Regulatory framework governing UCBs must be revised: RBI official

Our Bureau Mumbai | Updated on June 10, 2014 Published on June 10, 2014

This will help in their smooth transition to commercial banking

To facilitate further growth of large Urban Co-operative Banks (UCB) that have reached a certain threshold in size and complexity of business, the existing legal and regulatory framework governing them must be revisited to enable their smooth transition into commercial banking, said a top Reserve Bank of India official.

Addressing a conference of Urban Co-operative Banks in Ahmedabad, R Gandhi, Deputy Governor, RBI, said “…once co-operative banks reach a certain threshold level, they are also expected to follow a regimen like large banks and standardised global practices, which may not be possible within the existing legal structure of co-operative banks.

“Thus, before we move forward, the existing legal and regulatory framework needs to be revisited to enable the smooth transition. Specifically, we need to debate the needed legal framework that will facilitate conversion of co-operatives into joint stock companies, and conversion of deposit holders into shareholders.”

The other alternative could be to allow UCBs to grow and sustain themselves in the existing set-up.

“In that event, the obvious question that comes to mind is the existing restrictions that can be liberalised and the further measures that can be envisaged for the smooth, non-disruptive growth of the sector. I hope the delegates will deliberate on these issues and suggest possible measures,” Gandhi said.

Over the last few years, India’s largest UCB, Saraswat Co-operative Bank, has been considering the possibility of converting itself into a private sector bank to overcome the inherent restrictions in the co-operative banking model on raising capital.

Published on June 10, 2014

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