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RBI proposes to remove borrowing-share subscription linkage
By siliconindia
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Friday, 05 November 2010, 00:05 IST
Mumbai:Reserve Bank on India proposes to remove the restrictive clause that required borrowers to mandatory subscribe to the shares of Urban Co-operative Banks(UCBs).The proposal allows UCbs to lure corporate clients.
Corporate borrowers refrained from talking loans from UCBs as they required to subscribe to a bank's share capital to the extent of 2.5 per cent of the value of the loan.In the case of unsecured loans, the subscription is five per cent of the loan value. The subscription to the share capital is, however, subject to a cap of Rs 5 lakh.
"Once the share subscription-borrowing norm goes, UCBs, to an extent, could be reckoned at par with public and private sector banks. Large borrowers will be encouraged to bank with us," said Mr Jyotindra Mehta, Chairman, Gujarat Urban Cooperative Banks Federation.
In order to curb political and state bureaucratic interference in the functioning of UCBs, the RBI appears to have found a via media. It proposes to withdraw the existing restrictions on granting multi-state status for UCBs having a minimum net worth of Rs 50 crore. Once a UCB turns into a multi-state co-operative bank, it will be governed by the liberal Multi-State Co-Operative Societies Act and interference by local politicians and registrar of state co-operative societies could be minimised.
Further, the RBI, in its second quarter review of the monetary policy, said it will allow extension of the area of operation beyond the state of registration for UCBs with a minimum net worth of Rs 50 crore.
To encourage mergers and acquisitions within the co-operative sector, the RBI plans to allow UCBs (with a minimum Rs 50 crore networth) which have acquired weak banks in other State(s) to extend the area of operation to the entire state of registration of the target bank.