Urban co-op banks get more than a handful

MONETARY POLICY MID-TERM REVIEW 2006-07/ MICRO VIEW

Financially sound urban cooperative banks (UCBs), which have signed memorandum of understanding (MoU) with RBI for better coordination between states and central bank to deal with problem of dual control, can convert existing extension counters into full-fledged branches.

UCBs registered under the Multi-state Cooperative Act will also be able to convert their extension counters into bank branches. The conversion will be done subject to certain conditions.

At present, eight states have signed pacts with RBI. While this is a step ahead in the policy, the conversion of extension counters into branches will not provide much benefit as much business is already done at counters, said Mukund Ghaisas, chairman, Maharashtra State Urban Cooperative Banks Federation.

"The worrisome part is the about 300 financially sound banks (grade I and II) in Maharashtra, which account for over 50 per cent the country's UCB banking business (deposits and advances) will not benefit from permission to convert counters into branches as the state government is yet to sign MoU with RBI," he added.

RBI's working group to explore options to raise regulatory capital and identity instrument to augment capital funds has submitted the report which will be made public shortly.

The group is believed to have recommended considering existing capital of members as regulatory capital.

Earlier, RBI pointed out that since members contribution was withdrawable it is not possible to consider as regulatory capital. The legal and empirical evidence indicates that though the member capital is withdrawable, in actual terms, very small amount has been taken back.