In a recent letter addressed to Reserve Bank of India Governor Shaktikanta Das, Gujarat Urban Cooperative Banks Federation has stated that even the sound and healthy large UCBs may be rendered unprofitable and financially weak due to distress sale of SLR securities for compulsory deposit of shortfall in PSL with SIDBI and other agencies as prescribed by RBI. It may also cause ALM mismatches creating chaos in the smooth functioning of UCBs in general.
Meeting priority sector targets at 75% of Adjusted Net Bank Credit (ANBC) will indeed sound the death knell for the UCB sector with the large number of UCBs stuck in the problem of non-achievement of PSL targets, says the letter, signed by Gujarat UCBs Chief Executive Officer JV Shah. In Gujarat there are 62 UCBs that have been asked to deposit funds in RIDF. The letter adds: “Many of these UCBs have liquidity crunch and will have to sell their Government Securities at a loss to deposit these funds. The suddenly imposed changes in the business model and business strategies to be adopted by UCBs will surely result in shrinking the share of the cooperative banking sector.”
In his letter, Shah requested a personal hearing with the RBI Deputy Governor, along with representatives from NAFCUB and other state federations to make a detailed presentation in view of the urgency of resolving the issue.
