RBI, states to find ways to revive sick co-op banks

The Reserve Bank of India and five state governments were talking, to revive loss making urban co-operative banks, RBI Deputy Governor V Leeladhar told reporters here on Thursday.

The central bank, which regulates such banks but leaves the states to administer them, might sign memorandums of understanding with the states, Leeladhar said. The MoUs will allow the rehabilitation of several ailing cooperative banks over a period of three to five years, the deputy governor said.

"We will find state-specific schemes for reviving sick urban co-operative banks," Leeladhar said. Some 85 per cent of the 1,900 such banks in the country were in five states - Maharashtra, Gujarat, Karnataka, Andhra Pradesh and Tamil Nadu.

The states administer the co-operative banks through a Registrar of Cooperative Societies. If the MoUs are signed, then RBI will have to consult the states on cancelling the banks' licences. In return the states will enforce stricter operational discipline in the banks. They will have to consult RBI on audits, grading, supervision and appointment of top executives.

Earlier, inaugurating an Internet based bill payment service offered by Syndicate Bank, here, Leeladhar said, the RBI is implementing a new cheque truncation system. The system uses digital images of cheques to facilitate fast clearance of outstation cheques.

The cheques take several days now.

The system will first be implemented in the national capital region. Then it will include the metros and cities such as Bangalore and Hyderabad. "In due course," a national system will emerge, on a T+1 or T+0 basis", he said.

A Payment and Settlement Systems bill is also likely to be introduced in parliament that will define "netting" and "settlement finality" and help regulate payments and settlements, he said.

The international trend was to hand over the entire retail clearing function to a separate entity at the national level. The central bank can provide the settlement services for the clearing systems. The Indian Banks Association is starting such a company that will ultimately take over the function and leave RBI only the regulatory role, he said.

Provisional data showed cheque clearing volume grew some 4 per cent in the year to March 2005, he said. Clearing through the electronic route, however, grew 95 per cent to Rs 5.7 crore, on the electronic clearing service and the electronic fund transfer. It is expected to grow at that rate this year too.

High value fund transfers, through the Real Time Gross System (RTGS) which covers some 5,000 bank branches in 400 centres, daily amount to over Rs 30,000 crore, he said.