Connect with us

Hi, what are you looking for?

Cooperative Banking

NAFCUB urges RBI to postpone the order to invest further in SIDBI bonds

NAFCUB urges RBI to postpone the order to buy further SIDBI bonds

Concerned about the fact that urban cooperative banks (UCBs) are extremely apprehensive about the requirement of investing shortfall in SIDBI bonds within 15 days, Jyotindra Mehta, President, NAFCUB, has appealed to the RBI to ensure that the instruction to invest in SIDBI bonds is kept in abeyance until the RBI takes a considered view after interacting with stakeholders.

The UCBs are trying their best to meet the demand of the regulator to suddenly change the entire profile of their credit portfolio, built over many decades, in just four years. “RBI is even punishing the banks for shortfall by asking them to invest the amount of the gap in low yielding SIDBI bonds. This double whammy is practically unbearable for the banks,” stated Jyotindra Mehta in a letter addressed to RBI deputy governor M Rajeshwar Rao.

One of the most pressing challenges disturbing the sector and requiring immediate intervention is the achievement of higher PSL targets and the requirement to make up the shortfall by investing in SIDBI bonds, which yield meagre returns of bank rate less than 2%. NAFCUB has been pleading for restoration of the PSL limit to 40% as it was before, with the RBI and also with the ministry of cooperation. Mehta has further written in the letter: “The increase from 40% to 75% in PSL in itself does not stand any justification for a going concern. Just because SFBs are given certain loan limit and PSL percentages as precondition for issuance of banking licenses, to prescribe the same conditions to existing UCBs and completely disrupting their entire portfolio developed over decades of functioning is like injecting slow poison into their system.”

The NAFCUB President has listed a number of reasons for its two major demands:

i. UCBs operate in urban and semi urban centres where they do not get the entire range of economic activities of rural centres including agriculture and allied activities, making it impossible for them to achieve the enhanced target of 75%. On the other hand, commercial banks having rural reach to finance agriculture and allied activities are still required to have 40% PSL.

ii. UCBs are not members of SLBCs and the operations of the majority of banks are restricted to small geographical areas of operation approved by RBI. They are thus deprived of a major source of institutional framework for support in respect of PSL.

iii. It is very unreasonable of the Regulator to ask the banks to suddenly change the entire profile of their credit portfolio built over many decades, not realizing the destabilizing effect it would have on them. All the tier II banks (now tier II, III, and IV) will suffer badly. Asking for investing for the 2020-21 now in 2023 is a demand of retrospective nature that could be not insisted upon especially in the light of the devastating effect of covid pandemic upon the economy and micro enterprises during that period.

iv. To add to the difficulties the sub limits prescribed for weaker sections, and microenterprises are also challenges as there are cases of overall limit being achieved but sub limits having shortfall. The requirement of fulfilling sub limits targets may be waived.


Read more-

Don't miss our updates on your email

Subscribe to our Newsletter

PR Newswire