RBI to clamp down on insolvent UCBs

The Reserve Bank of India (RBI) will clamp down on insolvent urban cooperative banks (UCBs), which accepts public deposits.

Voicing concern over the insolvent UCBs accepting public deposits, Y V Reddy, governor, RBI, said, "We do not want insolvent UCBs to accept public deposits and RBI would clamp down on those that accept deposits from the public. Some UCBs have developed problems and have lost public confidence. We are solving the problems to encourage healthy UCBs."

Reddy was in Ahmedabad on Saturday to attend the first meeting of the Task Force on Urban Cooperative Banks (TAFCUB), constituted for Gujarat, following signing of memorandum of understanding (MoU) between RBI and the state government.

The meeting was attended by Vani J Sharma, regional director of Reserve Bank for Gujarat and chairman of the task force, and J P Gupta, Registrar of Co-operative Societies, Gujarat, and co-chairman of the task force.

"UCBs need to become stronger and grow faster than commercial banks in the near future. The UCBs are facing the problem of duel control by the RBI and the state government. We will solve this problem by proper coordination between RBI and the state government," said Reddy.

The RBI governor also urged for professionalisation of urban cooperative banks, to enable them to remain in business.

We encourage mergers and acquisitions (M&A) by healthy UCBs, so that the hopeless conditions of weak banks can improve. Most of the UCBs in Gujarat are healthy, but a few need support and we are chalking out plans for them," said Reddy.

The apex bank has prepared a draft vision document and has suggested state-level strategies for the UCBs. However the vision document is yet to be finalised.

The task force is expected to meet frequently. RBI heads of departments concerned would attend regularly and send reports to the governor.

Regarding Deposit Insurance Gurantee Corporation (DICGC) holding back insurance money to depositors of the liquidate UCBs in the state, Reddy said, "There are differences over legal interpretation which will be sorted out during the forthcoming meeting between the state chief secretary and DICGC chairman."