RBI stresses on making state level coordination committees more effective

There is a need to make the State Level Coordination Committees (SLCCs) more active and effective even though the progress made by them is satisfactory with regard to holding quarterly meetings, according to RBI.

“Gathering market intelligence through better coordination among various regulators and initiating quick follow-up action was an important element in bringing to book, entities indulging in unauthorised and suspect businesses involving funds mobilisation from gullible public,” said Raghuram Rajan, Governor of RBI, while inaugurating the Conference of the Chief Secretaries/Finance Secretaries and select Cooperative Secretaries of States.

In his inaugural remarks, the RBI chief said that while India’s macro-economic parameters have improved, growth is still slow in picking up.

Fiscal consolidation

Emphasising the importance of fiscal consolidation in terms of both, quantitative and qualitative dimensions, he added that the State Governments would have a critical role in improving the consolidated fiscal performance of the government sector as a whole.

Rajan highlighted the need for improvement in governance structure, capitalisation and resolution mechanism in the cooperative banking sector which plays a crucial role in credit flow to disadvantaged groups, especially in rural areas. He stated that without efficient governance, capital infusion would not benefit the sector, as it would function as a ‘leaky-bucket’.

SLCCs have been recently reconstituted in each State to monitor the unauthorised collection of deposits and they meet more frequently under the chairmanship of Chief Secretaries/Administrators of the States/Union Territories (UTs) concerned with the participation of senior level officials of the States and the regulators.

HR Khan, Deputy Governor of RBI, who was also present at the meeting, sensitised the States about the challenges faced in resource-raising given the increasing size of borrowings by the Central and State Governments, reduction in SLR requirement and non-diversification of investor base.

“Despite these challenges, the weighted average spread of borrowings by the State Governments vis-à-vis the Central Government securities of corresponding maturity had come down to 38 bps last year as against 75 bps in the year before,” he pointed out.

The statutory liquidity ratio (SLR), or the amount of government bonds that banks must hold, has been reduced over time to 21.5 per cent of net demand and time liabilities.

Finance commission recommendations

He also referred to the implications of borrowings by the States following the recommendations of the 14th Finance Commission, in particular those relating to limiting of additional borrowing criterion to fiscal discipline for more capital expenditure and the carry forward of the unutilised borrowing limits to the following year.

The conference also discussed the roadmap of State Governments moving to the standard e-Receipt/Payment platform linked to the CBS (e-Kuber) of RBI for safer and more efficient receipts and collections by all the State Governments over the next few months.

Co-operative banks

The RBI Governor also emphasised the need for prompt corrective action and much stronger accountability in the co-operative banking sector to evolve an effective resolution mechanism such as, the “good bank-bad bank” model in which good parts of the bank could be identified and segregated from the bad and the bad part could be dealt with appropriately.

Among others present at the conference were U.K. Sinha, Chairman, Securities and Exchange Board of India (SEBI), Harsh Kumar Bhanwala, Chairman, Nabard, Comptroller General of Accounts (CGA), senior officials of the Ministries of Finance and Corporate Affairs, NITI Aayog, RBI Deputy Governors H R Khan, Urjit Patel and S.S. Mundra.

FSB monitoring exercise

The state governments were requested to periodically make available data on financial institutions falling under their regulatory purview. The data was required for a study to macro map shadow banking sector in India. This study was mandated by RBI to initiate the process of Financial Stability Board (FSB) monitoring exercise.

In respect of the Urban Co-operative Banks (UCBs), issues relating to appointment of professional directors on the boards of UCBs, delay in appointment of liquidators by Registrar of Cooperative societies (RCS) in respect of UCBs whose licences were cancelled by the Reserve Bank, delay in supersession of board/appointment of Administrators when requisitioned by the Reserve Bank, connected lending, etc., were highlighted.

The issue of disqualification of a member of superseded board, the recommendation of Malegam Committee relating to setting up of board of management in addition to board of directors, representation of depositors on the boards and decline in the ‘cooperativeness’ of co-operative banks were also discussed.

The RBI also raised the issue of resolution of negative networth banks, appointment of statutory auditors and their rotation in the audit of UCBs and unauthorised functioning of unlicensed banks.

Issues relating to re-capitalisation of short term co-operative structure and revival scheme for unlicensed District Central Cooperative Banks (DCCBs) were discussed. Some state government officials raised the issue of introduction of crop insurance scheme for agricultural loans.