The Reserve Bank of India (RBI) has waived the limit imposed by Urban Co-operative Banks (UCBs) on maintaining Non-Statutory Liquidity Ratio (Non-SLR) for subscription to the capital of Umbrella Organization (UO). ) securities.
This exemption is expected to encourage UCBs to subscribe to and acquire UO’s capital. UO will be a Non-Banking Finance Company (NBFC).
As per RBI’s 2009 circular on ‘Investment in non-SLR securities by primary (urban) co-operative banks’, non-SLR investments will be limited to 10 per cent of the total deposits of the bank as on March 31 of the previous year.
Further, investments in unlisted securities should not exceed 10 per cent of total non-SLR investments at any point of time.
Non-SLR securities include investments in debentures/bonds, preference shares, equity shares, mutual fund units, commercial paper and securities issued by a securitization/reconstruction company.
Some of the functions that the UO can perform include liquidity management for UCBs (those with excess liquidity can park it with the UO, and those facing losses can draw funds from it), payment gateways and data centers. Establishing a common IT infrastructure including Can be shared by all banks, and can facilitate mergers in this area.
The RBI had in June 2019 given regulatory approval to the National Federation of Urban Co-operative Banks and Credit Societies Limited (NAFCUB) for the formation of a UO for the UCB sector. The approval inter alia allows UCBs to subscribe to the capital of UOs on a voluntary basis.
According to RBI, as of March-end 2021, there were 1,534 UCBs in the country.
According to the report of the Expert Committee on UCBs, UOs should provide cross-liquidity and capital support to UCBs, as and when required, as well as cloud services to facilitate IT-enabled operations by member banks.
“The provision of cloud services has several advantages. It will standardize the IT platform across all member UCBs and avoid the need for each UCB, either to have the skills or to hire services to maintain the IT infrastructure. for,” the report said.
Further, due to the aggregation being undertaken by the UO, it will provide all member banks the benefits of innovation on an ongoing basis, including benefiting from emerging advances on the IT front at a lower cost.
“UO is envisaged as an arrangement for small entities to achieve scale through networks. However, it can also emerge as a complete brand builder for the cooperative banking sector.
“While there may not be a regulatory mandate for large banks to consort with UOs, steps should be taken by the system to encourage large UCBs to adopt UOs,” the report said.
Published on
March 03, 2022