Co-Op Banks To Tie Up With Nabard For Primary Dealership

Major cooperative banks in the country have arrived at a consensus to float a primary dealership (PD) outfit jointly with the National Bank for Agriculture and Rural Development (Nabard).

The proposed PD outfit, likely to be christened 'Co-operative Gilts Ltd', will be capitalised at Rs 50 crore (the minimum capital required to start PD operations). Nabard has indicated its willingness to subscribe up to Rs 10 crore of the PD's paid-up capital.

These small banks, due to lack of expertise in taking investment decisions, have been blindly purchasing low-yielding securities at rates higher than they deserve on the basis of yield, thereby burning their fingers, industry sources said.

"The Reserve Bank of India (RBI), in the aftermath of the Madhavpura Mercantile Co-operative Bank crisis, had hiked the proportion of statutory liquidity ratio (SLR) required to be held in the form of government and other approved securities for all the categories of urban co-operative banks (UCBs). In order to overcome the lack of expertise of the cooperative banks in handling the government securities market, we are joining hands to set up a PD outfit that will take care of our interests," said a cooperative banker.

"With the might of all the UCBs, district central co-operative banks and the state co-operative banks in the country solidly behind the PD outfit, it should not be a problem getting the relevant clearances from either the RBI or the Securities and Exchange Board of India (Sebi)," said the banker.

As per the RBI's latest directives, co-operative banks have been precluded from maintaining term deposits, as part of their SLR requirement, with larger banks (or a co-operative bank at a higher tier). These banks, which used to earn around 11 per cent interest via the term deposits, will have to invest in G-Secs and other approved securities.

The RBI has said that in order to strengthen prudential measures for urban cooperative banks and also in the interest of their members and depositors, with effect from April 1, 2003, the scheduled UCBs will need to maintain their entire SLR assets of 25 per cent of NDTL only in government and other approved securities.

In the case of all scheduled and large UCBs to maintain investments in government securities only in SGL Accounts with RBI or in constituent SGL Accounts of public sector banks and PDs.