Excited at the reply of Union Minister Amit Shah in the House that the government is in talk with the RBI to resolve issues plaguing the UCB sector, NAFCUB President Jyotindra Mehta shared a list of demands he is hoping the newly formed Cooperation Ministry under Shah will meet.
Mehta said NAFCUB has drawn the attention of RBI and the Ministry of Co-operation to certain regulatory restrictions which do not apply to other categories of banks, but only to Urban Co-operative Banks (UCBs) as a result of which the growth of the UCB sector has been impeded/adversely affected.
One of such demands is inclusion of UCBs in the second schedule to RBI Act, 1934. Only 54 UCBs out of 1534 are included in the second schedule of RBI Act. All commercial banks (including public sector banks, private banks, Foreign banks, RRBs, & SFBs,) are automatically scheduled.
RBI had stopped giving scheduled status to UCBs in 2004 just because one of the major UCBs in Gujarat had collapsed. Though, on paper they withdrew the ban in 2013, very few UCBs have been given scheduled status since then. RBI and the Ministry have been requested to make scheduling of UCBs that reach the required threshold of size to be automatically scheduled, stated Mehta.
Another issue raised by Nafcub is Branch expansion which it says is part of a normal growth process of banks. Commercial banks, RRBs and even SFBs that have come into existence very recently, are permitted to open branches freely just by submitting an annual plan to RBI.
In case of UCBs only those banks which are categorized as FSWM Banks (Financially Sound Well Managed Banks) can submit their AAP Annual Action Plan) and wait for approval. FSMWB contains a number of conditions that may have no relationship to normal functioning of banks and because of this the majority of UCBs are denied their legitimate right to grow and compete in the financial sector.
It is understood that in the last 5 years, all the 1534 banks put together have opened around 660 branches as against 11000 odd branches opened by commercial banks. NAFCUB has requested RBI and the Govt. to prescribe branch opening norms for UCBs that are identical with those prescribed for commercial banks and SFBs. If the commercial banks and SFBs are not required to fulfil the parameters given in FSWMBs for UCBs, the latter should also not be required to fulfil them for branch expansion.
Additionally, RBI has recently permitted all scheduled private sector banks to undertake Government Agency Business. Similar permission has also been accorded to SFBs and Payment banks. There are 1,534 UCBs in the country of which about 53 UCBs are scheduled banks and there is no justification for not permitting at least scheduled UCBs in participating in the Govt agency business, underlines Mehta.
On the issue of Tenure of elected Directors of UCBs Mehta says that after amendment to the Banking Regulation Act in 2020, all the provisions that are applicable with regard to appointment and tenure of directors of banking companies have been made applicable to directors of cooperative banks also, who are not appointed but are elected.
The Section 10 (2A) (i) of the Banking Regulation Act,1949, as amended in September,2020,are neither in conformity with co-operative laws nor as per the provisions of the 97th Amendment of the Constitution of India (Constitution).
The fact that a vast majority of the board members of 1534 banks may have to quit office as per the BR Act, for having completed 8 years, is creating a crisis that needs to be sorted out urgently. Sec 53 of the Banking Regulation Act provides for Govt. to exempt any bank or class of banks from any of the provisions of the Act, on recommendation of RBI. This provision may be made use of to prevent the crises while a permanent solution is worked out. The Govt. and RBI are apparently seized of the issues, he hopes.
Mehta also appeals for Resumption of licensing of new UCBs. RBI had stopped entertaining applications for setting up new urban cooperative banks in 2004.It has not been resumed till date and no revised entry point norms have been prescribed by RBI.
Last but not least Nafcub demands a Revisit of the income tax issues. We have been requesting successive governments for deletion of Sec80 (P)(4) which was introduced in 2005-06. Non-scheduled UCBs should also be included to be eligible banks for deduction U/Sec80(c), he sums up.