RBI mulls 4-tier grading system for co-operative banks

The Reserve Bank of India (RBI) has initiated discussions with co-operative banks and state governments on ways to bring stability to the sector.

Sources in the co-operative banking sector here say that instead of the two-tier system, which was earlier talked about, co-operative banks could be categories into three or even four tiers.

It may be stated here that several co-operative banks in Gujarat have already voiced their displeasure at being categorised as Tier I or Tier II banks on the grounds that it reduces their chance of competing with commercial banks.

"We have learnt that the federation of co-operative banks from Maharashtra is pressing for a three or four tier system. It appears as if the final vision document of the RBI on co-operative banks will have a three-four tier system," a prominent co-operative banker of the state said, on condition of anonymity.

Meanwhile, both-the Reserve Bank of India and the Gujarat Urban Co-operative Banks Federation (GUCBF), have refuted reports in a section of the media that notices have been issued to about 100 co-operative banks in the grade III category, asking them to improve their performance and move into a higher level and that they have been directed to merge with healthier banks or face liquidation.

Alpana Killawala, chief general manager, RBI, said in a statement that the apex bank is taking various measures to address the problem of weak co-operative banks in the urban co-operative banking sector, and as part of this effort, has placed the draft vision document in public domain.

GUCBF chairman Dollar Kotecha said that the draft vision document has been sent to the state government and co-operative banks.

"This will shortly be implemented by the RBI and will bring in stability in the co-operative banking sector," Kotecha said.

Although Gujarat ranks second (Maharashtra comes first) as far as the spread of co-operative banks is concerned, but various ills plague the sector in the state. The state co-operative banking sector has taken a beating in the recent past, primarily because of mismanagement of the banks.

Of the total 358 co-operative banks that operate in the state, 8 are multi state co-operative banks, which either have depositors and loanees from outside the state or regular branches outside the state.

However, as many as 84 banks have been declared weak and have been asked to reduce their NPAs by getting fresh deposits and also speed up recovery process.

Also, as many as 18 co-operative banks have either been placed under a custodian or an administrator. It has been decided to liquidate another 14 co-operative banks, as there is no scope of reviving them.