The Maharashtra government on Wednesday requested the Reserve Bank of India (RBI) to do away with the practice of state government guarantees sought by banks and the National Bank for Agriculture and Rural Development (Nabard) for loans extended to private entities, including cooperatives.
At a meeting of bankers’ committee chaired by RBI Governor D Subbarao, the government said it was time the bankers stopped the practice of treating taxpayers’ money with the government fungible with the deposits money with the banks under the garb of prudential norms circulated by RBI.
A state government official, who attended the meeting, said it was brought to the RBI governor’s notice that the Maharashtra State Cooperative Bank and 10 district central cooperative banks were yet to receive licences. Subbarao heard their request, but did not give any comment, he added.
The licences are required as per the Rakesh Mohan Committee’s recommendations before March 2012.
“Most of these banks have negative net worth or capital to risk (weighted) assets (CRAR) ratio much less than four per cent. Some of these banks are also under the directions from RBI under section 35(A) of the Banking Regulation Act. It seems unlikely that the state cooperative and district central cooperative banks will be able to satisfy the conditions for securing the licence before March 31, 2012. The state government, therefore, requested RBI to reconsider the time limit prescribed for obtaining the licence by these banks so that the flow of agricultural credit is not hampered in those areas where these banks operate,” the official told Business Standard on the condition of anonymity.
The official further said, “The judiciary has objected to such a treatment to be given to the taxpayers’ money by way of giving guarantees to the loans extended by banks to the private entities, including cooperatives. Such guarantees are being asked for the amount given as loan by Nabard for rescheduling crop loans after natural calamities and these guarantees are also asked for loans extended by Nabard to cooperative sugar mills and spinning mills.”
“However, the basic premise of asking such guarantee has been questioned by the courts and, therefore, the courts have opined that the amount as a default against loan which has been guaranteed by the government should be first recovered by selling of the assets of the borrower who was defaulted before the banks approach the government to meet its obligations against the guarantee,” he added.
The official said the state government insisted that the let the cooperative banks take their commercial decisions without clutches in the form of government guarantee.
