abhishreshthaa
Abhijeet S
The High Power Committee
The Reserve Bank of India appointed a High Power Committee in May 1999 under the Chairmanship of Shri K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh, to review the performance of Urban Cooperative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the Committee, the
Committee identified five broad objectives:
to preserve the cooperative character of UCBs
It is necessary to recognise the strengths and weaknesses of urban cooperative banks in the field of much needed micro credit and how best to foster and encourage UCBs in rendering this service to the small borrower who is not as welcome at the doors of commercial banks, as at the hands of UCBs.
The representatives of UCBs and their federations constantly claim that they have a distinct role in the banking sector as they and the small borrower are made for each other and that any amount of expansion of branch net work of commercial banks, including RRBs, will not solve the problem of the small borrower without the presence of UCBs
to protect the depositors’ interest
An UCB is not like any other cooperative society. The good and bad aspects of a normal cooperative society benefit or harm only its members, since these societies are organised and run by the members and for the members. But UCBs do more than that. UCBs accept deposits from the public and, hence, their actions affect the interests of the depositors.
Since depositors place their funds with UCBs in good faith, the UCBs become trustees of the depositors’ money. Hence, service to depositors becomes a higher duty than service to members. Thus, the moment a cooperative society graduates into a bank, its actions and discipline have to be judged in altogether a different context
to reduce the systemic risks to the financial system
to put in place strong regulatory norms at the entry level so as to sustain the operational efficiency of UCBs in a competitive environment and evolve measures to strengthen the existing UCB structure particularly in the context of ever increasing number of weak banks and ;
to align urban banking sector with other segments of banking sector in context of prudential norms and removing the irritants of dual control regime.
Terms of Reference :
The committee worked on the following terms of reference:
i) To evolve objective criteria to determine the need and potential for organising urban cooperative banks, review the existing entry point norms and examine the relevance of special dispensation for less/least developed areas etc.
ii) To review the existing policy pertaining to branch licensing and area of operation of urban cooperative banks.
iii) To consider measures for determining the future set up of weak/unlicensed banks.
iv) To examine the feasibility of introducing capital adequacy norms for UCBs.
v) To examine the need for conversion of cooperative credit societies into primary cooperative banks.
vi) To suggest necessary legislative amendments to B.R.Act and Cooperative Societies Act of various states for strengthening the urban banking movement.
Based on recommendations of the Committee the RBI has revised the policy applicable to UCBs. The details of policy review are summarised as below:
1. Branch Licensing
2. Unit Banks
3. Extension of Area of Operation
4. Genesis and Architecture of UCBs
5. Extension Counters
6. Capital Adequacy Norms
7. Classification of UCBs
8. Investment of Funds
9. Operations in Call/Notice Money Market
10. Limits on discounting of Pay Orders
11. Equity Finance
12. Other Investments
13. Classification & Valuation of Investment
14. No Abridged Names
The Reserve Bank of India appointed a High Power Committee in May 1999 under the Chairmanship of Shri K. Madhava Rao, Ex-Chief Secretary, Government of Andhra Pradesh, to review the performance of Urban Cooperative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the Committee, the
Committee identified five broad objectives:
to preserve the cooperative character of UCBs
It is necessary to recognise the strengths and weaknesses of urban cooperative banks in the field of much needed micro credit and how best to foster and encourage UCBs in rendering this service to the small borrower who is not as welcome at the doors of commercial banks, as at the hands of UCBs.
The representatives of UCBs and their federations constantly claim that they have a distinct role in the banking sector as they and the small borrower are made for each other and that any amount of expansion of branch net work of commercial banks, including RRBs, will not solve the problem of the small borrower without the presence of UCBs
to protect the depositors’ interest
An UCB is not like any other cooperative society. The good and bad aspects of a normal cooperative society benefit or harm only its members, since these societies are organised and run by the members and for the members. But UCBs do more than that. UCBs accept deposits from the public and, hence, their actions affect the interests of the depositors.
Since depositors place their funds with UCBs in good faith, the UCBs become trustees of the depositors’ money. Hence, service to depositors becomes a higher duty than service to members. Thus, the moment a cooperative society graduates into a bank, its actions and discipline have to be judged in altogether a different context
to reduce the systemic risks to the financial system
to put in place strong regulatory norms at the entry level so as to sustain the operational efficiency of UCBs in a competitive environment and evolve measures to strengthen the existing UCB structure particularly in the context of ever increasing number of weak banks and ;
to align urban banking sector with other segments of banking sector in context of prudential norms and removing the irritants of dual control regime.
Terms of Reference :
The committee worked on the following terms of reference:
i) To evolve objective criteria to determine the need and potential for organising urban cooperative banks, review the existing entry point norms and examine the relevance of special dispensation for less/least developed areas etc.
ii) To review the existing policy pertaining to branch licensing and area of operation of urban cooperative banks.
iii) To consider measures for determining the future set up of weak/unlicensed banks.
iv) To examine the feasibility of introducing capital adequacy norms for UCBs.
v) To examine the need for conversion of cooperative credit societies into primary cooperative banks.
vi) To suggest necessary legislative amendments to B.R.Act and Cooperative Societies Act of various states for strengthening the urban banking movement.
Based on recommendations of the Committee the RBI has revised the policy applicable to UCBs. The details of policy review are summarised as below:
1. Branch Licensing
2. Unit Banks
3. Extension of Area of Operation
4. Genesis and Architecture of UCBs
5. Extension Counters
6. Capital Adequacy Norms
7. Classification of UCBs
8. Investment of Funds
9. Operations in Call/Notice Money Market
10. Limits on discounting of Pay Orders
11. Equity Finance
12. Other Investments
13. Classification & Valuation of Investment
14. No Abridged Names