Duyal controls set to end for UCBs

PUNE: The issue of dual control over the urban cooperative banking sector is set to be resolved. The RBI-appointed Standing Advisory Committee has prepared a vision document which seeks to ensure effective regulation of the sector by its two regulators, the RBI and the state''s Registrar of Cooperatives.
Indications are that the next step will be the creation of a tri-partite entity, comprising representatives of the RBI, the department of cooperation of the state government and the Federation of Urban Cooperative Banks (UCBs).This body would then meet and resolve issues where dual controls affect the sector.
The need for the abolition of dual control has a long standing need which had become a bone of contention. While UCBs have to comply with the RBI''s Banking Regulation Act since they are banks, being cooperative entities they are also subject to the state government''s control. This duality has also been used as a loophole by players in the sector to ensure they escape scrutiny by the two regulators.
Sources indicated that it could take a month for the finalisation of the tripartite committee. Uniformity of action by the regulators will then be possible through this single committee.
The state''s cooperative financial sector has deposits worth Rs. 1.25 lakh crore, of which Rs. 60,000 crore are deposits with UCBs. The Maharashtra State Cooperative Bank has deposits of Rs. 14,000, Rs. 23,000 crore are with the District Credit Cooperative Banks (DCCBs) and Rs. 30,000 crore with credit cooperative societies. The state has 625 cooerpative banks and 22,000 credit cooperative societies (called `path sansthas'').
While the RBI move is aimed at an overall convergence of regulation in the cooperative sector, the state''s department of cooperation has moved to bring greater financial discipline.
This will be the first year that the state''s 22,000 credit cooperative societies will be audited according to the NPA norms of the banking sector. While the UCBs came under these norms from 1996-97, the credit societies have so far remained outside its ambit. The current fiscal will be the first in which they will have to conform, with sources indicating that all these institutions will have to comply within the next three years.
"The enforcement of NPA norms puts pressure and stops irresponsible lending," sources said.
These financial entities have also been restricted from diversification into non-financial activities. Moreover, indiscriminate branch profileration, bringing into question their viability has also been stopped.
"The registrar of cooperatives (RoC) will find out the number of loss making branches and either ensure they become profitable or they close down," sources said.
Those credit societies with deposits upto Rs. 5 crore will be allowed to have five branches, with deposits between Rs. 10-25 crore, 10 branches, deposits between Rs. 25-50 crore 13 branches, deposits between Rs. 50-75 crore 16 branches, deposits between Rs. 75-100 crore 20 branches and a cap of 25 branches on those societies with deposits of over Rs. 100 crore.