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42 cooperative banks under central bank’s scrutiny for rule violation

42 cooperative banks under central bank’s scrutiny for rule violation

Mumbai: The Reserve Bank of India has put 42 cooperative banks under a revival programme that involves a thorough scrutiny after the lenders failed to meet critical parameters on minimum capital and net worth.

RBI has barred the lenders from accepting fresh deposits from the public after they missed the 31 March deadline to satisfy the norms.

The programme, known as the monitorable action plan (MAP), is a last-ditch effort by the central bank to revive the businesses of distressed banks.

The banks have till 30 September to revive their businesses and improve capital adequacy.

Of the 42 district central cooperative banks under scrutiny, 25 are in Uttar Pradesh.

Special committees comprising top officials of RBI and the National Bank for Agriculture and Rural Development (Nabard) will monitor the monthly progress of the banks.

“There were about 50 banks which were facing closure threat. Of them, eight, including state-level cooperative banks, have managed to meet the norms. The remaining 42 banks are under MAP till September to work out a revival plan," Prakash Bakshi, chairman of Nabard, said.

Most of the banks have already submitted their action plans, he added.

If the banks are unable to improve their positions by September, they may be asked to either shut their operations or merge with other banks.

The 50 cooperative banks that faced the threat of closure had total deposits of 31,242 crore and loans worth 18,485 crore as of 31 March 2011. These lenders accounted for 13.5% of the total deposits of state and district central cooperative banks in the country.

Updated figures for the 42 banks could not be obtained immediately. Mint had reported this development on 14 March.

India has 30 state and 370 district central cooperative banks. In March 2010, the total deposits of all state cooperative banks and district central cooperative banks stood at 2.31 trillion and the advances at 1.54 trillion. Their total assets were worth 3.39 trillion.

Non-performing assets as a percentage of loans for state cooperative banks stood at 8.8% in March 2010. For district central cooperative banks, this was higher at 12.9%.

Updated figures for fiscal 2011 have not been compiled.

The Reserve Bank began its clampdown on the cooperative banking industry in 2008-09 by setting the 31 March 2012 deadline to achieve minimum eligibility benchmarks that were based on the recommendations of a committee headed by former RBI deputy governor Rakesh Mohan.

The panel had recommended a minimum capital-to-risk-weighted assets ratio of 4% by March 2012 and cash reserve ratio (CRR) and statutory liquidity ratio (SLR) at par with commercial banks.

Under current norms, commercial banks need to keep 4.75% of their deposits with RBI in the form of CRR and invest at least 24% of deposits in government securities as SLR.

Apart from these, the panel recommended that cooperative banks should neither have excessive bad loans nor should they have been pulled up by RBI for violations such as misappropriation of funds.

These banks should also have a minimum net worth of 1 lakh, it added.

The 42 banks put under monitoring failed to meet this limit.

Many cooperative banks have faced troubles on account of poor business performance and misgovernance. This is evident from the number of punitive actions taken by RBI against them.

Since March 2011, about 90 cooperative banks have either been penalized or been asked to terminate operations by RBI.

The regulator took action against 44 banks in fiscal 2011 and 31 in the year before.

Besides poor governance, the rapidly changing environment in the country’s banking sector and rising competition have hurt the cooperative banks, experts said, adding that while some of these banks have gained size, others were caught up in the vested interests of dominant communities.

Viren H. Mehta, a partner at audit firm SR Batliboi and Co., said any chances of revival for the 42 cooperative banks under scrutiny looked remote unless state governments could chip in to save them.

“I’m not so sure as to what will be the ability or inclination of the governments to do that," Mehta said. “The best way to manage this situation is to merge these banks and ensure that they are run by professionally run managements. The whole process should be done in an orderly manner without creating panic among customers," Mehta said.

dinesh.n@livemint.com

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