Maharashtra Ucbs Asked To Keep Payouts Below 15%

The commissioner of co-operation & registrar of co-operative societies (Maharashtra), Ratnakar Gaikwad, has asked urban co-operative banks (UCBs) in the state to desist from declaring dividends in excess of 15 per cent. Instead these banks should plough back funds to build up their reserves and capital.

"These banks have to become financially strong. Hence, dividend declaration in excess of 15 per cent will not be acquiesced by my office," said Gaikwad at the 63rd general body meeting of the Maharashtra State Co-operative Banks Association.

He pointed out that high interest rates offered by some of the co-operative banks on deposits led them to peg their lending rates higher. This has resulted in interest rates in the co-operative banking sector being totally out of sync with the general trend of falling interest rates in the economy.

The loaning mechanism in the co-operative banks needs review/ overhaul as it has come to light that some of them have violated sectoral/ individual exposure limits, thereby putting their financial health in jeopardy. Internal borrowing, whereby banks directors and their relatives borrow from the bank, was a cause for concern.

In this regard, Gaikwad cited the example of a district central co-operative bank, which in blatant violation of existing norms, attempted in vain to extend guarantees to the tune of $30 million to a party exporting goods to a non-existent country. Further, referring to the Bhudargad Co-operative Credit Society episode, he said, the Society's credit-deposit ratio was in excess of 100 per cent and some of the directors had taken loans amounting Rs five crore when the extant norms allows only upto Rs five lakh loan per individual.

H R Shinde, acting managing director, Maharashtra State Co-operative Bank, said, the Reserve Bank of India directive to co-operative banks asking them to invest their statutory liquidity ratio (SLR) funds only in government securities has resulted in funds flowing out of the co-operative system.

"The inter-co-operative bank deposits helped funds to remain within the co-operative fold. These funds were useful for undertaking development activities at the district level. But the new directive has resulted in funds going to the central pool," he added.