The Reserve Bank of India (RBI) wants all scheduled urban co-operative banks in the country to put in place asset, liability management (ALM) systems.
The central bank is working overtime to formulate the ALM guidelines even as the number of co-operative banks going bust has increased in recent times.
"The apex bank will shortly announce the guidelines for the sector," a source said. The latest move by the central bank is part of its efforts not only to align regulations governing co-operative banks with the rest of the commercial banks but also to infuse a modicum of financial discipline among them.
Meanwhile, its plan for a separate regulator for the co-operative sector has not got a favourable response from the Union finance ministry. In effect, the RBI will continue to regulate the sector even if it wants to get out of it.
"The main problem afflicting co-operative banks is that they raise short-term deposits at unsustainable interest rates and deploy (lend) them long. The rate of deposit renewal/ accretion of these banks is not commensurate with the assets (loans) outstanding and lack of management in this regard has created serious liquidity problems. The ALM proposes to stem this problem," according to sources familiar with development.
Though RBI has issued warnings to errant co-operative banks, put some of them under prompt corrective action regime and cancelled licences of a few others, experts pointed out that unless the dual control (of RBI & state governments) system is done away, the political interference in the functioning of banks in the sector will continue unabated.
In the interest of the financial stability/health of the co-operative sector, the RBI, in the past one year, has come up with prudential regulatory measures with regard the extent of access of urban co-operative banks (UCBs) to the call/notice money markets and asked UCBs to unwind their outstanding term deposits with other UCBs before June end 2002 in view of the systemic risks involved.
Further, the apex bank also directed UCBs to maintain their entire statutory liquidity ratio of 25 per cent of their net demand and time liabilities only in government and other approved securities from April 1, 2003, and put a stop on lending by UCBs directly or indirectly against security of stocks in the wake of the infamous Madhavpura Mercantile Co-operative Bank episode.
