Maharashtra, RBI join hands to stop co-op banks going sick

After a number of urban cooperative banks slipped into the red, the Maharashtra government and the Reserve Bank of India (RBI) have signed a memorandum of understanding (MoU) for evolving measures to alleviate the sufferings of depositors in case an erring bank is penalised.

"Don't read too much into it," said a senior RBI official when asked if the MoU was a precursor to some action that the RBI was contemplating. The RBI, as the banking regulator, monitors financial dealings of a UCB while the state's cooperation department controls constitutional and administrative aspects.

The MoU was signed on RBI's behalf by Executive Director V S Das and on behalf of the state government by the Principal Secretary (Co-operation and Marketing) J P Dange.

RBI's Executive Director Usha Thorat, who is in-charge of the urban banks department (UBD), and Maharashtra's Minister for Co-operation Patangrao Kadam were present on the occasion. Maharashtra is the ninth state to sign such an MoU with the central bank.

"The move is aimed at making concerted efforts to improve the position of ailing banks using 'non-disruptive' methods," said Thorat while briefing reporters.

Non-disruptive methods mean that it would be ensured that depositors are put to least inconvenience if any regulatory step is taken against an erring bank.

At present depositors of banks where RBI is forced to initiate action face difficulties due to restrictions on withdrawIng money. Efforts will be taken to avoid this trouble after the MoU, added Thorat.

A 'task force for urban co-operatives' (TAFCUB) will be formed soon which will have the state's Registrar of Co-operatives, RBI's Regional Director, a representative from the state government as well as RBI's central office as its members. There will be representatives from the national and state-level federations of co-operative banks too.

TAFCUB shall examine the financial status of UCBs and draw up a tim-bound action plan for revival of potentially viable UCBs, she added.

The MoU shall facilitate merger of weaker banks with stronger ones, said Thorat. It will also open new vistas for co-operative banks as they will get approval to start allied activities faster. This even includes dealing in forex, having automated teller machines, extension counters and expanding their business as well as opening new branches.

Initiatives will also be taken for technological development leading to better customer services, said Thorat.