In a meeting with Reserve Bank of India (RBI) deputy governor Vepa Kamesam on Thursday, the federations and associations of co-operative banks have also opposed some sections pertaining to capital adequacy, recapitalisation, imposing norms applicable to state-run banks on the co-operative sector and licensing.
The National Federation of State Co-operative Banks (Nafscob) managing director B Subrahmanyam said that the need for taking license by PACS under the section 22 of the proposed amendments will render them non-banks. The issue was raised in its meeting with the deputy governor, he added.
If amendments of Section 22 is approved then even partial banks like PACS, which collect deposits and disburse loans to the members, will have to seek a license from the RBI, which will almost be never forthcoming due to the stringent prudential norms that equal the co-operative banking sector to that of the commercial banks, Mr Subrahmanyam said.
The updated prudential norms for co-operative banks call for a minimum aggregate paid-up capital and reserves (networth) of Rs 25 lakh, even as some of the co-operative banks themselves are struggling for the last 10 years since 1992-93 to meet the earlier norm of aggregate capital and reserves of Rs one lakh, he added.
Thus, PACS will be the first to lose their deposit collective activities, which the government was trying to encourage. But the Centres proposal to push for amassing rural savings without deposit insurance has almost fallen flat. The Deposit Insurance and Credit Guarantee Corporations insurance does not cover the deposits of PACS, which is keeping their non-members from depositing their savings in the PACS, Mr Subrahmanyam said.
The new amendments to the Banking Regulation Act also envisages to impose the state-run bank management systems on co-operative banks by making it mandatory for these banks having a democratic process of electing their directors unlike nominations from the Centre for the state-run banks. The amendments propose that they should have experts with accounting, finance, science and technology and banking background on their boards.