The cooperative banking sector is gearing up for a makeover, with greater participation of cooperative societies in banking operations.
A high-powered committee, under the chairmanship of Y H Malegam, a member of the board of directors of the Reserve Bank of India (RBI), is considering recommending licences to new cooperatives planning to become urban cooperative banks (UCBs), and convert the existing credit cooperative societies into a cooperative bank.
At a recent meeting, the six-member Malegam Committee decided to meet national and state cooperative federations and cooperative bankers to chalk out the road map for making urban cooperative banking more inclusive for the cooperative sector. “We are exploring the possibility of simplifying the licensing procedure for cooperative societies seeking to become a registered UCB. Further, we are also considering an option of converting existing credit societies into a UCB,” said H K Patil, president, National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB). Patil is also a member of the Malegam committee.
The terms of reference laid out by the committee seek to recognise the need for UCBs in India and rising financial inclusion in non-banked regions of the country through these UCBs. The committee would also look at giving credit societies the authority for banking operations. Currently, there are about 50,000 credit societies in India.
The Malegam committee will also discuss the possibility of an apex body under the umbrella organisation concept to advise UCBs for better monitoring of funds and investments. The apex body will also offer guidance on various technological aspects to modernise the functioning of UCBs.
“Only UCBs can reach the non-banked regions of the country. So far, there is only 40 per cent financial inclusion in India. For the remaining 60 per cent, UCBs bear immense importance. So, there are a lot of expectations from the Malegam committee recommendations,” said Subhash Gupta, chief executive, NAFCUB.
According to industry sources, going forward, some issues related to higher authority and freedom in the urban cooperative banking may also come up. “The UCBs are not allowed to operate in forex or take deposits from trusts or government agencies, while nationalised banks are permitted under the banking act. Hence, it would be required to put UCBs on a par with nationalised commercial banks to make them sustainable,” said Ghanshyambhai Amin, president, Gujarat State Cooperative Federation.
So far, the committee met four times in the past three months and the next meeting is scheduled to be held later this month. “Though we have a deadline, we cannot comment on when would the report be finalised, as we not even come halfway so far,” said Patil.
Currently, there are around 1,674 UCBs operating in India, with 6,900 branches spread across the country. The total number of customers with these USBs exceeds 20 million. The deposits are expected to grow by around 16 per cent in the current financial year. UCB deposits were recorded at Rs 1.82 lakh crore as on March, 2010.
This was a rise of 14 per cent compared to the previous year.
The growth in advances has been almost on a par with growth in deposits.