Maharashtra Urban Cooperative Banks Federation (MUCBF) Chairman Vidyadhar Anaskar has asked Reserve Bank of India to review RBI’s circular disallowing UCBs for making dividend payout. Anaskar wrote a letter to Governor Shaktikanta Das on the issue, he revealed to Indian Cooperative.
In his letter, Anaskar apprised the RBI governor that cooperative banks officials are finding it difficult to convince their shareholders, asking continuously for refund of their share amount. We will face the wrath of shareholders in the ensuing AGMs on the issue of non – distribution of dividend, he added.
“The Capital investment in Commercial Banks is purely for earning profits, while that of Cooperative banks it is primarily to comply with the terms of RBI’s circular on Share Linkage Norms to Borrowing, i.e. the borrowers of an UCB have to subscribe to the shares of that bank to the extent of 2.5% or 5% as the case may be, of their borrowings”, Anaskar underlined.
“The shares of Commercial banks are easily tradable in the Share Market, while there is no such trading of shares of Co-operative Banks in the Share Market. Section 12(2)(i) of the Amended Banking Regulation Act, 1949 has prohibited Co-operative Banks from refunding share amounts to their shareholders”, the MUCBF Chairman stated in his letter.
He further wrote,” In view of the above, due to inability of a Shareholder of a co-operative bank to sell his shares in the Share Market or to transfer it easily to another investor or to the bank itself, and further non receipt of dividend on it, he may not invest in shares of co-operative banks, and in that case it would be practically difficult for the bank not only to strengthen but also to grow its capital base. We therefore opine that this decision of the Reserve Bank is irrational, unjust and unfair.”
Anaskar said, “Dividend is the most important factor for the shareholders, depositors and for the general public to judge the performance of a co-operative bank, which is operating on a standalone basis without any capital subsidy or infusion either from the Central or State Government”, he argued.
“Dividend is also essential to maintain the goodwill, faith and reputation of the bank in the eyes of all shareholders that leads to increase in capital portion of the bank which ultimately results in increase in the CRAR, since UCBs depend on their shareholders’ trust and support much more than commercial banks, as their share capital is raised in person while sanctioning loans, and not impersonally through share market. It is therefore inevitable for every UCB to pay sufficient dividend to the shareholders in the present competitive banking scenario”, he said.
The total share capital of all UCBs in the country is Rs 13,000 crores. Of that the share capital of ‘A’ & ‘B’ rated UCBs is approximately Rs 9000 crore. If we calculate at least 10% dividend on such a share amount, it comes to hardly Rs. 900 crore. We therefore do not understand how come such a small amount will support and boost the Indian Economy, he asserted
At last, he urged the Governor to kindly review the recent circular issued by the Reserve Bank afresh and issue revised instructions for payment of dividend for the financial year 2019-20, albeit in a miniscule way, to those UCBs fulfilling the criteria for declaration of dividend.
