The Hindu Business Line : RBI lifts ban on setting up urban coops

Mumbai April 24 The Reserve Bank of India has lifted the ban on setting up new urban co-operative banks (UCBs). The RBI Governor, Dr Y.V. Reddy, today said RBI would consider granting licence to new UCBs and preference would be given to States that had signed MoUs with RBI on regulation and co-ordination of UCBs.

The central bank had discontinued issuing fresh licence to UCBs a few years ago in the wake of financial scams involving UCBs and deteriorating financial condition of many of them.

In its annual policy statements, the RBI has allowed UCBs to open new branches.

The RBI said it is proposed to "consider granting of branch licence to well-managed and financially sound UCBs in States that have signed MoUs... "

So far, the RBI has entered into MoUs with nine State Governments, with a view to putting in place a structured arrangement for coordination between States and RBI on dual control. These States account for 79 per cent of UCBs, representing 90 per cent of the deposits in this sector.

In the 2004 annual policy, the RBI said that new licences for UCBs and opening new branches would be allowed only after a comprehensive policy on UCBs is put in place.

RBI has prepared a policy based on "the vision document on UCBs" drafted in 2005.

Dr Reddy said RBI would also issue by May 31, guidelines to UCBs on raising capital. The guidelines would be based on the report of the working group set up to study the capital requirements of UCBs.

Urban cooperative banks have also been allowed to follow the relaxed prudential norms for one more year. This is applicable to both tier-I and tier - II UCBs.

UCBs located in States, which had signed the MoU with RBI, have also been allowed to start insurance business as corporate agents without risk participation.

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