RBI Governor Mr Shaktikanta Das delivered a lecture at the Convocation ceremony of PG Diploma of National Institute of Bank Management in Management in Pune last week, in which he dealt on the subject of Umbrella Organization for urban cooperative banks in great detail.
In his speech the RBI Governor covered the current status of the banking sector and highlighted some issues. “The last few years have been testing times for Indian banks as they grappled with deteriorating asset quality leading to higher provisioning requirements, falling profitability and weak capital position”, he underlined.
Talking in a reference to Urban Co-operative Banks, the Governor said “Our experience suggests that the Board of Directors of UCBs require greater expertise and skill to conduct banking business professionally. The Reserve Bank is in the process of issuing guidelines on this issue.”
“A need is also being felt for the establishment of an Umbrella Organisation for UCBs which may extend loans and refinance facilities, setup IT infrastructure and provide support for capital and liquidity. The structure, functions and the regulatory guidelines of this organisation are being examined by the Reserve Bank”, he stated.
Mergers and consolidation in the sector will also help in reducing operating costs, encouraging greater risk diversification and economizing capital. We propose to put in place a mechanism for encouraging voluntary mergers in the sector through appropriate incentives. We also propose to create a Centralized Fraud Registry for UCBs.
“A sound and resilient financial system is a prerequisite for a modern economy that involves all sections of its society in sharing equitably the benefits of economic and social progress. Reforms are an ongoing process. The Reserve Bank will endeavour to be proactive in its approach. In the fast-changing financial landscape, we will continue to be watchful to the emerging challenges and respond to them appropriately to ensure a resilient and robust financial system” the Governor concluded.