The Hindu Business Line : RBI sets up working group to study urban co-op banks

Mumbai, July 23 The Reserve Bank of India (RBI) has constituted an 11-member working group to suggest measures, including suitable regulatory and supervisory framework, to facilitate the emergence of an umbrella organisation for the urban cooperative banking sector in each State.

The working group, which is headed by Mr V.S. Das, RBI Executive Director, may also look into the issues concerning creating a Revival Fund for the sector, a RBI note today said.

The terms of reference of the working group include studying the existing structure and legal framework for urban cooperative banking sector and to examine the need and scope for a federated structure/ umbrella organisation at the State level. The group will also study and suggest modalities for setting up an appropriate mutual assistance/ revival fund for urban cooperative banks and the nature of support that could be provided by such a fund.

The group is expected to submit its report within three months of the first meeting, which was held on July 8.

There are a large number of UCBs in the country and many of these are competing with larger participants in the same banking space.

Over the years, a number of such banks have become weak and non-viable, thus posing systemic risk to the cooperative banking sector, the RBI note said. These banks have limited avenues for raising capital funds, as these cannot go in for public issue of shares.

At the same time, there are a number of UCBs that are financially strong and viable.

The RBI note said some sort of cooperative bonding and mutual support system could make the sector strong and vibrant. Looking at various successful federal models internationally, especially in Europe and the US, a need was felt for an umbrella organisation for UCBs that will be in a position to channelise their resources, aggregate their needs and also lend credibility through mutual support in the financial market.

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