Urban co-op banks want RBI to relax call, equity dealing norms

Leena Baliga

Mumbai, May 17: THE National Federation of Urban Co-operative Banks (Nafcub) has requested Reserve Bank of India (RBI) governor Bimal Jalan, to reconsider its decision on various issues concerning UCBs’ borrowings in the call money market, withdrawal of facility of loans against shares and acceptance of pay-orders by other commercial banks.

UCBs have requested the RBI to take up this matter further with the Indian Banks’ Association (IBA) as they feel that commercial banks are taking advantage of the present situation and in the process, are trying to wean away deposits from UCBs. The RBI has cautioned UCBs that commercial banks may henceforth accept pay-orders and other instruments for discount only after evaluating the credit-risk involved. The memorandum send to the RBI by Nafcub stated: “What is disturbing is the the attitude of commercial banks as they all seem to have ganged up against UCBs. All commercial banks have uniformly been refusing to even accept pay-orders and other instruments drawn by UCBs for credit to their account holders on realisation.”

It is also observed that commercial banks are not dealing with them either in the call money market or in government securities. Further, UCBs have requested the RBI that a cap on borrowings made in the call money market should be increased to 5 per cent from 2 per cent of their aggregate deposits of the previous year-end. The memorandum stated: “This cap is, however, not applicable to the Apex Bank of UCBs of Maharashtra & Goa and other scheduled co-operative banks. Many smaller urban banks regularly park their very short-term surplus funds with the apex Bank, which in-turn lends them in the call money market as they do not have access to the market and their surpluses are also small. So the cap should not be made applicable to these smaller banks.”

UCBs have also asked the RBI to reconsider its decision to withdraw the facility of loans against shares to the UCBs.