Vision in place, it's time to turn UCB dreams into reality

A shakeout at urban co-operative banks (UCBs) is not too far off, if the RBI has its way. The central bank is on course to finalise a medium-term framework for the segment, besides a plan to restructure weak UCBs through mergers and amalgamations. The RBI and the government have chosen to focus on UCBs, considering their financial health. Several such banks have been operating on a low deposit base and have relatively high Non-Performing Ratios (NPRs). A majority of UCBs have been finding it tough to raise deposits, given the crisis of confidence, and with a low capital base, the going has been tough. In the context of the move to bring UCBs in line with prudential norms like treatment of NPAs and provisioning, a consolidation is inevitable, bankers reckon. Of the 1,924 UCBs in the country, 1,523 are concentrated in five states — Maharashtra, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh. In fact, these account for about 82% of advances and deposits. In Maharashtra, the UCBs have a deposit base of Rs 55,000 crore and advances aggregating Rs 48,000 crore. The presence of such a large number of co-operative banks has been a source of worry for the banking sector regulator. As a first step, a vision document for UCBs was unveiled over a month ago. Talks are also on with state governments and banks for reviving weak UCBs. The vision document talks of providing an exit option in the form of mergers and amalgamations of non-viable UCBs. Says SK Banerji, MD, Saraswat Co-operative Bank, It is inevitable that consolidation is going to take place in the UCB space. We are awaiting guidelines on M&As and would be ready to act accordingly. Among UCBs, Saraswat Bank prides itself on its financial ratios, especially zero NPAs. Mr Banerji said that if the regulator is to apply the same prudential norms on UCBs as currently applicable for commercial banks, other norms relevant for the latter should also be offered to co-operative banks. He points out that branch licences have not been handed out to UCBs for sometime, while some private banks which have not performed well have not encountered such roadblocks. Those UCBs adhering to best practices and prudential regulations similar to commercial banks ought to be given more leeway, he says. The consolidation among UCBs could also be sparked off if the government carries out legislative changes to encourage mergers and amalgamations.

Vision in place, it's time to turn UCB dreams into reality

A shakeout at urban co-operative banks (UCBs) is not too far off, if the RBI has its way.

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