RBI has no power to force UCBs’ conversion: Mehta

Nafcub former President Jyotindrabhai Mehta has reacted angrily to the news of RBI’s Monetary Policy Committee’s approval of the recommendations of the R Gandhi Committee suggesting conversion of cooperative banks into commercial entities. “Its beyond their power to do so”, Mehta asserts.

“RBI is a regulator no doubt but the matter of cooperative bank falls within the purview of the Central Government and in fact with the Central Registrar; RBI can at best see that banking operations carried out by banks are following the Banking Regulations Act. Beyond that, their power is zero”, said Mehta who also happens to be on the Advisory Board of RBI.

Maintaining that RBI can at best make recommendation to the govt which has to take the final call on the issue, Mehta said RBI cannot force UCBs to convert. But the RBI recommendation is one side of the story, he said.

“There are two more option in the matter; one is to engage the govt on the issue”, said Mehta recalling Union Minister Radha Mohan Singh’s stand on the issue. “The Minister is convinced that this move is aimed at destroying the cooperative movement in the country”, he noted with a satisfaction.

 “But most of all, we need to convince fellow cooperators engaged in in the cooperative banking sector of not taking the bait on RBI’s hook. It would amount to jeopardizing the interest of members who have put their deposits and trust in the UCB”, Mehta felt.

It may be recalled that on January 30, 2015, the Reserve Bank had announced the constitution of a High Powered Committee (HPC) under the Chairmanship of Shri R. Gandhi, Deputy Governor, Reserve Bank of India to examine and recommend permissible business lines and appropriate size, and examine the issues with regard to conversion of UCBs into commercial banks.

As per the recommendation, “a business size of Rs 20,000 crore or more may be the threshold limit beyond which a UCB may be expected to convert itself into a commercial bank. The conversion need not be de jure compulsory. However, the types of businesses to be undertaken by those choosing not to convert may remain within the limits of plain vanilla products and services and hence, growth will be at a much slower pace. Their expansion in terms of branches, area of operations and business lines may thus be carefully calibrated”, read the statement.

Smaller UCBs with business size of less than Rs 20,000 crore willing to convert to SFBs can apply to the Reserve Bank for conversion provided they fulfill all the eligibility criteria and selection processes prescribed by the Reserve Bank and further provided that the licensing window for SFBs is open.

 

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