Conversion of deposits to shares allowed
RBI has decided to allow depositors of cooperative banks to convert their money into shares.
By Girish Kuber, TNN |
MUMBAI: No bank can stand a run, least of all a cooperative bank. However, a troubled bank can get a lifeline if depositors rushing to withdraw cash are allowed to convert the money in shares of the bank. No bank today allows this. But this is now a reality of cooperative banks.
RBI has decided to allow depositors of cooperative banks to convert their money into shares.
The decision to this effect was taken at the meeting of the Task Force on Co-operative Urban Banks (TAFCUB) last week. The TAFCUB comprises of the Regional Director (RD) of RBI, Registrar of Co-operative Societies, an official from the Central Office of Urban Banks Department (UBD) and a representative each from NAFCUB and the State Federation of the UCBs and deals with various issues affected urban co-operative banks.
The body came into being after various state governments signed an MoU with RBI to streamline and revive the co-operative sector.
“This will lower the troubled bank’s liability and in turn help its revival,” the state’s registrar of co-operatives, Anil Diggikar, told ET while explaining the decision.
The TAFCUB decision has already come into force in Maharashtra where depositors of one of the loss-making co-operative banks in Nashik have converted their funds into shares. “This has certainly lessened the bank’s pressure to make funds available for depositors as it’s been ensured of the their support. It will help its recover fast,” Mr Diggikar said.
“It’s a very important decision since it will involve the depositors - who otherwise rush to withdraw their funds from the sinking bank - in the bank’s revival. It’s certainly a positive development for the sector,” said Satish Marathe of Sahakar Bharati, who was instrumental in bringing different voices together on the issue. According to him, this will help troubled banks concentrate more on recovery rather than being under constant pressure to make funds available for depositors.
As per the decision, depositors can get into mutual agreement with the management to convert their fund into the banks’ shares for a certain period which may vary from bank to bank. The depositor will earn dividend once the bank is revived. If the bank sinks, the shareholders’ fund would be put in a collection account of the entity that would take over the bank.
“In our country the government never lets bank die. Some one takes it over or it’s merged with bigger bank. So depositor - who any case would have been a loser - is guaranteed of his funds,” Mr Marathe said.
RBI has decided to allow depositors of cooperative banks to convert their money into shares.
The decision to this effect was taken at the meeting of the Task Force on Co-operative Urban Banks (TAFCUB) last week. The TAFCUB comprises of the Regional Director (RD) of RBI, Registrar of Co-operative Societies, an official from the Central Office of Urban Banks Department (UBD) and a representative each from NAFCUB and the State Federation of the UCBs and deals with various issues affected urban co-operative banks.
The body came into being after various state governments signed an MoU with RBI to streamline and revive the co-operative sector.
“This will lower the troubled bank’s liability and in turn help its revival,” the state’s registrar of co-operatives, Anil Diggikar, told ET while explaining the decision.
The TAFCUB decision has already come into force in Maharashtra where depositors of one of the loss-making co-operative banks in Nashik have converted their funds into shares. “This has certainly lessened the bank’s pressure to make funds available for depositors as it’s been ensured of the their support. It will help its recover fast,” Mr Diggikar said.
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“It’s a very important decision since it will involve the depositors - who otherwise rush to withdraw their funds from the sinking bank - in the bank’s revival. It’s certainly a positive development for the sector,” said Satish Marathe of Sahakar Bharati, who was instrumental in bringing different voices together on the issue. According to him, this will help troubled banks concentrate more on recovery rather than being under constant pressure to make funds available for depositors.
As per the decision, depositors can get into mutual agreement with the management to convert their fund into the banks’ shares for a certain period which may vary from bank to bank. The depositor will earn dividend once the bank is revived. If the bank sinks, the shareholders’ fund would be put in a collection account of the entity that would take over the bank.
“In our country the government never lets bank die. Some one takes it over or it’s merged with bigger bank. So depositor - who any case would have been a loser - is guaranteed of his funds,” Mr Marathe said.
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