A Sweet And Sour Deal

Beleaguered co-operatives get a breather, and then a whiplash

Win some, lose some. This is how the credit policy pronouncements for urban co-operative banks (UCBs) can be summed up.

On the one hand, the Reserve Bank of India (RBI) has given the beleaguered UCBs a breather by reinstating the facility to place deposits with each other, and on the other it has completely banned them from granting loans and advances (both secured and unsecured) to UCB directors, their relatives and firms/concerns/companies in which they are interested.

The central bank said UCBs will be permitted to place short-term surplus funds with strong scheduled UCBs (other than banks classified as weak or sick) under certain conditions. It was indicated in the annual policy statement of April 2001 that UCBs would not be permitted to increase the term deposit balances with other UCBs and the outstanding deposits had to be unwound before end-June 2002. But UCBs had expressed difficulties in managing their short-term surplus funds while adhering to this prescription. Detailed guidelines in this regard are to be issued shortly.

 

The RBI had banned inter-bank deposits among urban co-operative banks (UCBs) in the aftermath of the Madhavpura Mercantile Urban Co-operative going belly up in 2001. Close to 200 UCBs had placed term deposits amounting to Rs 600 crore in MMCB and the funds are still locked up.

It may be recalled that the RBI in its annual policy statement in April 2001 said UCBs will not be permitted to increase term deposit balances with other UCBs and the outstanding deposits had to be unwound before end-June 2002.

However, V Y Tarale, senior co-operator, said there is no way of knowing whether a UCB is classified as weak/sick. It will be in the interest of the sector if the RBI shares information on UCBs that are under rehabilitation.

The RBI said,