Co-operatives oppose RBI plan to turn them into private banks

The Karnataka State Co-operative Urban Bank Federation has opposed the recommendation of an RBI panel that co-operative banks with a turnover of more than Rs 20,000 crore be converted into commercial, private banks or joint stock companies.

The federation warned that this would shrink the business prospects of the co-operative sector, and co-operative banks would not be able to serve the poor, the working and middle class.

Briefing reporters here on Monday, Rural Development and Panchayat Raj Minister H K Patil said the panel’s terms of reference reflected a well-thought-out plan of the RBI to enure shrinkage of the sector to the point of making it insignificant in terms of the share of banking business. Between 2006 and 2014, the sector made remarkable improvement, connecting well with the poor and middle class.

“Forget encouraging expansion of the sector, the RBI hasn’t issued licences for the establishment of new urban co-operative banks for over a decade now. Many small urban banks could have been revived. Depositors having Rs 1 lakh insurance limit have been left in the lurch,” Patil said.

In its annual report, the RBI said it had already started converting co-operative banks with high deposits into commercial banks by convincing the Central government to amend the Multi-State-Co-operative Societie Act 2002, to enable the conversion.

It is commonly known that shares held by members of a co-operative do not have the concept of book value or market value as the reserves are neither distributable among members nor the shares traded like those of companies.

The RBI panel also stated that the capital base of a co-operative society should be comparable with that of a commercial/private bank. While the earlier Malegam committee recommended a capital base between Rs 50 lakh and Rs 5 crore, the new R Gandhi panel has recommended that even district UCBs have a minimum capital of Rs 25 crore. Such a move will mean hardly any new UCBs are licensed in future, Patil warned.