RBI eases NPA norms for co-ops

The Reserve Bank of India (RBI) has permitted urban co-operative banks (UCBs) to implement the 90-day impairment norm from the financial year end March 2007, thereby postponing the earlier deadline from March 2005.

The RBI, in a statement issued on Saturday, said taking into consideration representation from UCBs, it has decided that the 90 day impairment norm for gold loans and small loans up to Rs 1 lakh could be implemented from March 2007.

However, loans in excess of Rs 1 lakh will have to comply with the 90-day norm by March 2005.

The introduction of the 90 day norm in phases was one of the suggestions made by co-operative bank representatives, who met the RBI governor Y V Reddy on September 2.

The central bank is also likely to lay out dividend paying norms for urban cooperative banks, banking sources said. Representatives from the urban co-operative bank federation claimed the recent change in non-performing asset (NPA) provisioning had lead to a substantial jump in net NPAs of most UCBs.

The net NPAs of select co-operative banks has more than doubled on account of this norm, said a co-operative bank chairman. This also lead to the RBI imposing directive on two Mumbai-based urban co-operative banks-South Indian Co-operative Bank Ltd (SICB) and Maratha Mandir Co-operative Bank Ltd, he added.

The customer base, objective and area of working of co-operative banks are different, hence, its important that the regulator reviews the period for recognition of impaired loan for urban co-operative banks (UCB's) from 90 days to 180 days, said a banker.