Investment portfolio of UCBs; debate rages among co-operators

The apex bank- RBI has sought feedback of UCBs through NAFCUB on a draft Master Directions on classification, valuation and operation of Investment portfolio of Urban Cooperative Banks which are to be submitted by NAFCUB to RBI.

Giving its feedback to the NAFCUB, AP Chapter has raised four points on the subject underlining that these points need to be accommodated for the benefit of UCBs in the country.

The APSCUBCS Federation writes “We are in receipt of NAFCUB Letter informing State Federations and Associations asking for comments/feedback on the draft Master Directions on classification, Valuation and operation of Investment portfolio of Primary (urban) Cooperative Banks which are to be submitted by NAFCUB to RBI. In this connection we list below 4 points, which, in our opinion, are required to be amended for the benefit of UCBs in the country.”

 The letter argues the Stipulation that transfers to and from HTM can be undertaken by UCBs only Once in an accounting year and that too at the beginning of the accounting year needs to be amended to twice in an accounting year and the timing of such shifting to be done as per the decision of the Board. This gives the banks necessary flexibility to make shifts based on market conditions. Further, such a move is not going to make any adverse impact on valuation of investments that are shifted.

 “The access to Repo market, which presently is restricted to only Scheduled UCBs, needs to be extended to all UCBs, or at least Tier – Ill UCBs which have a deposit base of more than 2.1000 crore. This would help the UCBs to access Repo Market for Short term Liquidity Management”, it underlines.

 The APSCUBCS Federation further says as investments made in the government securities is also a part of the banking business, the gains realised on sale of HTM securities may be permitted to be credited to Profit and Loss account instead of Creating Capital Reserve to augment the Profit.

On CD ratio, APSCUBCS Federation says “Regarding CD ratio – currently the CRR is 4.5% and SLR is 18%, bank should have flexibility of lending up to 78% of their Deposits, instead of placing a cap of 70% CD ratio.”

The letter is signed by Ch Raghvendra Rao, Secretary of APSCUBCS Federation.

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