UCBs to get assistance for CBS from Nabard

Nearly 400 small UCBs in the country will benefit from the decision

In a major boost to cooperative banks in India, National Bank for Agriculture and Rural Development (Nabard) has been asked to provide financial assistance to about 400 small urban cooperative banks (UCBs) to create infrastructure for core banking solutions (CBS). At a meeting held during the last week of April, the union ministry of finance has asked Nabard to allocate required funds under its Financial Inclusion Technology Fund (FITF) to small UCBs, which are not making profits, sources close to the development informed. About 400 such UCBs are likely to benefit from the decision.

There are about 1645 UCBs in the country with total deposits in excess of Rs 200,000 crore. Industry insiders maintained that so far approximately 300 UCBs have been covered under CBS.

"Only the large banks, which had capital to set up CBS network on their own, had successfully done so. But there is a large number of small UCBs, which need government support to implement CBS. For this, a meeting was convened with the union finance ministry officials and decided to allocate fund for small UCBs, which are not making profits," a source close to the development said without revealing the amount to be allocated for the purpose.

The finance ministry has mandated Nabard to allocate required funds under FITF for CBS for small and not profit making UCBs. The FITF scheme was launched for supporting implementation of CBS by weak RRBs and information & communication technology (ICT) solution by RRBs. During the year 2011-12, Nabard has disbursed Rs 128.05 crore under FITF showing an annual growth of 137.1 per cent. The cumulative disbursement since inception has touched Rs 183.82 crore under FITF, Nabard informed in a statement.

"Without CBS in place, it is difficult for cooperative banks to receive government payments for various schemes like fertilizer subsidies etc. However, in 10 states Wipro and TCS have been assigned the task to create CBS infrastructure for district cooperative banks (DCBs). But many banks still do not have CBS network, due to which they have to open their accounts with private commercial banks only to be able to get government payments. This is posing a threat on the cooperative banking structure," said a senior official at Nabard.

In order to keep pace with rapidly evolving payment systems and emerging systemic risks due to probable failure of financially weak members the apex bank was giving thrust on electronic payment systems across banking structure. Three main payment systems include Real-Time Gross Settlement (RTGS) system, National Electronic Funds Transfer (NEFT) System and Negotiated Dealing System (NDS). Meanwhile, the trade associations are also pushing hard for government support for CBS infrastructure.

"We had demanded Rs 500 crore budgetary allocation for CBS across the cooperative banks in the country. But this was turned down. Many UCBs have to depend on the private banks like HDFC, ICICI for RTGS payments," said Subhash Gupta, chief executive of National Federation of Urban Cooperative Banks and Credit Societies Ltd (Nafcub).