RBI to lay down prudential norms for coop banks
Mumbai: The RBI says that now cooperative banks (scheduled and non scheduled) will also have to apply minimum capital adequacy requirements among other prudential norms. This has been one of the fallouts of
the Madhavpura bank crisis. These norms were so far
applicable only to commercial banks. Scheduled and non-scheduled cooperative banks have to achieve a capital adequacy ratio of nine per cent and seven per cent respectively. The RBI is expected to fix a timeframe of March 2002 for this.
The RBI has said that banks, which find it difficult to meet the prescribed CAR, may be allowed to raise subordinated debt - in the form of tier II bonds bonds - to meet the CAR.
 
Sources indicated that the RBI might also stipulate that until cooperative banks attain the CAR norms, they would be required to transfer 50 per cent of their net profits to the reserve fund. Besides this, there will be restrictions on paying out dividend for banks, which fail to meet the CAR prescriptions. These measure are aimed at enabling the bank to meet the stipulated requirements.
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Imminent CRR cut unlikely: JP Morgan
Mumbai: In its report JP Morgan has said that though a reduction in the cash reserve ratio (CRR) will be in line with the Reserve bank of India’s (RBI) stated medium-term objective, immediate action on this seems improbable. Given the turmoil in regional currency markets, the RBI should be more cautious before easing
either the CRR or the repo rate. It said that, “Overnight rates were fairly volatile in the past week touching a temporary high of 15 per cent on March 31 mainly due to financial year-end considerations. In the coming weeks too, though there appears to be ample liquidity, outflows towards government auctions and uncertainty about primary dealers refinance limits could keep call money rates
volatile. Neveretheless, overnight rates are unlikely to break the nine per cent mark over the next fortnight.” High overnight rates towards end-march pushed up cut-off yields on treasury bills (T-bills). Auction yields have risen by 20 to 50 basis points (bps) in the past couple of weeks. The steepest rise has been in case of 14-day and 91-day T-bills, which are more, affected by tight call money markets than the longer tenure T-bills. “Going forward, while cut-off yields might decline somewhat from current levels, the
chances of a sharp decline seem limited”, JP Morgan said.
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RBI and RoCS initiate special probe into all Mumbai
co-op banks
Mumbai: In a move aimed at preventing further crisis in the financial markets, the Reserve Bank of India (RBI) and the Registrar of Cooperative Societies (RoCS) have decided to conduct a special inspection of all Mumbai-based cooperative banks beginning next week. With the entire banking industry in a crisis following the scam relating to the Gujarat-based Madhavpura Mercantile Cooperative Bank (MMCB) this move assumes special significance. Sources said that this was a special inspection related to the present crisis and was not part of the usual routine checks.
While the decision to conduct the special inspections has been taken jointly, both the regulatory authorities will conduct the inspections separately and as the cooperative banks enjoy a dual system of control over their operations, the RBI will conduct
the inspection relating to the financial fundamentals whereas the administrative details will be scrutinised by the RoCS. Regarding their financial details, the inspection will be done so as to check whether any bank has violated any limits prescribed by the RBI relating to loans, deposits, investments, capital market exposures,
inter-bank exposures, RBI’s statutory requirement limits etc. After the RBI inspection, the RoCs will start the administrative audit involving scrutiny of management control — specifically on matters relating to the board of directors, management, scrutiny of the
loans passed, mortgages taken, or whether approvals for various investments have been duly obtained.
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