As many as 277 urban co-operative banks (close to a fifth of the total UCBs) have “weak” financial status, finance minister Nirmala Sitharaman told the Lok Sabha on Wednesday. She was explaining the reason for coming out with a Bill to bring urban and multi-state co-operative banks under the central bank’s regulations. The idea was to better protect the interests of depositors and avoid a PMC Bank-like crisis in future.
“The financial status of 277 urban cooperative banks is weak; 105 cooperative banks are unable to meet the minimum regulatory capital requirement and 47 banks have net worth in negative,” Sitharaman said. As many as 328 UCBs have gross non-performing asset of more than 15%, she added. The Covid-19 pandemic has hit most of them much harder than the commercial banks.
There are 1,482 urban and 58 multi-state co-operative banks in the country with 8.60 crore depositors, having total savings of close to Rs 5 lakh crore.
The Banking Regulation (Amendment ) Bill, which was passed by the Lok Sabha on Wednesday, seeks to enable the Reserve Bank of India (RBI) to make a scheme for restructuring a stressed bank without imposing a moratorium on the withdrawal of deposits. It will also help the central bank better scrutinise the affairs of these co-operative banks. Once made into a law, it will replace an Ordinance, which was promulagated in June.
The minister said the government had to promulgate an ordinance because the financial health of many of the co-operative societies that were performing as banks was becoming “very delicate”.
The crisis in the co-operative banking sector flared up last year when PMC Bank was found to have given over `6,700-crore loan to a single realty company HDIL through alleged fraudulent means. It also hid the stress from the RBI by creating separate books of accounts. The crisis hit millions of its depositors, mostly small ones.
“For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors. Because these banks have fallen into hard days requiring therefore the regulator to bring a moratorium and to solve the problem seems to consume all the time,” Sitharaman said.
Earlier this week, Sitharaman cited the case of PMC Bank where depositors couldn’t withdraw their money beyond a limit for months, as the central bank had to impose a moratorium in September 2019 due to a non-performing asset crisis there.
The proposed amendments, however, are not applicable to primary agricultural credit societies, cooperative land mortgage banks and any entities which did not use the terms ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business.