Non-scheduled Urban Coop Banks Seek Ease In Provisioning Norms

It is not just the depositors of the crisis hit Punjab and Maharashtra Co-operative (PMC) Bank who are seeking succour from the Reserve Bank of India.

Over 100 non-scheduled urban co-operative banks (NSUCBs) too want the RBI to alleviate the provisioning burden they will face in the event of their bulk deposits with this bank becoming non-performing due to non-receipt of interest or principal or both.

Fearing the impact on their bottomline, while some of the aforementioned banks are seeking waiver from provisioning if the principal (deposit) is not received (they are ready to make provisioning towards non-receipt of interest), others want the provisioning to be spread over a few quarters.

Following the massive loan fraud at PMC Bank, NSUCBs with deposits in this bank are now staring at the possibility of their deposits turning into non-performing investments.

NSUCBs can place deposits with scheduled UCBs (SUCBs) such as PMC Bank up to 5 per cent of their total liabilities as on March 31 of the previous year. Due to attractive interest rates offered by SUCBs, NSUCBs tend to place deposits with them.

Vinayak Y Tarale, Expert Director, Maharastra State Co-operative Banks' Association (MSCBA), said as per the information he has received so far from the Association’s member-banks, about 39 banks have deposits aggregating ₹252 crore with PMC Bank. While two are loss making, the profit of the remaining 37 banks put together is ₹232 crore.

“So, if these banks don’t get their money back, their entire profit will get wiped out. They will become weak.

“If the banks don’t receive quarterly interest on the deposits and the principal back on maturity then they will have to make 100 per cent provisioning,” said Tarale.

MSCBA has suggested to the RBI that it should exempt NSUCBs with deposits with PMC Bank from provisioning at least on the principal amount if it is not received on maturity.

Satish Marathe, Founder Member of Sahakar Bharati and Director on RBI’s Central Board, has urged Finance Minister Nirmala Sitharaman to give UCBs sufficient time to make provisions depending upon their profitability for the last three years.

When a bank, with paid-up capital and reserves of an aggregate value of not less than ₹5 lakh, and satisfies the RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors, is included in the Second Schedule to the RBI Act, 1934, it is classified as a ‘Scheduled Bank’. A bank not included in the Second Schedule to the RBI Act, 1934, is classified as a ‘Non-Scheduled Bank’.