In view of their declining market share, Reserve Bank of India Deputy Governor NS Vishwanathan said urban co-operative banks (UCBs) need to regain and retain the confidence of their depositors.

He added that to achieve scale and remain relevant in the medium term, the sector needs some consolidation. The Deputy Governor observed that the real barometer of public confidence is the market share of the sector. In this regard, he said the market share of UCBs, which was as high at 6.4 per cent in 2002, has declined to 3.3 per cent in 2017.

“While one may be tempted to attribute the decline in market share of UCBs to the emergence of other competing alternatives within and outside the banking sector, there is no gainsaying the fact that UCBs need to regain and retain the confidence of their depositors,” he said. Vishwanathan said that the option for a UCB to convert to a small finance bank (SFB) will not undermine the financial inclusion agenda, but more importantly, it can add to the confidence of the depositors of UCBs.

“This is because the depositors will have the comfort that the bank can migrate to a different framework, which not only provides the ability to raise capital from the market to grow with adequate balance sheet resilience, but also a better resolution regime,” he said.

Pointing out that a few UCBs have a larger balance sheet than some commercial banks, the Deputy Governor said this makes it imperative for all stakeholders to ensure that banks are well capitalised with the resilience to deal with stress situations.

Implementation of IT system in banks, according to Vishwanathan, makes it obligatory on the part of banks to have a robust IT risk management architecture. Banks also need to have skilled staff on their rolls rather than depend completely on outsourcing the risk management.

Related Topics
comment COMMENT NOW