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Cooperative Banking

NAFCUB requests Amit Shah to intervene: RBI must not equate UCBs with SFBs

Jyotindra Mehta, President of NAFCUB

NAFCUB has appealed to the ministry of cooperation to take up the matter with the RBI and help the urban banks that are distressed by the central bank’s insistence on prescribing the norms for UCBs, forcing them to invest in SIDBI bonds.

In a letter, Jyotindra Mehta, President of NAFCUB, has urged Amit Shah, the Union Home and Cooperation Minister, to request the RBI to abandon its fixation on treating UCBs and SFBs equally and to avoid imposing standards that are appropriate for new banks but not for established banks which are in existence for a number of decades and have settled profile of borrowers.

NAFCUB has been appealing to the RBI since 2020 that all the running UCBs will face great difficulty in complying with a steep increase in PSL from 40% to 75% within three years and also to change loan profile to have 50% of loan amount in accounts with not more than Rs 25 lakh in size. Such a thing could only be prescribed for new banks. NAFCUB has been in discussions with RBI on the above subject and the issues under this subject were deliberated in detail in the recent meeting of the Standing Advisory Committee (SAC) held on 6 January 2023.

NAFCUB stated: “It was agreed by the RBI that the two issues under this subject would be reviewed by RBI and the decision was confirmed in the minutes of the meeting. But to our surprise and dismay of the entire sector, RBI has reiterated that those banks who have not reached the figure of 50% PSL will have to invest the amount of shortfall in SIDBI bonds, a demand for which has already been received by banks directly from SIDBI. The interest paid on these bonds are so low that they are substantially less than average cost of funds of the banks, and banks would incur substantial loss with such investments. Banks may also lose in hurried sale of their govt securities for getting liquidity to purchase SIDBI bonds. By insisting on this compliance of investing with SIDBI bonds for a shortfall in reaching the revised targets of PSL, RBI is pushing many satisfactorily managed banks into difficulties that may make them weak and ultimately lead to their closure on RBI inflicting further regulatory restrictions on them.”
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