RBI allows weak cooperative banks for financial restructuring

RBI allows weak cooperative banks for financial restructuring
PTI
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First Published: Fri, Jan 23 2009. 09 31 PM IST
Updated: Fri, Jan 23 2009. 09 31 PM IST
Mumbai: With stronger urban cooperative banks unwilling to acquire their financially unsound counterparts, the Reserve Bank of India (RBI) on Friday allowed such weak banks to go for restructuring of their liabilities.
In case of mergers, deposits up to Rs1 lakh are insured from a RBI scheme, but these depositors may be in a beneficial position in case of financial restructuring of weak urban co operative banks.
“It is observed that even financially stronger banks are unwilling to acquire banks where the deposit erosion is large. In such situations, restructuring of the liabilities of the weak urban co-operative banks, may be a viable proposition as the depositors above Rs1 lakh may stand to gain,” the RBI said in a notification.
However, RBI has put certain conditions for allowing such restructuring like deposits up to Rs1 lakh cannot be converted into equity.
RBI also said a portion of the deposit of individual depositors above Rs1 lakh may be converted into equity.
Likewise, it said, a portion of the deposits of the institutional depositors may be converted into innovative perpetual debt instrument (IPDI), a kind of hybrid instrument between debt and equity.
Post restructuring, the management of the bank should be in the hands of a board of administrators consisting of representatives of individual depositors as well as professional bankers to ensure proper implementation of the reconstructing scheme including recovery of the non-performing assets, the RBI said.
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First Published: Fri, Jan 23 2009. 09 31 PM IST
More Topics: RBI | Urban Cooperative Banks | Banks | Finance | Money |