Co-op banks feel new RBI norm blocks progress

Presidents of the Urban Co-operative Banks (UCBs) of the three districts of Mysore, Chamarajanagar and Mandya have appealed to the Reserve Bank of India (RBI) to withdraw the new norm introduced recently reducing the NPA calculation period to 90 days from the earlier 180 days.

At a joint meeting in Mysore recently, heads of 14 UCBs have opined that the new norm was difficult to be implemented for a number of reasons. They have described the drastic reduction in NPA norm as too short a period for the loanees to pay their overdues within 90 days. This would particularly hit the middle and lower middle class whose numbers are generally high in the co-operative banks.

The number of women borrowers is also quite big and most of those who obtain loans are housewives or engaged in small jobs. Generally, they depend on their spouses. Apart from women, agriculturists have seasonal income and they repay in bulk when they sell their harvested produce and get big sums.

Professionals like advocates, doctors, auditors and small business community engage themselves in seasonal business. All these sections would be badly hit by the reduced NPA period.

Added to this, the present natural calamities have contributed towards high rate of overdue amounts making it impossible to recover the outstanding amounts immediately. They need more time to repay their loans and overdue amounts. Overall, the new norm affects all sections of clientele of the co-ops, they said.

These sections are generally prompt re-payers though they may not pay the installments regularly. They pay amounts in lumpsum when they get bulk amounts. The new norm would put pressure on them resulting in increase in overdue and heavy losses to the banks.

For the UCBLs, the NPA provision would be a double loss as they have to pay income-tax as well on the 33.3 per cent provision. When a loan becomes overdue after 90 days default, not merely the installment becomes NPA but also the entire loan amount, piling the NPA amount considerably. Because of the loanees default, the Bank would suffer heavily owing to the new NPA provision, affecting their profits and turning them sick over a period, Graduates’ Co-operative Bank President P V Narahari, who presided over the meeting, told Business Standard.

The UCBs have to deposit the earmarked provision amount with the District Co-operative Bank or the Apex Bank, which yields hardly 7 to 8 per cent interest. If utilised for the UCBs business, the same amount would earn 14 to 15 per cent interest. Here too, the UCBs are affected, he said adding overall the new NPA norm would fail to serve the RBI’s intention.

A delegation of the UCBs chiefs will meet the RBI authorities soon and request them to restore the previous norm of 180 days and help better growth of the co-operatives in the country, Director Anantharam added.