Search the Internet          Tips  Sites: Finance, Investment

Maharashtra plans to cap co-op rates

K Ram Kumar

The Maharashtra government is planning to put a cap on interest rates offered on deposits as well as advances by the primary urban co-operative credit societies.

The objective behind the move is to force the societies to offer market-related deposit rates and bring down the high advance rates.

This will, in turn, enable the urban co-operative banks to bring down the cost of both the assets and liabilities.

The UCBs, which directly compete with these societies, are forced to offer high deposit rates. The state government move may help realign the rates.

PUCCS, which number around 2,000 in the state, offer interest rates as high as 17 per cent per annum on deposits, thanks to the fact that they are not subject to pre-emption of resources by way of statutory liquidity ratio or the cash reserve ratio. These societies have Rs 100 billion by way of deposits.

PUCCS function more or less like banks except they cannot issue cheques.

In view of this scenario, an 'uneven playing field' has come into being between the societies and the UCBs (subject to SLR and CRR) as far as attracting depositors is concerned.

"In view of the high interest rates on deposits offered by these societies, the UCBs are unable to reduce their interest rates.

Consequently, the UCBs are unable to pare their lending rates despite the fact that the Reserve Bank of India has done away with the concept of 'minimum lending rate' (which at 12 per cent was constraining the UCBs from extending credit to good corporate borrowers at competitive rates)," said a seasoned co-operative banker.

On the assets front, the lending rates of the PUCCS are steep and hover in the 18-21 per cent per annum range.

"Majority of the debtors in these societies are those who do not have access to the formal banking channels. The loan sanctioning procedure is also simple," said the banker.

Powered by

ALSO READ:
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report