Urban co-op banks want RBI to permit them to undertake one-time settlement of bad loans
Urban Co-operative Banks (UCBs) have asked the RBI to allow them to make one-off (OTS) settlement of bad loans similar to OTS available to commercial banks.
UCBs stressed that since the 2020 amendment to the Banking Regulation (BR) Act has addressed the vexing issue of dual regulatory oversight, the central bank is empowered to allow them to conduct OTS recovery from non-performing assets (NPAs), said Jyotindra Mehta, president of the National Association of Co-operative Banks Urban Credit Associations (NAFCUB).
Under dual regulatory control, the Registrar of Cooperative Societies/Central Registrar of Cooperative Societies is empowered to take care of incorporation, registration, administration, recovery, audit, dissolution of the board of directors and liquidation.
The Reserve Bank is charged with regulatory supervision of the banking activities of UCBs, State Cooperative Banks (StCBs) and Cooperative Central Banks (DCCBs).
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With the amendment to the BR Act 2020 eliminating regulatory arbitration between commercial banks and UCBs, Mehta said the path for OTS should be opened for UCBs to clean up their balance sheets.
refund policy
Currently, commercial banks have adopted a “Refund Policy” in exchange for OTS, which provides a simplified, non-discretionary and non-discriminatory mechanism for OTS loans for bad loans in retail, MSME and agriculture sectors.
Banks cannot enter into a compromise settlement in cases of willful default, fraud and wrongdoing.
Mehta stressed that when the regulations governing UCB banks are tightened to bring them on par with commercial banks, the former should get a level playing field on the recovery front.
As of the end of March 2022, there were 1,514 UCB, with total deposits and advances of ₹5,26,021 crore and ₹3,14,741 crore, respectively. Total NPAs and net NPAs were 9.7 percent (of total advances) and 4.4 percent (of net advances), respectively, for all RBI data.
get capital
According to the Reserve Bank of India, the BR Amendment seeks to protect depositors’ interests and strengthen cooperative banks through improved governance and oversight by the central bank, while enabling better access to capital.
Meanwhile, in a meeting with NAFCUB, selected consortiums of UCBs from various states and CEOs of some selected UCBs last week, RBI Governor Shaktikanta Das advised UCB banks and consortiums to strengthen their governance and risk management, adopt appropriate business strategies and explore appropriate technological solutions enabling them to sustain their business. And their development and service to their customers, taking into account the interest of depositors.