Pawar may help lift ban on UCB loans

Directors of urban co-operative banks (UCBs) may get to open the bubbly soon. The reason: Maratha strongman Sharad Pawar is expected to influence the new government to lift the ban that bars UCBs from extending loans to their directors and relatives.

As Union cabinet minister, Pawar is expected to push for a restoration of the earlier ceiling, whereby UCBs could extend loans and advances up to 5 per cent of their demand and time liabilities (DTL).

The possibility of the ban being reversed has brightened as both the Congress and the Nationalist Congress Party derive their political strength from the co-operative movement in Maharashtra.

Moreover, the Congress-NCP combine would like to keep its co-operative sector constituents happy as they can make or mar any electoral battle in the state.

Underscoring the fact that co-operative banks reach out to the lower strata of society, a banker pointed out that, "when a UCB is formed it is the promoters, their relatives and friends who subscribe to the share capital. Hence, it is natural for them to expect some benefits in return for the invested seed capital."

The Reserve Bank of India (RBI) had imposed a total ban on grant of loans and advances to directors of UCBs, their relatives and concerns in which they have interest with effect from October 1, 2003 following recommendations of the Joint Parliamentary Committee.

This action was taken to prevent certain irregularities, including one arising from the stock market scam, which surfaced in the case of some UCBs. The RBI's blanket ban had come in for a lot of flak from co-operative banks.

Though federations and associations of UCBs have made representations to the RBI asking for the ban to be reversed, they have not yet heard from the regulator.

The regulator has taken the stand that the ban had been imposed following JPC's recommendations and it is only the Centre that can undo the ban.

It has also been impressed upon the RBI that directors will lose their seat under the respective State Co-operative Act if they become defaulters.