New UCBs should open branches in unbanked areas: RBI panel

UCBs play a useful role and there is need for a greater presence of UCBs in unbanked districts and in centres having population less than 5 lakh, an RBI panel headed by YH Malegam said in the report

Mumbai: Acknowledging the importance of urban co-operative banks (UCBs) for financial inclusion, a Reserve Bank of India (RBI) panel on Monday suggested that new entrants should be encouraged to open banks and branches in unbanked or inadequately banked area, reports PTI.

UCBs play a useful role and there is need for a greater presence of UCBs in unbanked districts and in centres having population less than 5 lakh, a Reserve Bank of India (RBI) panel headed by YH Malegam said in the report.

“It is necessary to encourage new entrants to open banks and branches in states and districts which are unbanked or inadequately banked,” it said.

It is equally necessary to discourage new entrants from opening branches in districts and population centres which are already adequately banked, it said.

The panel also emphasised that the existing well managed co-operative credit societies meeting certain financial criteria like profits, capital adequacy, NPAs’ proportion, etc should be given priority for granting licences as urban co-operative banks particularly in unbanked or inadequately banked centres.

As far as capital requirement is concerned, the panel suggested minimum paid-up capital of Rs 5 crore, up from Rs50 lakh depending on the area of operation.

UCBs which wish to operate in more than one state after five years of successful operations, the panel recommended a minimum paid-up capital of Rs5 crore.

It also suggested that there should be segregation of the ownership of the UCB as a co-operative society from its functioning as a bank.

The new organisation structure shall consist of a board of management (BoM) in addition to the board of directors (BoD), it said, adding, the BoD would be elected in accordance with the provisions of the respective Co-operative Societies Acts.

The BoD will establish a BoM, consisting of persons with professional skills, which shall be entrusted with the responsibility for the control and direction of the affairs of the bank assisted by a CEO who shall have the responsibility for the management of the bank, it said.

The CEO shall be responsible for the management of the whole or substantially the whole of the affairs of the UCB but shall be subject to the control and direction of the BoM. The appointment of the CEO shall be subject to the prior approval of RBI, it said.

It also suggested that there should be two separate umbrella organisations, viz a national-level organisation which provides payments and settlement services and other services normally provided by central banks as also liquidity support to its members; and one or more organisations which provide the management and IT which the UCB sector needs.

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RBI gives freehand to banks for revival of sick MSEs

Withdrawing its earlier notifications that directed commercial banks to stick to the guidelines for revival of a sick SSI unit, the RBI has advised banks to put in place their own board-approved restructuring and rehabilitation policy for revival of viable or potentially viable sick MSE units or enterprises

Mumbai: The Reserve Bank of India (RBI) on Monday asked banks, barring regional rural banks, to chalk out a restructuring and rehabilitation plan for revival of sick micro and small enterprises (MSEs), reports PTI.

“Banks are advised to put in place their own board-approved restructuring and rehabilitation policy for revival of viable or potentially viable sick MSE units or enterprises,” the RBI said in a circular yesterday.

With this, the central bank withdrew its earlier notifications that directed commercial banks to stick to the guidelines for revival of a sick SSI unit.

However, the central bank maintained that commercial banks can lend below base rate in case of a restructured loan of a sick SSI unit.

“In case of restructured loans if some of the WCTL (Working Capital Term Loan) and FITL (Funded Interest Term Loan) need to be granted below base rate for the purpose of viability, such lending by scheduled commercial banks will not be construed to be a violation of the base rate guidelines,” the central bank said.

As per the RBI norms, banks are barred from lending below base rate to borrowers.

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Weak IIP numbers: Industry asks RBI to halt rate hikes

“Any increase in interest rates at this stage will directly impact capacity additions and job creation. Monetary tightening measures to combat the stubbornly high inflation could also have long-term ramifications,” Assocham secretary general DS Rawat opined

New Delhi: Concerned over slowdown in industrial production growth, which plunged to a 21-month low of 3.3% in July, industry on Monday called upon the Reserve Bank of India (RBI) to halt its policy of hiking interest rates, reports PTI.

“The July Index for Industrial Production (IIP) data was disappointing and vindicates our expectation that the industrial sector will continue to show weak performance... CII urges the RBI to refrain from raising interest rates at its forthcoming monetary policy meeting,” CII director general Chandrajit Banerjee said.

The July data was disappointing as compared to a healthy 9.9% growth in the year-ago period. Also, the IIP grew by 8.8% in June.

The capital goods sector was the worst performer with a decline of 15.2% during the month, reflecting erosion of investor confidence. Manufacturing and mining were other laggards.

“CII is concerned about the investment outlook, given the weakness in the capital goods sector. The outlook for the sector remains weak, given that order books of capital goods companies are showing signs of moderation,” Mr Banerjee said.

The chamber asked the government to fast-track the implementation of key projects.

Ficci termed continuation of negative growth in sectors like chemicals, textiles and apparels as a cause for concern and said government should provide relief to the industry by lowering the interest cost burden.

“The situation is indeed serious as both manufacturing and mining sectors’ growth has dipped significantly vis-à-vis last year, and unless corrective policy actions are taken we may enter the negative territory soon,” Ficci secretary general Rajiv Kumar said.

The slowdown in factory output is worst since October 2009 when it grew at 2.3% when the economy was reeling under the impact of the global financial crisis.

The slowdown is being attributed to high interest rates and worsening global economic scenario.

RBI, which has raised key interest rates 11 times since March 2010, is scheduled to review the rates again on 16th September.

Inflation has been above the 9% mark since December 2010 and experts have said the August number, which is to be released on 14th September, is likely to be near double-digit, thus putting further pressure on the apex bank to continue with its policy of monetary tightening.

“Any increase in interest rates at this stage will directly impact capacity additions and job creation. Monetary tightening measures to combat the stubbornly high inflation could also have long-term ramifications,” Assocham secretary general DS Rawat said.

The PHD Chamber also asked the RBI to halt its monetary tightening and said any further rate hikes will affect both the industry and the overall economy.

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