RBI guidelines spoil party of depositors in co-op sector

RBI guidelines spoil party of depositors in co-op sector

                                                                                      

BEWARE, this would be difficult for the depositors in the weak cooperative societies and banks to easily assimilate and spoil the party with the Reserve Bank of India (RBI) issuing guidelines on acquisition of urban co-operative banks by other commercial banks. As per the recent notificalion, the acquiring bank need not incur any loss arising out of the merger/transfer of assets and liabilities. The RBI said that the depositors with deposits of more than Rs I lakh would have to sacrifice their amount in proportion to the deposit erosion of the target (weak) bank.

For example, if the depositor has deposits worth Rs 5 lakh and if due to mismanagement of bank like bad asset quality, bad debts, if the deposit value is 60 per cent of the total deposits, then the depositor will only gel Rs 3 lakh and Rs 2 lakh will he evaporated. Bank deposits only upto Rs 1 lakha are protected by Deposit Insurance and Credit Guaraniee Corporation. These are all being done to safeguard the financial health of (he acquiring banks and for the smooth take-over or merger process. The 2010 circular in this regard has now been amended with a view  to ensure that the process of consolidation is undertaken in a transparent manner without affecting  the banking system as a whole.

"The Government had done all these to safeguard ihe financial and hanking system hul what about the [nnocenl depositors. All the depositors above Rs I lakh are at the great risk as their deposit amount can be wiped out depending on the weakness of the bank. Now. the depositors have to think many times before depositing their hard-earned money in co-operative sector. The depositors upto Rs I lakh are not affected as they are being insured." said senior CA Kailash Jogani. President of Nagpur Chamber of Commerce Limited (NCCL). while talking to The Hilavada.

Many depositors park their money in co-operative sector just to avoid a cumbersome procedure of tax deducted at source (IDS).

"The Government should change the TDS provisions and the co-operative sector should also be brought under TDS law so that innocent depositors may not get attracted towards weak co-operative sector," he suggested.The Government should also publicise the circular and make it known to each and every depositor the consequences of the guidelines on their deposits.

Generally, there are no strong network of co-operative banks as compared to public sector banks and private banks. "Depending upon the size of die co-operative banks, if two of three accounts become NPA  or bad accounts, then, a big amount of the share capital or deposits face erosion or make them weak and sick. The state of risk is very much in co-operative sector." he noted.

Secondly, plenty of co-operative banks and co-operative societies are managed by a group of politicians or political parties. The lending is done to a politician or under (he clout of directors who are associated with a Tom, Dick and Harry in political circles and may not have quality of lending as compared to public and private sector banks.

"In normal case, people are easily lured to the co-operative sector for sprinkling their deposits as the interest rate is one or two per cent more when compared with public and private sector banks." Jogani said. Reserve Bank of India should try to regulate interest rate of deposits so that the weak co-operative banks and societies do not float ponzi deposits to tide over bad loans given to some influential persons by violating the norms. The Government should try to take preliminary actions in the first stage itself, if any co-operative  bank or  society is becoming sick or unable to walk abreast with times so that the depositors' hard-earned money could be easily saved and they would not face enigma, he demanded.

Sources said that there were several co-operative banks and societies which were managed politically and their Ni'As had started piling up which was not a good omen tor the sound health of the co-operative sector. As is done in the public and private sector banks, the list of NPA accounts are published. The same should be done in co-operative banks also, sources demanded.

A senior person who did not wish to be named said that in public and private sectors, there were strong trade unions which due to political intervention was not possible in cooperative sector therefore some elements in co-operalive sector behaved as per their whims and fancies while disbursing loans.

"These elements have brought a bad name to the co-operative sector which is born because of the participation of the common man and helped large number of SHGs." he pointed out.

Posted in: News 2014