RBI backs state-run banks to buy UCBs

A healthy urban banking sector is beneficial for customers and the system.

There were about 2,000 urban banks a few years ago. Now, with various steps for reforming UCBs, their number has come down to 1,800, RBI Deputy Governor Usha Thorat said today.

Asked about the proposal by Indian Overseas Bank for acquiring assets and liabilities of Pune-based Suvarna Sahakari Bank, "It is a voluntary proposal, " said Thorat.

She said the consolidation and reforms in the sector will reduce the number of weak banking entities and RBI would like to see that the merger and acquisition process takes place in a non-disruptive manner. Many strong urban banks have also acquired their weak counterparts, she added.

Thorat was speaking to reporters on the sidelines of a function for signing of memorandum of understanding (MoU) between the Indian Institute of Banking and Finance and National Cooperative Union Of India for training.

Referring to the impact of reforms on urban banking, she said the message from the banking regulator was clear that "RBI means business" and if they (banks) put the house in order, they will be allowed to function.

The penalty system and the threat of its application have been more effective than the penalty itself for brining discipline into the working of banking entities. The trend of decline in deposits with UCBs has been arrested and now the actual levels have gone up last year, she added.