RBI’s Central Board Director Satish Marathe has strongly advocated the growth of the culture of consortium lending by the urban cooperative banking sector, fearing its absence in the UCB operations may see flight of valued customers to commercial banks.
Marathe was reacting to the fifth bi-monthly Monetary Policy Statement of RBI, which has kept the repo rate unchanged. He said the policy statement has some good news for urban cooperative banks.
Elaborating on the consortium lending concept Marathe said the UCB sector also have some big accounts which may need large loans. In such a situation, when an individual UCB finds it too big to handle the case individually, may form a consortium of some of the UCBs to take the call on such loan-demands. There can be a leader or even a sub-lead in the consortium to coordinate activities.
Consortiums are well placed to assess the risks involved, required collateral, etc. RBI should come out with the detailed policy guidelines for consortium lending for urban cooperative banks, Marathe said. Sadly, I have not seen any circular on the issue for the last 15 years, he added. But along with the RBI, the UCB sector should also gear up for the same, he felt.
Consortium lending is done by commercial banks in a standardized proforma and there is a need for UCBs to follow suit, Marathe said.
Reacting to other issues of the Monetary Policy Statement, Marathe said three things stand out- credit repository, cybersecurity and curbing UCB’s risk appetite.
Bringing UCBs under the ambit of RBI’s Central Repository of Information on Large Credits (CRILC) is a welcome move, said Marathe underlining that it has been decided to bring UCBs with assets of ?500 crore and above within the CRILC reporting framework.
The database is going to prove very useful to the UCB sector as they would be able to know the financial history of their borrowers.
The second issue raised by RBI related to mooting certain regulatory guidelines relating to exposure norms for single and group or interconnected borrowers, promotion of financial inclusion and priority sector lending. UCB’s risk appetite is huge and there is a need to check this, felt Marathe.
Under the current norms for UCBs, the exposure to an individual borrower should not exceed 15% of its capital funds, and the exposure to a group of borrowers should not exceed 40% of its capital funds.
After overseeing the extant cyber security measures in the UCB sector RBI has come to the conclusion that there are noticeable gaps and thus a need to plug them. RBI has decided to prescribe a comprehensive cyber security framework for UCBs and it is a welcome move, said Marathe.