The Maharashtra government has raised five-fold the individual member's shareholding limit in the urban co-operative banks (UCBs), from Rs 1 lakh to Rs 5 lakh. The objective is to enable them to meet the Reserve Bank of India's (RBI) stipulation on capital adequacy norms as well as attain financial stability by infusing fresh capital.
This move by the state government comes in the wake of the central bank deciding to implement the capital-to-risk-weighted assets ratio (CRAR) norms for the UCBs in a phased manner with effect from March 31. At present, there is no prescribed CRAR norm for the UCBs.
The RBI has prescribed that scheduled UCBs should achieve a CRAR of 8 per cent by March 31; 9 per cent by March 31, 2003; in the subsequent financial years the norm will be on a par with that of the commercial banks.
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"The ceiling of Rs 1 lakh on individual member shareholding was coming in the way of strengthening the capital base of the UCBs. Now that the ceiling for the UCBs in Maharashtra has been raised to Rs 5 lakh, most of the scheduled UCBs will be able to achieve the prescribed CRAR following the RBI time-table," said a senior banker.
In the case of non-scheduled UCBs, they have to achieve a CRAR of 6 per cent by March 31; 7 per cent and 9 per cent in the subsequent two financial years; and by March 31, 2005, the non-scheduled UCBs will be subject to CRAR norms as applicable to the commercial banks.
While prescribing the CRAR norms for the UCBs in April 2001, the RBI has observed that these entities perform the same banking functions as commercial banks and are exposed to similar operational risks. It added that non-application of the CRAR norms by the UCBs will undermine the stability of the whole banking system.
Co-operative sector experts pointed out that the increase in individual member's shareholding ceiling was sorely needed as UCBs could neither tap the capital markets nor raise the funds through a subordinated debt (Tier-II) issue.
"In the co-operative sector, share-linked loaning is the norm. So, if a borrower wants to avail of a loan from a co-operative bank he has to subscribe to the bank's share capital, which has a lock-in period of five years. This subscription works out to 2.5 per cent of the loan amount if the loan is secured and 5 per cent of the advance if it is unsecured," a senior banker said.
For example, borrowers from UCBs in Maharashtra availing of a secured loan of Rs 2 crore and above will now have to subscribe to the banks share capital amounting to Rs 5 lakh.