The apex body of Urban Cooperative Banks and Credit Societies President Jyotindra Mehta wrote a letter to Union Cooperation Minister Amit Shah in connection with the issue of imposing Small Finance Bank lending norms on Urban Cooperative Banks of RBI.
In his letter Mehta wrote, “In 2020 RBI issued a circular to all UCBs detailing guidelines for voluntary conversion of UCBs to SFBs. It had perhaps envisaged that all the large banks, which were eligible, would apply for conversion. However, only two UCBs came forward and were accorded permission to become SFBs”.
“RBI was perhaps surprised that notwithstanding the obvious benefits of prospects of conversion like having the entire country as area of operation, opening branches anywhere any time and becoming a part of the mainstream banking system with greater visibility, UCBs were not coming forward for conversion”, Mehta added.
Nafcub President further added, “Disappointed that urban banks are not converting to SFBs, RBI decided to introduce the SFB loan norms to UCBs also. NAFCUB has been submitting to RBI from 2020 itself that the all the running UCBs will face great difficulty in complying with steep increase in PSL from 40% to 75% within 3 years and also to change loan profile to have 50% of loan amount in accounts with not more than Rs 25 lacs in size”.
“Such a thing could only be prescribed for new banks. As stated above, this issue was discussed at length in the SAC meeting and RBI agreed to review it. We all presumed that at least till such time the final decision was taken after review, which we felt would definitely be on the lines of our submission, there would be no action”, he asserted.
”It is our earnest request that RBI be kindly prevailed upon to disband its obsession to equate UCBs with SFBs and not prescribe norms that are alright for new banks and not those banks which have been in existence for a number of decades and have settled the profile of borrowers. It is amounting to punishing them for no fault of theirs” Mehta said.
“We look forward to the Ministry of Cooperation under your guidance to take up the matter with RBI and help the urban banks that are distressed by RBI’s insistence on prescribing norms for them and forcing them to invest in SIDBI bonds”, Mehta’s letter concludes.