RBI will not force mergers of urban co-operative banks: RBI board member

In 2021, an RBI's expert committee had suggested that weak UCBs would get a regulatory nudge to explore voluntary merger

The Reserve Bank of India (RBI) will not force merger of urban co-operative banks (UCBs), said Satish Marathe, founder member of Sahakar Bharati and member of the Reserve Bank of India’s (RBI’s) central board.

In 2021, an RBI’s expert committee had recommended that weak UCBs would get a regulatory nudge to explore voluntary merger or conversion into a non-banking society at an early stage. It was also suggested that otherwise mandatory resolution would be employed.

“The RBI is not going to force mergers between UCBs. The Reserve Bank is not going to ask for mergers. It is not their policy. It is not going to happen,” said Marathe.

Marathe was speaking at the Conference organised by Maharashtra Economic Development Council (MEDC).

He spoke about the need for UCBs to chart a course correction strategy targeted to become a financially sound and well managed banks.

“The UCBs are today fully integrated with the mainstream banking and financial ecosystem. Hence, neither government nor regulator would anytime like to have any of the segments of financial ecosystem to be weak which can cause disruptions. It is therefore, all the more necessary for the UCB sector to improve its working by implementing Regulatory Guidelines,” Marathe said.

According to him, UCBs historically catered to financial needs of the lower and middle income groups, small businesses and self-employed category. However, they have started to come under stress as the size and exposure started to rise with non-performing assets (NPAs) and losses also rising.

He has also outlined the areas where the UCBs can improve and emerge as a strong financial sector.

In order to emerge as a strong financial sector, Marathe outlined that these lenders must adopt good governance practices along with transparency and adequate disclosures in its operations, etc. The lenders should strengthen their oversight on every aspect of operations through a robust Internal Audit system, he said.

On the board of UCBs Marathe said, “The sector should wholeheartedly accept the time-tested Principle of Separation of Ownership & Management. The board led by the Chairman & the Management (led by CEO) have to evolve a system to work in harmony for the larger good of all stakeholders.”

The UCBs should also nurture a culture of compliance at all levels.

The UCBs also need to remain well capitalised at all times and raise capital at regular intervals because the banks lack sufficient risk capital.

He also noted the need for UCBs to work on technological upgradation and stronger cyber security policy and allocation of adequate funds for the same.

“We need to invest in technology. As the sector gets competitive, technological adoption also becomes necessary,” said Marathe.

He said it is important for the UCBs to be able to attract qualified and experienced professionals to undertake daily operations. The sector is not able to attract talented human resources and retain them.