No more credit to brokers, RBI tells co-ops
The Reserve Bank of India (RBI) has asked co-operative banks not to extend any facility - either guarantee or finance - to commodity brokers.
By TNN |
MUMBAI: The Reserve Bank of India (RBI) has asked co-operative banks not to extend any facility — either guarantee or finance — to commodity brokers. The central bank has also clarified that urban co-operative banks are prohibited from extending any fund-based or non-fund-based credit facilities, whether secured or unsecured to stock brokers.
“The prohibition would cover loans and advances against shares/debentures and other securities such as fixed deposits, LIC policies, etc.,” the central bank said in a communication to co-operative banks. Urban co-operative banks are allowed to provide advances against the security of shares, debentures and bonds.
However, these arrangements can be extended only to borrowers in an individual capacity and not to stock brokers or securities traders. “The Reserve Bank of India has further advised that any credit facility currently in force but not in consonance with the above instructions should be immediately withdrawn/closed. UCBs should submit a compliance report in this regard to RBI’s regional office concerned,” the central bank said.
Co-operative banks have a very small fund-based relative to scheduled commercial banks and their resources are not enough to influence asset prices. However, in the past, co-operatives had turned out to be the weak link in the banking system, with banks such as Madhavpura co-operative bank diverting banking funds into the stock market through stock broker Ketan Parekh. Madhavpura was also one of the biggest financiers of bullion trading in Ahmedabad.
The directive against lending to brokers comes at a time, when the central bank has announced some relaxations for urban co-operative banks in the area of branch licensing.
The central bank had also allowed urban co-operative banks to issue ATM-cum-debit cards to their customers as per their own eligibility criteria subject to compliance with `Know Your Customer’ guidelines.
In its communique, the central bank said, “UCBs may extend the ATM-cum-debit card facility to those with savings bank accounts/ current accounts/fixed deposit accounts with built-in liquidity features maintained by individuals, corporate bodies and firms. Debit card facility should not be extended to cash credit/loan account holders.”
The central bank also allowed co-operative banks, which have an authorised dealers licence (category I or category II), to act as sub-agents under money transfer service schemes. This is, however, subject to the principal maintaining foreign currency account with the designated bank in favour of the agent equal to three days’ average payout or $50,000, whichever is higher.
Where the UCB is acting as a sub-agent, the agent should also maintain with the designated bank, security deposits equivalent to three days’ average payout or Rs 20 lakh, whichever is higher, in favour of UCB sub-agents concerned.
“The prohibition would cover loans and advances against shares/debentures and other securities such as fixed deposits, LIC policies, etc.,” the central bank said in a communication to co-operative banks. Urban co-operative banks are allowed to provide advances against the security of shares, debentures and bonds.
However, these arrangements can be extended only to borrowers in an individual capacity and not to stock brokers or securities traders. “The Reserve Bank of India has further advised that any credit facility currently in force but not in consonance with the above instructions should be immediately withdrawn/closed. UCBs should submit a compliance report in this regard to RBI’s regional office concerned,” the central bank said.
Co-operative banks have a very small fund-based relative to scheduled commercial banks and their resources are not enough to influence asset prices. However, in the past, co-operatives had turned out to be the weak link in the banking system, with banks such as Madhavpura co-operative bank diverting banking funds into the stock market through stock broker Ketan Parekh. Madhavpura was also one of the biggest financiers of bullion trading in Ahmedabad.
The directive against lending to brokers comes at a time, when the central bank has announced some relaxations for urban co-operative banks in the area of branch licensing.
The central bank had also allowed urban co-operative banks to issue ATM-cum-debit cards to their customers as per their own eligibility criteria subject to compliance with `Know Your Customer’ guidelines.
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In its communique, the central bank said, “UCBs may extend the ATM-cum-debit card facility to those with savings bank accounts/ current accounts/fixed deposit accounts with built-in liquidity features maintained by individuals, corporate bodies and firms. Debit card facility should not be extended to cash credit/loan account holders.”
The central bank also allowed co-operative banks, which have an authorised dealers licence (category I or category II), to act as sub-agents under money transfer service schemes. This is, however, subject to the principal maintaining foreign currency account with the designated bank in favour of the agent equal to three days’ average payout or $50,000, whichever is higher.
Where the UCB is acting as a sub-agent, the agent should also maintain with the designated bank, security deposits equivalent to three days’ average payout or Rs 20 lakh, whichever is higher, in favour of UCB sub-agents concerned.
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