RBI mulls changes in co-op branch licensing norms

Mumbai, Oct 30 | Updated: Oct 31 2005, 05:54am hrs
Two years after imposing a freeze on branch expansions in the co-operative banking sector, the Reserve Bank of India (RBI) is once again planning to revive issuance of branch licences to select co-operative banks.

Sources close to the development said that the RBI is examining a proposal to issue branch licences to strong co-operative banks, classified as Grade-I banks, and which adhere to the criteria prescribed by the apex bank such as having a capital risk adjusted return (CRAR) of above 9%, and net non-performing assets (NPAs) of less than 10%.

However, these banks will be required to have an impeccable track record, they should not have been penalised or warned by the RBI regarding any kind of violation of laws and RBI directions.

The proposal is expected to come into force next financial year. "The RBI first wants more consolidation to happen in the co-operative banking sector, so that weak/sick banks are merged with strong banks. The idea is to reduce the number of sick entities, and to bring all co-operative banks under more prudential regulatory and accounting standards, make their functioning transparent, before allowing them to open new branches. Towards this, RBI has allowed co-operative banks to amortise the losses acquired on their books as a result of a merger, over a period of up to five years. This was announced in the mid-term review of the credit policy. Once the sector is cleaned up, RBI will once again allow some of the stronger, well run banks to expand by way of branch expansion," said the sources.

The Rethink
RBI is examining a proposal to issue branch licences to strong co-operative banks
Licences will be issued to banks classified as Grade-I
They should adhere to the criteria prescribed by the apex bank
RBI began reducing issuance of branch licences in fiscal 2003-04. In the last two years, RBI has not issued a single branch licence to any co-operative bank.

Banks, which are growing their business, have had no option than to acquire a weak or sick bank been put under RBI directions, to increase their branch presence and scale of operations.

Some of the merger proposals that have been granted by the RBI include the beleagured Maratha Mandir Bank's merger with Saraswat Cooperative Bank and the merger of the sick Standard Cooperative Bank with the strong multi-state Kalupur Commercial Cooperative Bank; a few more proposals are in the pipeline.