Ucbs May Miss Rbi Deadline On Capital Adequacy By March 31

Majority of the nearly 2,200 urban co-operative banks (UCBs) in the country are unlikely to meet the Reserve Bank of India stipulated prudential norms on the capital-to-risk weighted assets ratio (CRAR) and net non-performing assets (NPAs) by March 31.

Inability of these banks in doing so stems from their limited resources/ profits, restrictive co-operative acts which do not allow them to raise capital from shareholders and no support coming from the central/ state governments.

On the CRAR front, the co-operative banks' contention is that though they are not barred from issuing hybrid debt capital instruments/ subordinated debt for building up their Tier II capital and consequently meet the CRAR stipulation, they are unable to tap this avenue in the absence of elaborate guidelines from the apex bank.

 

"Another problem is that we are unable to raise more capital from the members as also member-debtors. A case in point is the Co-operative Societies Act in Maharashtra which stipulates that a member cannot hold more than Rs 5 lakh in the capital of a co-operative bank.

Such restrictive clauses in the Co-operative Societies Acts of all the states needs to be relaxed so that the CRAR and net NPA norms could be attained," Satish K Marathe, general secretary, Sahakar Bharati, said.

Further, as per the Act, a secured debtor has to subscribe to a co-operative bank's share capital to the extent of 2.5 per cent of the advance. The Co-operative Act is restrictive in that if a borrower secures an advance running into crores he has to shell out only Rs 5 lakh towards the share capital of the bank due to the cap on the shareholding.

"A customer availing of a secured loan of, say Rs 5 crore, he has to subscribe to the bank's capital only to the extent of Rs five lakh, which is the cap for individual capital holding, though 2.5 per cent of the loan amount works out to Rs 12.5 lakh. As scheduled co-operative banks have to attain a capital adequacy of 8 per cent as on March 31, this amount actually works out to Rs 40 lakh. Now, the deficit arising as a result cannot be bridged unless the RBI and the state/ Union governments do not put in place an enabling regime," explained Marathe.

As per the RBI prescription, by March 31, scheduled UCBs have to attain a CRAR of 8 per cent while non-scheduled UCBs have to attain a CRAR of 6 per cent. Hitherto, these banks were not prescribed the CRAR norm but the Madhavpura Mercantile Co-operative Bank's collapse led the central bank to make it applicable to them like the commercial banks. These small banks have also to attain a net non-performing assets level of 10 per cent by this date.

Marathe felt that in view of the difficulties faced by these banks, the RBI should relax the CRAR norms so that they gradually achieve the 10 per cent level by 2007 and that they should be given a minimum five years time to achieve the net NPA level of 10 per cent in view of the current economic situation.