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Compulsory investment in SIDBI bonds will affect UCBs: NAFCUB

Compulsory investment in SIDBI bonds will affect UCBs: NAFCUBIn a letter addressed to the RBI Governor, the NAFCUB has expressed its concern regarding the recent increase in the priority sector lending (PSL) limit for Urban Cooperative Banks (UCBs) from 40% to 75%. This increase was aligned with the prescribed limit for a new class of banks, but NAFCUB feels that it is neither just nor equitable, especially for UCBs.

The NAFCUB pointed out that the compulsory investment of the shortfall amount in low-yielding SIDBI bonds could have an adverse impact on hundreds of banks across various states. The fear is that these banks may get caught in a downward spiral that could ultimately lead to their demise. Therefore, NAFCUB believes that justice can only be done by reverting to the earlier norms, which were more favourable to UCBs.

The RBI through its circular dated February 22, 2023, addressed to all UCBs, has advised the banks to make an immediate investment as the demand of SIDBI, failing which it would be treated as a serious violation of the Master Direction on PSL. Jyotindra Mehta, president, NAFCUB (National Federation Of Urban Cooperative Banks And Credit Societies ) has informed the RBI in the letter: “It was argued from NAFCUB at the 35th meeting of SAC held on 6 January 2023 that the imposing change composition of the loan portfolio of running bank to the extent of 75% from 40% that too in just 3 years was not fair, and to further punish it for not complying, with the imposition of loss-making investment, was also not desirable. The chair agreed to review the instructions on new PSL norms and loan limits norms. The minutes clearly state that RBI will revisit the issues. Now we are surprised that RBI has issued the above circular letter threatening to act if the banks do not comply with the instructions, ignoring the discussions held in the SAC and the genuine problems being faced by banks.”

In the letter to the RBI, NAFCB has asked why it is necessary or considered sacrosanct for UCBs to follow the same norms as SFBs. The NAFCB has further submitted that there is a significant difference in character between SFBs and UCBs, making the SFB norms redundant for UCBs.


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