State to have at least 40 new UCBs after changed norms

The Malegam Committee's report published by the Reserve Bank of India on Monday, seems to have opened doors for Gujarat's cooperative credit societies, which had been waiting for long to get a status of cooperative banks. Experts anticipate about 40-50 cooperative credit societies from Gujarat may opt for becoming an urban cooperative bank (UCB) after the newly issued norms recommended by the Committee.

The recommendations of the committee, appointed by the RBI on licensing of new UCBs under the chairmanship of Y H Malegam said, 'the existing well managed cooperative credit societies, which would meet financial criteria like profits, capital adequacy and NPAs' proportion should be given priority for granting licenses as UCBs mainly in the unbanked or inadequately banked districts of the country.

Experts from the cooperative banking circles in Gujarat informed that the state's credit societies are likely to get a boost from this recommendation. "This will restore confidence in the cooperative banking sector. Of the 5200 credit cooperative societies in Gujarat, over 100 are capable to meet entry point norms set up by the panel for becoming a UCB. But at least 40-50 credit societies are likely to become UCBs after the enforcement of the recommendations," said Ghanshyambhai Amin, chairman, Cooperative Credit Societies' Federation.

He further added, "The deposits with credit societies are not insured, while those with UCBs are insured up to Rs 1 lakh. So more credit societies would try to get a status of UCB to improve their trust-worthiness and bring more customers." Gujarat has about 5,200 cooperative credit societies with a total estimated advances of over Rs 700 crore.

Gujarat has witnessed one of the worst cooperative banking crisis in the past. Industry insiders maintained that it was mainly after the serious scams unearthed from Madhavpura Mercantile Co-operative Bank (MMCB) that the confidence on the UCBs started shaking. Industry estimates suggest that about ten years back the state had over 350 UCBs operating in different parts of the state, But over 100 UCBs downed their shutters after the MMCB scam. Currently, the state has 249 UCBs, which recorded a total business in excess to Rs 31,000 crore during financial year 2010. The apex body of state's UCBs. Gujarat Urban Co-operative Banks Federation (GUCBF) has welcomed the recommendations.

"Some of the districts like the Dangs, Valsad and Surendranagar in Gujarat are either don't have a cooperative society or have inadequate infrastructure of UCBs. Even in the Ahmedabad district, some talukas are still unbanked. The new norms for UCBs would definitely help for the financial inclusion and strengthen cooperative banking sector," said Jyotindra Mehta, chairman, GUCBF.

Uttar Pradesh, Bihar and Uttaranchal are some of the state which may see a large number of credit societies becoming UCBs. "UP has only 70 UCBs, while Uttaranchal has five. Even Bihar has poor UCB penetration. The new norms would help increase number of UCBs in these states," said Subhash Gupta, chief executive, National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB).

He further said that Maharashtra, which has a cooperative societies act similar to the UCBs, would see a large number of credit societies becoming UCBs in due course of time.