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Vinson Kurian

Thiruvananthapuram , Aug. 17

THE Finance Minister, Mr P. Chidambaram, has promised to convene a high-level meeting in New Delhi "within a week's time" to assess the situation arising out of the Reserve Bank of India revising the NPA norms for urban co-operative banks (UCBs).

Apart from Mr Chidambaram, the high-level meeting will see the Agriculture Minister, Mr Sharad Pawar, the Reserve Bank Governor, Dr Y.V. Reddy, and the Deputy Chairman, Rajya Sabha, Mr Rehman Khan, and board member of the National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB), in attendance.

Mr Chidambaram had conveyed the proposal to Mr Pawar who had recently received a delegation from the co-operative sector, which raised the issue in deliberations that followed. The delegation comprised Mr S.K. Patil, Chairman, Mr B. Vijayakumar, Vice-Chairman, and Mr D. Krishna, Chief Executive, NAFCUB, and Dr S.S. Sisodia, President, National Co-operative Union of India (NCUI), among others.

Mr B. Vijayakumar, who is a member of the Kerala Assembly and also President of the Trivandrum Co-operative Urban Bank, told Business Line that it was expected that the meeting would thrash out an amicable settlement to the issue.

According to him, the co-operative sector did not entirely oppose the applicability of Basle norms; only this needed to be comfortably paced. The co-operatives were willing to abide by the norms progressively by 2007. However, the Reserve Bank of India had shown undue haste in getting done with it. This was most unfortunate, he added.

Business had come to be affected during the first full year since the norms were implemented. This was largely because of lack of availability of funds for onward lending purposes. If persisted with, many of the co-operative banks would have to be closed down, sooner than later.

When last heard of, the RBI was mulling another revision of the norm to 30 days. Not many of the banks would survive to see this happen, Mr Vijayakumar said.

The Basle norms may be all right for banks in the US and Europe, which enjoy massive subsidy privileges lavished by the respective Governments. These are just not possible to be replicated in a country like India where banks still practise community banking - quite unlike `peer banking' in affluent countries, he added.

Ban on loans to directors: Earlier, in another directive that invited the wrath of co-operatives, the regulator had prevented directors on UCB boards and family members from availing themselves of advances from the respective banks.

The UCBs had approached the Ministry of Finance, on being told by the RBI that amendments to the ban orders could be issued only on express Government directives.

The RBI had imposed the ban on the entire UCB sector following recommendations by the Joint Parliamentary Committee (JPC) on the stock scam. The scam revealed the involvement of a few UCBs in defrauding the system. The "total ban on all types of loans" applies not only to the directors but also to their relatives and entities in which they have interest.

According to Mr Krishna, Chief Executive, NAFCUB, has been reasoning with the regulator that such actions will, instead of solving the problems identified with the sector, only aggravate them. "We have been voicing concern about duality and ambiguity in controls for long and we are satisfied that there is a positive movement in this direction. We agree that a superior regulatory infrastructure needs to be put in place."

Community-based credit institutions like urban co-operative banks, which form an important component of the credit delivery system, need regulation and supervision though not necessarily identical to that of commercial banks. Equally, urban co-operative banks must themselves professionalise all aspects of their functioning. Only then will the perceived "infirmities" of the sector be addressed and the urban banks be able to fulfil their potential.

More Stories on : Co-operatives | Kerala | RBI & Other Central Banks

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