Privatisation of the co-operative banking sector is no solution: RBI’s Satish Marathe

Privatisation of the co-operative banking sector is no solution: RBI’s Satish Marathe

Satish Marathe, the Director of the Central Board of Reserve Bank of India since August 2018, has wide experience of banking especially co-operative sector. He is founder member of Sahakar Bharati, and was also its Chairman.

FPJ BureauUpdated: Monday, July 15, 2019, 02:20 PM IST
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Satish Marathe, the Director of the Central Board of Reserve Bank of India since August 2018, has wide experience of banking especially co-operative sector. He is founder member of Sahakar Bharati, and was also its Chairman. Sahakar Bharati is the largest NGO in the co-operative sector with association of over 20,000 cooperative institutions in India. He was Director on the board of some reputed cooperative banks. As the number of Urban Cooperative Banks (UCBs) declined (from 1,926 in 2004 to 1,551 in 2018), it is a moot question whether the RBI’s regulation on UCBs is responsible for this reduction, and to know more about future of cooperative banking sector, M B Ratnannavar spoke to Marathe in an exclusive interview.

Excerpts

1995-2005 saw great expansion of co-operative banking and more and more new UCB licences were granted, but now UCBs have reduced. What is the reason for this decline?

The RBI found in 1993-94 that licencing policy for UCBs has led to a sharp increase in number of UCBs. Later as signs of financial problems at UCBs became evident, it started appropriate regulatory and supervisory policies. RBI has promoted merger/amalgamation of weak but viable UCBs and closure of unviable banks. As a result, the number of UCBs declined. Maharashtra which had the highest number of UCBs accounted for larger number of mergers (72 UCBs), followed by Gujarat (31 UCBs).

After consolidation number of UCBs came down, their asset size increased manifold, underscoring the policy focus on strengthening their financial position. Consolidation has made shifts in the distribution of UCBs in terms of deposits over the decade ending 2017-18. There was small decline in the share of UCBs with deposit base in the range of up to Rs 0.25 billion, it has increased sharply in the range of Rs 1 to Rs 2.5 billion and above.

Is dual regulators’ regulations (RBI and Commissioner of Cooperation) of the states affecting the growth, development and expansion of cooperative banking sector?

No, it is not. Cooperative Act of today is out of tune to the current financial situation of the cooperative sector. It hinders the sector in the country. Rather than promoting growth and development of the sector, this Act is focussed towards control and regulation resulting in unavoidable intervention. This Act does not give Urban Cooperative Banks operational freedom and level playing field. This Act by its very nature restricts tapping of capital which is necessary for bank’s technology upgradation and risk mitigation.

If the co-operative sector has to succeed in the country, state governments have to enact new Act which will free the cooperative sector from the vested interests. Some co-operative banks are unable to exchange the money collected during demonetisation process. Is it true?

Authorised co-operative banks that collected old Rs 500 and Rs 1,000 notes during demonetisation have been exchanged by the RBI. But those District Central Cooperative Banks (DCCBs) which were not authorised to change, collected the old notes assuming that all cooperative banks are authorised, have faced the problem. Only Urban Cooperative Banks were authorised by RBI and not the DCCBs.

Did your letter dated May 2016 to former RBI Governor on the need to streamline and strengthen the co-operative banking sector, have any effect?

As patron of Sahakar Bharati, I wrote to former RBI Governor (Raghuram Rajan) on May 9, 2016, welcoming his initiatives on the need to streamline and strengthen the working of cooperative banks. I requested him to: Initiate review of the working of the UCBs and put in place a vision document along with a roadmap for growth and development of urban cooperative banking sector. Based on the experience of last few years review and recommend modifications to the present provisions of the MOUs between the RBI and the state governments to improve governance and to reduce the external intervention in the working of cooperative banks. Propose amendments to Banking Regulation Act to empower RBI to be able to regulate the co-operative banking sector as the present provisions as applicable to co-operative societies were made applicable in 1966. It is our considered view that privatisation of the co-operative banking sector is no solution to the constraints and challenges being faced by these banks.

UCBs are looking forward on relief for co-operative banks, and creation of Investment Fluctuation Reserve (IFR). Has Sahakar Bharati taken up this issue?

Our Sahakar Bharati’s National General Secretary, Uday Joshi had written to Urjit Patel, the then Governor. The letter dated April 17, 2018, appreciated the RBI's decision to extend its helping hand to commercial banks and new small finance banks and also pointing out its negative impact on the UCBs.

Has RBI’s draft guidelines on Board of Management (BOM) created confusion in the minds of UCBs?

I am personally of the view that this is a duplication of management which has lead to confusion. The proposed Board of Management (BOM) is like any other Committee of the Board of Directors (BOD). Naming it as BOM rather than a Committee of BOD sounds like instituting another parallel layer engaged in similar functions. This will result in duplication, consequent delays and disharmony in the overall working of the UCB Sector.

Our Sahakar Bharati's President has also taken up this issue by sending a letter to CGM, RBI Department of Cooperative Banking Regulation, RBI on July 19, 2018, vehemently opposing compulsion to form BOM. At this stage, it is neither necessary nor desirable as it will neither help the sector nor the regulator in any way. I am sure, this half-baked concept should not be forced on the UCB sector.

Which is your vision for co-operative sector?

I am fully supportive to the co-operative banking sector. I would like to work towards transforming the co-operative sector into a modern financial entity driven by technology and innovative products. I shall work for ensuring change in the co-operative laws and the Banking Regulation Act for speedy growth of well-capitalised UCBs and to empower the RBI fully to regulate the UCBs. UCBs should focus on capacity building.

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