first steps towards cleaning the UCB sector, Dr Reddy said. As part of its developmental role, the RBI would undertake to train the UCB staff and provide technical support for computerisation.

This could be followed by allowing strong UCBs to open new branches and also enter fresh lines of business. The RBI chief also indicated licensing of new UCBs in the near future.

"We expect to encourage setting up small UCBs restricted to a single district. The revival of this sector is very important for financial inclusion," Dr Reddy said.

However, according to the Governor, mergers between some weak banks may not be the only route for their revival. According to the information available with the RBI, only 20-30 per cent of the UCBs are weak and the central bank is in the process of identifying the weak entities to revive them.

Other States that have signed agreements with the RBI are Andhra Pradesh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan, Uttaranchal, Chhattisgarh and Goa.

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