Maharashtra based Pune District Urban Cooperative Banks Association wrote a letter to Union Finance Minister Nirmala Sitharaman for her Intervention in the matter of “Target for priority sector lending for urban Co-operative Banks – RBI directives”.
Signed by its Chairman Adv Subhash Mohite, the letter seeks Minister intervention in the matter of priority sector lending. “We urge upon you to instruct the Reserve Bank to withdraw the instructions given to Banks for investing huge amounts with SIDBI. It is also requested that extension of deadline for achieving priority sector lending target by 31st March 2026 be also considered in view of the practical problems being faced by urban cooperative banks”, says the letter.
The letter says “Pune District Urban Co-operative Banks Association is the representative organization of urban co-operative banks in Maharashtra. We would like to draw attention of your good selves to certain provisions contained in the circular of Reserve Banks of India regarding the captioned subject.”
RBI master direction FIDD.CO.Plan.BC.5/04/09/01/2020-21 dated 29th April 2021 enumerates targets & classification of Priority Sector Lending for urban cooperative banks. It states that the target of priority sector lending has been set at 75% of adjusted net bank credit to be achieved by March 31 2024. It also contains a provision (point no.28, page21) that Banks having any shortfall in lending to priority sector shall be allocated amounts for contribution to RIDF with NABARD & other funds with NABARD/NHB/SIDBI/MUDRA Ltd as decided by the Reserve Bank of India from time to time, goes on the letter.
The Association says “a matter of fact, some of the urban co-operative banks have fallen short of the target of priority sector lending in the post Covid situation during last year. Demand for credit in UCBs is not picking up in the regime of declining interest rates. Now the Reserve Bank has issued letters to many urban co-operative banks advising investment of huge amounts in SIDBI on account of shortfall in achievement of priority sector targets as on 31/3/2022. “
The rate of interest on such investments would be around 4%. Further the amount to be invested with SIDBI as per advice of RBI, exceeds the present liquidity available with the concerned banks. In that case banks may have to liquidate their investment in Govt. Securities & divert the funds to SIDBI, it argues.
It is to be noted that at present the cost of deposit of most of the Urban Co-operative Banks is near about 6%. Banks have invested the amount in Govt. securities @ 6% to 7%. The compliance of the direction will definitely cause loss to the UCB. Moreover, UCBs are facing the problems of provision for PA, it reminds the Minister.
It has already affected the profitability of UCB & implementation of this direction may force banks to cause heavy loss & ultimately affect the stability of CRAR of UCBs. This again will be a loss-making proposal for the concerned banks. We therefore feel it necessary to call for timely intervention in the matter, it argues.