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Regulator imperative for urban co-op banks: RBI

BS Banking Bureau

CREDIT POLICY

The RBI has again mooted the idea of an apex supervisory body to take over the inspection/supervisory functions relating to scheduled and non-scheduled urban co-operative banks in consultation with the central government.

The government, however, has been lukewarm to the proposal.

The central bank said the events during the last two years have made clear that the present system of dual/triple regulatory and supervisory controls (involving Centre, states and the RBI) was not conducive for efficient functioning of the co-operative banks in the interest of their depositors.

"In the past, several committees have also recommended the elimination of multiple layers of supervision and regulation of this sector," the central bank said.

It added that because of the involvement of local interest, there is no consensus at present in favour of removing supervisory and regulatory responsibilities at Central/state government levels, and for entrusting it exclusively to RBI.

"Due to this, the managements and boards of several co-operative institutions continue to reflect political interests and are not always amenable to normal banking discipline in their operations," the apex bank said.

The RBI said it would be best in the interest of the public depositors, if the situation is faced squarely and a separate supervisory authority is set up, with representatives of Centre, states and other interested elements.

"Such a body can then be exclusively made responsible for efficient functioning of the co-operative institutions, and also take responsibility for ensuring the safety of public deposits," the central bank said.

The RBI had put in place supervisory ratings - CAMELS model for commercial banks and CACS model for foreign banks - to assess their performance. In 1999, an on-site inspection based on CAMELS model was extended to UCBs as an additional tool for supervision.

According to the RBI, in the light of recent experience, as UCBs are members of the payment system and also beneficiaries of deposit insurance scheme, it is felt that there is a need to further strengthen the supervisory regime for UCBs.

The RBI had constituted a working group in October 2001 to evolve a suitable rating model for UCBs taking into account their operational characteristics.

The group has submitted its report on March 23, 2002. The central bank has said the recommendations of the group are being examined and necessary guidelines would be issued in due course.

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