UCBs may have to follow IFRS

After tightening regulatory oversight over urban cooperative banks (UCBs) through its pact with state governments, the Reserve Bank of India (RBI) now wants UCBs to follow the International Financial Reporting Standards (IFRS) to improve governance practices.

Expressing strong displeasure over most UCBs failing to comply with existing norms and regulations, RBI Chief General Manager Uma Shankar said the bigger challenge would be the implementation of IFRS sooner or later.

It is expected to be rolled out in phases. For commercial banks and corporate entities, the IFRS norms will be applicable from 2011.

Despite a long history of audit standards in the country, the situation in the cooperative sector (urban) seems to be a big worry. Much of the work (auditing) was below standard, the RBI official said while addressing a seminar on “Challenges and opportunities before urban banks” here.

There is a wide gap between the top 10 urban banks (that meticulously follow governance norms) and other banks in the sector. The official wondered how the 10 banks could adhere to the accounting norms set by the Institute of Chartered Accountants Institute of India (ICAI), while other banks were unable to follow it.

Self-regulatory bodies such as the National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB) need to take stock of the situation. There were 1,721 urban banks at end of March 2009 with a deposit base of about Rs 158,733 crore and advances of Rs 97,918 crore, respectively.

RBI has classified UCBs into four grades. While UCBs from Grade I and II are considered as relatively stronger banks, those belonging to Grade III and IV can be classified as sick or weak banks. There was a decline in the number of UCBs from 1,770 at the end of March 2008 to 1,721 at end the end of March 2009. This decline was an outcome of the consolidation process. There was a fall in the number of sick/ weak banks belonging to Grade III and IV in 2008-09.