Differences Over Regulation Of Ucbs

The Union finance ministry has been facing political resistance in its attempt to evolve a regulatory mechanism for urban co-operative banks (UCBs), which are delinquent and have been frequently found flouting the Reserve Bank of India's guidelines.

The government's move will be discussed in a meeting of UCBs in Mumbai on Saturday. UCBs will also give a comprehensive report to the government about the problems being faced by them. The "delinquency" of the UCBs was raised by members at the finance ministry's consultative committee meeting. Scams involving the Madhavpura Mercantile Bank and Home Trade Limited were also discussed.

Following this Union finance minister Jaswant Singh formed a group of MPs headed by minister of state for banking Anant Geete, to study the problem and give a comprehensive report to the ministry within a month. A base paper, which was circulated to the eight-member body on last Friday, highlighted the irregularities in transaction in government securities by the UCBs leading to huge losses and other delinquent acts made by the bank management.

But there are serious differences within the committee members because a section of the body is averse to the idea of handing over the control of the UCBs to the RBI or a single regulator. "This will diminish the political and financial clout of powerful politicians in Maharashtra, Gujarat, Karnataka and Andhra Pradesh," said a member.

About 80 per cent of the 2090 UCBs are located in these states. Geete said though the discussion was at a preliminary stage, the ministry is making an effort to evolve a method to put an end to dual control. "UCBs are controlled by the RBI as well as the registrar of the co-operative society of state governments," he told Business Standard.

For instance, in Maharashtra, it is Sharad Pawar's Nationalist Congress Party that has a firm control over the co-operative banks. Similarly, politicians of Gujarat, Andhra Pradesh and Karnataka draw their political and financial strength from these banks. "In such a situation, nobody wants to allow the control of a single regulatory authority over UCBs," said an MP associated with the committee, which does not have any statutory backing.

However, another member of the committee, Eknath Thakur, who runs one of the biggest UCB in India, maintained that the committee will certainly evolve a regulatory mechanism without causing any harm to the co-operative movement, which benefits common people.