Changes sought in norms on DCCBs

District central co-operative banks (DCCBs) are seeking changes in certain policies of the government, to enable them compete with private banks.

"This is a tough phase for DCCBs. Many DCCBs are plagued by high administrative costs and high cost of funds. These banks are fighting for survival, and need support from the government to come out unscathed," an official at a DCCB, told Business Standard, requesting anonymity.

"Out of 18 DCCBs in Gujarat, six are classified as weak by the National Bank for Agricultural and Rural Development. The Gujarat State Co-operative Bank, the apex bank of DCCBs in the state, has asked stronger DCCBs to provide monetary support to weak ones. But this is not a feasible option, and could even land the stronger banks in trouble," he said. Merging DCCBs is the only option to save these banks.

"The government is talking about merging private and nationalised banks, but surprisingly it has not even thought of merging DCCBs. If two-three DCCBs are merged, it would result in a bigger field for business. This would also enable better utilisation of funds, which would lead to reduction in costs, and thereby greater profitability. The losses incurred by weak DCCBs can be easily taken care of, if and when this happens," he said.

"The next five years are crucial for DCCBs - any DCCB that survives this period will become unshakeable. In interest to weaker DCCBs, the government should step in at the earliest, and initiate measures for merging weak banks with stronger ones. Everybody will not be pleased with such a move, but harsh decisions are the need of the hour for saving the co-operative banking sector," he said.

The official also sought lifting of restrictions on the limit of loan advances by DCCBs.

"At present, other than a person engaged in the textile industry, DCCBs are not allowed to give individual loans of over Rs 25 lakh. This restriction is in place since 1985, when the farming sector was the major avenue for loan advances for DCCBs. The time has changed today, and there are many industries that require loans of much higher amounts. Ideally, the restrictions on the ceiling of the loan advances should be removed, and if not, the ceiling should be hiked reasonably," he said.

The official also sought granting of scheduled bank status to DCCBs.

"If DCCBs are granted status of a scheduled bank, they can carry out ancillary activities, such as offering demat services to the customers. This would help DCCBs mobilise low-cost funds, and lead to greater profitability. The government should seriously consider permitting DCCBs to start these services," he said.

"We have the advantage of reach - we are present in each and every corner of any district. Private banks, from which we are facing tough competition, cannot match us in reach. We also have the advantage of having local people in our branches. These are some of the points we have an edge over the private banks, and we want to encash these, but we require the support from the government," he added.