Mint Road wants bar raised for small co-op banks

The regulator has suggested that CRAR in respect of these banks may be replaced with a net owned funds to net demand and time liabilities (NDTL) ratio of 15 per cent.

In other words, the proposal is to replace the capital to asset ratio by net owned funds to deposit ratio. Senior cooperative bankers said the proposed norm is stricter than the existing CRAR ratio.

The number of banks with deposits less than Rs 50 crore constitute 33 per cent of UCBs and account for less than 6 percent of deposits of the sector.

The RBI has also proposed to give these banks additional three years (up to March 2008) to classify non-performing assets (NPAs) based on 90-day delinquency norm. However, it added that these banks would be required to build adequate provisions during this period to transit to the 90-day norm at the end of three years.

The RBI has proposed to exempt these banks from compulsory investment in gilts to the extent of the deposits kept by them in State Bank of India (SBI), its associates and nationalised banks.

This is because these small banks usually operate in rural, semi-urban centers, and find it difficult to make investments in government securities due to lack of access to the markets. In order to meet SLR requirements, these banks often purchase gilts at a higher price, as they cannot obtain information on current market price of these securities.

These banks' exposure to an individual has been capped at 10 per cent of capital funds or Rs 40 lakh, which ever is lower. The group exposure has been capped at 20 per cent or Rs 80 lakh, which ever is lower. Their off-balance sheet exposures should not exceed 2 per cent of NDTL.

The regulator has also recommended that these banks should not be permitted to take direct exposure to real estate, builders or to the capital market. However, loan for individual housing has been limited at the present limit of Rs 15 lakh per individual borrower.

To strengthen the audit of these banks, the regulator has suggested compulsory concurrent audit. Statutory audit of banks with deposit base of over Rs 25 crore should be entrusted to chartered accountants, it said.