Gujarat Urban Cooperative Banks Federation wrote a letter to Reserve Bank of India Governor Shaktikanta Das with regard to enhancement of Priority Sector Lending (PSL) targets & Compulsion to invest shortfall amount in SIDBI bonds for Urban Cooperative Banks.
To achieve priority sector targets at 75% of ANBC will surely sound the death knell for the UCB sector with the large number of UCBs stuck in the problem of non-achievement of PSL targets, says the letter.
In a letter signed by Gujarat UCBs Chief Executive Officer J V Shah wrote, “In our Gujarat region there are 62 UCBs that have been asked to deposit fund in RIDF and many of these UCBs have liquidity crunch and will have to sell their Government Securities at loss to deposit these funds”.
“You will kindly appreciate that sudden imposed changes in the business model and business strategies to be adopted by UCBs from their existing model to retail and small business only to achieve priority sector targets at 75% of ANBC will surely result in shrinking the share of the co-operative banking sector considerably more particularly when the target group for financing by different entities has been blurred to a large extent”, it reads.
It further reads. “With the implementation of directions issued by RBI in terms of their Circular dated 22nd February, 2023 directing to deposit shortfall in PSL lending, even the sound and healthy large UCBs may be rendered unprofitable and financially weak due to distress sale of SLR securities for compulsory deposit of shortfall in contribution of PL with SIDBI and other agencies as prescribed by RBI. It may also cause ALM mismatches creating chaos in the smooth functioning of UCBs in general”.
“The matter was also brought up and discussed in detail at the 35th meeting of SAC held on Jan 6, 2023 which was chaired by the Deputy Governor (MRR). It was submitted that some of the larger and best managed UCBs would lose heavily to the extent that they may go into net losses during the current financial year due to sudden and unreasonable decisions taken by RBI for all UCBs irrespective of their size even though UCBs are heterogeneous in character”, the letter asserted.
It further stated that the minutes of the SAC meeting indicate that RBI will revisit both the issues of enhanced PL targets and the problem of deposit of shortfall contribution with SIDBI etc. In fact RBI also agreed to examine the requirement of having 50% of the total loan amounts being those of less than Rs 25 Lacs or 0.2 percent of own funds subject to a maximum of Rs 1 cr”.
Accordingly, we have been given the impression that the requirements of reaching PL target fixed for all UCBs at 50% in 2022, 60% in 2023 and 75% in 2024 will be kept in abeyance till the issue is revisited and finalised. Further the requirement of investing the shortfall in PS will be reckoned to the existing target of attaining 40% of ANBC and not 50 or 60 percent.
In his letter Shah, requested to grant a personal hearing with the Deputy Governor to us along with representatives from NAFCUB and other State Federations to make a detailed presentation for consideration of RBI in view of the urgency in resolving the issue.