The RBI notice to UCBs on investing in various infrastructure bonds of SIDBI/RIDF, with almost a nil return, has created a situation of panic among the UCB fraternity. “Those UCBs which failed to achieve the target of Priority Sector lending (PSL) should invest in SIDBI”, reads the Farman sounding the death knell of co-op bankers.
It bears recalling that there are many UCBs, which have failed to meet the PSL targets for the year 2020-21 and 2021-22. Investment in these bonds gave a return of 2.5% and 4.5% for the years 2020-21 and 2021-22 respectively.
According to the figures received at the desk of Indian Cooperative, “In 2020-21, 22 Maharashtra UCBs received the notice from RBI. The shortfall amount in the said year is more than Rs 2000 crore whereas in 2021-22, 23 Maharashtra based UCBs didn’t not meet the PSL target. The shortfall amount in this year is around Rs 2500 crore.
The majority of UCBs, which received the RBI notices, are from under tier-3 (Deposits more than Rs 1k crore and up to Rs 10k crore) and Tier 4 (UCBs with deposits more than Rs 10k crore) category.
One of the cooperative banking experts said, “Blocking funds at lowest rates would have severe consequences and effects on the availability of funds for lending, NIM and profitability of the banks”.
“Further, many UCBs do not have sufficient liquidity to invest such a huge fund in these infrastructure bonds of SIDBI. In order to meet this shortfall, UCBs will have to raise funds for investment with SIDBI by liquidating SLR securities i.e. Government securities as a distress sale at lower market values by incurring huge losses”, he added.
Maharashtra State Cooperative Bank Federation Chairman CA Ajay Barmecha also wrote a letter to the secretary of Union Ministry of Cooperation and asked for his intervention in the matter. “We request you to kindly use your good offices to prevail upon the RBI that till the re-examination of the matter by the RBI, such allocation towards MSE Refinance Fund on account of PSL shortfall may be kept in abeyance’, his letter reads.
Besides the apex body of UCBs Nafcub, many state federations are opposed to this diktat. Even Nafcub President Jyotindra Mehta placed it aggressively during the 35th Standing Advisory Committee of RBI held recently.
Meanwhile, RBI instructed that at least 50% of such amounts need to be deposited within 15 days from the date of receipt of the letter from SIDBI.
It bears recalling that for 31st March 2020, the target for UCBs for lending advances under the PSL was 40 percent but now it has been enhanced to 60 percent and from 31st March 2024, it will be 75 percent.