Before the announcement of the Union Budget, Andhra Pradesh State Cooperative Urban Banks and Credit Societies Federation have raised several issues pertaining to the Urban Cooperative Banks and Credit Societies.
These include Individual Housing loans to be excluded from the regulatory restrictions, Non-Reimbursement of ‘Interest on Interest’ to UCBs, the 97th Constitutional Amendment and Banking Regulation (Amendment) Act, 2020.
We are reproducing the issues sent to Indian Cooperative by Chalasani Raghvendra Rao, Secretary of the Federation:
1. Individual Housing Loans to be excluded from the regulatory restrictions:
As you are aware, RBI has stipulated a regulatory restriction of the 15% limit on lending to the housing sector, which includes individual housing loans besides lending to Real Estate and Commercial real estate. Urban Cooperative Banks extend individual housing loans for construction and repairs to houses, which are covered under the priority sector. The regulatory restriction of RBI is imposing a limit on the bank’s lending to the priority sector advances under the category of housing loans. There is no rational reason to restrict urban Cooperative Banks from extending small housing loans to individuals up to Rs 35 lakhs in metro cities and up to Rs 25 lakhs in others, which are treated as the priority sector advances. Further, this regulatory restriction is stopping Urban Cooperative Banks from extending housing loans to individuals and thus becoming an unintended bottleneck in UCB’s contributions towards implementing the Government of India’s lofty policy of ‘Housing for all. The issue may please be included for taking up with both RBI and Govt. of India for early resolution.
2. Non-Reimbursement of ‘Interest on Interest’ to UCBs:
A reference is invited to the Supreme Court judgment dated March 23, 2021, and RBI Circular No DOR.STR.REC. 4/21.04.048/ 2021-22 dated April 7, 2021, read with Annexure A to IBA letter indicating the methodology for calculation of Interest on interest. In accordance with the RBI directive, based on the Supreme Court judgment, UCBS have refunded the interest on interest charged to borrowers for the Moratorium period. However, as per the Govt. of India scheme communicated vide F No. 212/2020-BOA.I dated 23rd October 2020, the scheme of refund to lending institutions, interest on interest amount refunded to borrowers, is limited to advances up to Rs 2 crores. As such, the interest on interest amount refunded by banks for loans above two crores, which were also covered as per the Supreme Court judgment of March 23, 2021, and RBI instructions of April 7, 2021, as eligible advances for a refund of interest on interest charged during the moratorium period, are yet to be reimbursed to the lending institutions. NAFCUB may please take up the issue with the Government of India to extend the scheme of reimbursement to banks for advances above Rs 2 crores also.
3. 97th Constitutional Amendment:
The 97th Constitutional amendment, which amended Article 19 and conferred upon citizens the Constitutional right to form “Cooperative Societies’ and enjoined upon the State, the responsibility that it “shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of Cooperative Societies” is stuck in court cases. The long-cherished desires of cooperative societies, which were reflected in the Constitutional amendment, could not be implemented because of certain procedural infirmities. There is a need for the Government of India to take steps to do the needful to get the amendment implemented.
4. Banking Regulation (Amendment) Act, 2020:
The Banking Regulation Act amendment is challenged in several High Courts for the reason that the amendment deals with fundamental aspects of Cooperatives, which, as per constitution, are listed under State Subject. If the present B R Act amendment had dealt with only banking related issues, as was done while inserting Section 56 in the BR Act in 1965, leaving aside aspects such as incorporation, elections, powers of General Body etc, which are covered under State Acts, then there would not have been any cause for a grievance to Cooperatives. However, the present amendment to the BR Act has made Sections 10, 10B, 10BB and other provisions, which are the exclusive domain of the State Cooperative Societies Act, applicable to Urban Cooperative Banks. As such, there is a need to withdraw the Banking Regulation (Amendment), 2020 in its present form. In our opinion, this is to be brought before the Government of India, Cooperation Ministry, in no uncertain terms. It will not be right to allow the act provisions to exist, unchallenged in statute, in the present form, and request only the Reserve Bank of India to exempt its applicability to Urban Cooperative Banks.