RBI panel recommends revival fund, umbrella body for urban co-op banks

A working group set up by the Reserve Bank of India (RBI) has suggested the setting up of an umbrella organisation and the constitution of revival fund for urban cooperative banks (UCBs) in the country.

The working group, inter alia, also recommended the setting up of an emergency fund facility trusts at the states level to facilitate the emergence of a mutual support system and strengthen the UCB sector.

The primary (urban) cooperative banks (UCBs) in the country forms a heterogeneous group in terms of size and spread. Many of these banks are very small in size and reach. They compete with larger participants in the same banking space. Over the years, a number of UCBs have become weak and non-viable thus posing systemic risk to the UCB sector, RBI said in a release.

While some of the UCBs lack avenues for raising capital funds since they cannot go in for public issue of shares nor can they issue shares to members at a premium, there are a number of UCBs that are financially strong and viable. Some sort of cooperative bonding and mutual support system could make the sector strong and vibrant, the RBI pointed out.

Hence the need has been felt for an umbrella organisation to channelise their resources, aggregate their needs and also lend credibility through mutual support in the financial market. The working group constituted to examine issues relating to augmenting of capital of primary (urban) co-operative banks (UCBs) had also observed that it might be necessary to facilitate emergence of umbrella organisations for UCBs to enhance public confidence in the sector.

The working group has been set up to suggest measures, including the appropriate regulatory and supervisory framework, to facilitate emergence of umbrella organisations for the UCB sector in the respective states.