UCBs seek relaxation of SLR norms

Leena Baliga

Mumbai, May 15: THE National Federation of Urban Co-operative Banks (Nafcub) has submitted a proposal to the Reserve Bank of India’s (RBI) governor, Bimal Jalan, requesting the central bank to review its earlier decision whereby it had directed that scheduled urban co-operative banks (UCBs) as part of their statutory liquidity ratio (SLR) requirements, have to invest at least 20 per cent in government and other approved securities. “The envisaged changes in the investment pattern whereby a good number of urban banks having NDTL of Rs 25 crore and above will be required to invest the bulk of their SLR funds in government securities and the rest will be required to keep government securities to the extent of 10 per cent of their NDTL (ie 40 per cent of their SLR investments), which will inadvertently affect the profitability of all urban banks,” says the Nafcub memorandum.

The high power committee, in its recommendations, had sought to introduce a third option to essentially help small urban banks by concurring with the idea of scheduled urban co-operative banks being designated to keep SLR deposits of other urban banks. However, the possible adverse effects on the apex bank, SCBs and DCCBs made the committee recommend the examination of this aspect before accepting the recommendations.

Said Nafcum: “The smaller banks with less than Rs 25 crore of NDTL are neither equipped to deal in government securities, nor will their holdings be large enough for them to do any trading in order to earn better returns than the interest that is offered by the DCCBs and SCBs. The PCBs and PDs cannot be expected to take any small requirements of these UCBs.”

It further stated that banks with NTDL above Rs 25 crore will be in greater problems as they necessarily have to go through PCBs and PDs and open constituent SGL accounts with them.

Most of these banks are in district centres and towns where these facilities are not available at all. The premise that primary dealers and PCBs in districts offer such facilities is incorrect.

“There is already lot of confusion in respect of taxability of the interest income derived out of investments in government securities by UCBs. A higher level of these investments before the issue of taxability is settled will only add to the problems of urban co-operative banks and increase harassments by income tax authorities,” the memorandum stated.